Manufacturing woes persists in South Africa

Manufacturing activity in South Africa continues to face challenges as the seasonally adjusted Absa Purchasing Managers’ Index (PMI) dropped to 45.3, marking its third consecutive contraction and the lowest level since August 2024. This decline suggests that the loss of momentum at the end of 2024 has persisted into the new year, raising concerns about the state of the manufacturing sector. To delve deeper into the factors contributing to this decline, CNBC Africa spoke with Sello Sekele, Economist at ABSA CIB. Sekele highlighted several key drivers behind the continued contraction, including the employment sub-index, inventory sub-index, and supplier delivery times sub-index. One of the most significant challenges is the sustained weakness in employment within the manufacturing sector. The employment index has fallen for the 10th consecutive month, indicating structural challenges that hinder the sector's recovery. With output levels still below pre-pandemic levels, the prospects for a meaningful increase in manufacturing employment remain bleak. Sekele emphasized that without a notable improvement in output, employment in the sector is unlikely to see significant growth. Sekele also addressed the issue of supply delivery times, noting that the drop in the index may actually reflect weak activity rather than improved supply chain performance. Manufacturers have continued to face challenges with supply chain issues, particularly related to disruptions in the Mozambican supply chain. This underscores the impact of weak demand on supply chain dynamics. The rising purchasing price index, driven by a weaker RAND and increasing oil prices, poses a concern for the manufacturing sector in 2025. However, Sekele suggested that producer prices are expected to remain relatively contained, with the potential for the RAND to appreciate and alleviate some inflationary pressures. By closely monitoring global economic conditions and the performance of key trading partners, South Africa can navigate the challenges posed by high input prices. Local economic conditions, including factors like load shedding, also have the potential to influence manufacturing activity in the year ahead. Sekele emphasized the importance of structural reforms and the need for confidence-boosting measures to stimulate sectoral growth. While uncertainties persist both domestically and internationally, addressing structural inefficiencies and promoting conducive business environments are critical for the manufacturing sector's resilience. Despite a marginal improvement in new sales orders and business activity, which remained in contractionary territory, underlying demand trends still raise concerns. Weakness in exports, particularly to major trading partners like Gemini and China, reflects broader global economic challenges. With key partners facing economic headwinds, South Africa's manufacturing sector is likely to feel the ripple effects through subdued output levels. In conclusion, the persisting challenges facing South Africa's manufacturing sector underscore the need for proactive measures to support growth and stability. By addressing structural hurdles, enhancing global competitiveness, and monitoring external economic dynamics, the sector can navigate the uncertainties ahead and chart a path towards recovery.