South African manufacturing confidence low

South African manufacturing sentiment has remained unchanged at 26 points after two consecutive quarterly declines, with Absa's fourth-quarter manufacturing survey revealing a concerning trend. Despite this quarter being a peak sales period for South African manufacturers, confidence levels are low. Justin Schmidt, Head of Manufacturing Sector at Absa Relationship Banking, discussed the challenges faced in the sector during a recent interview with CNBC Africa. Schmidt highlighted the stop-start nature of the industry, mentioning factors such as load shedding, ongoing strikes, and water shortages as persistent challenges. The unpredictability of these external factors makes it difficult for manufacturers to plan for sustained growth. The recent move to stage six load shedding further adds to the uncertainty, raising questions about the outlook for the sector in the coming months. While the current period remains challenging, Schmidt pointed out that manufacturers have adapted to deal with load shedding by investing in alternative power sources like generators and solar batteries. Despite the increased costs associated with these measures, there is a glimmer of hope as demonstrated by the recent GDP figures that surprised analysts. The resilience of the sector during tough times showcases a willingness to overcome obstacles and drive growth. One of the key risks identified by Schmidt is the inability of manufacturers to pass on increased production costs to consumers. This, coupled with higher diesel costs, puts pressure on margins and cash flows. The need to manage cash flow effectively becomes critical during peak seasons when inventory costs rise. Schmidt emphasized the importance of tight financial management to navigate these challenges successfully. The survey also highlighted some positive trends, including a slight increase in CapEx compared to the previous year. This suggests that some manufacturers are investing in efficiency measures and expansion, particularly in sectors like automotive and beverage manufacturing. While overall sentiment remains cautious, there are pockets of optimism driven by strategic investments in equipment and technologies. Looking ahead to 2023, Schmidt expressed concerns about interest rate constraints and export market uncertainties. Manufacturers are wary of global economic pressures and the lack of visibility on future capital expenditures. The potential for further interest rate hikes could exacerbate existing challenges and dampen growth prospects. In conclusion, while the manufacturing sector in South Africa faces several headwinds, there are signs of resilience and adaptation. The ability to innovate, invest strategically, and manage operational risks will be crucial for navigating the uncertain economic landscape. With a mix of caution and optimism, industry players are gearing up to tackle the challenges and seize opportunities for growth in the year ahead.