Just how bad is S.Africa's economy?


The economic data points that came from South Africa last week give no reason to be optimistic.

On Tuesday, January 12, Statistics South Africa (StatsSA) reported that local manufacturing production declined by more than expected in November: it fell by 1.2% m-o-m on a seasonally adjusted basis, on the back of a 1.7% m-o-m decline in October. Compared with November 2014, manufacturing output was down 1% y-o-y.

A drop in the output of basic iron & steel, non-ferrous metal products, metal products & machinery was the main negative contributor to the annual decline seen in November, trimming 1.3 percentage points off the headline reading. In fact, the only major component group to record an annual increase in output volumes was food & beverages, which rose 2.5% y-o-y.


Cumulative manufacturing production in the first eleven months of 2015 is flat y-o-y. As such, 2015 is en route to becoming the weakest year for the manufacturing sector since the recession of 2009.

Manufacturing reports have been downbeat for quite some time and have scarcely looked better since the platinum strike ended in June 2014. Soft demand, both domestically and from abroad, and a mining sector struggling to keep its head above water suggest that the outlook for the manufacturing sector will not change for the better anytime soon.

The next announcement from StatsSA was less bleak: the volume of mining production climbed by 2.4% m-o-m in November on a seasonally adjusted basis. Output of gold and iron ore rose by 5.3% m-o-m, while production of coal was 9.3% m-o-m higher in November.

Despite these high points, production of diamonds, manganese ore and copper declined sharply, and, despite the monthly increase, mining production was still marginally lower in November compared to the same month the previous year.

Iron and manganese ore were among the largest negative contributors, with year-on-year output of these minerals falling by 20.4% and 14.7% respectively. The index for platinum group metals (PGMs) was up 24.9% y-o-y in November, though this must be seen in the context of a slow ramp-up in output during the second half of 2014 following the devastative five-month platinum strike.

When falling commodity prices and rising input costs are taken into consideration, the mining sector is in a bad way. In fact, StatsSA reported that mineral sales at current prices were 2.1% y-o-y lower during the first 10 months of 2015 despite substantial depreciation of the exchange rate. Mining companies are battling to remain profitable and thus we expect more shafts to be mothballed in the coming months.

On Thursday, January 14, the Bureau for Economic Research (BER) released the December edition of the Barclays Purchasing Managers’ Index (PMI). The seasonally-adjusted PMI ticked up from a six-year low of 43.3 in November to 45.55 in December. In line with the slight improvement in business activity, the employment index rebounded by almost six points to 46.5, though this marks the 21st consecutive negative reading.

But these smalls uptick were small comfort. December marked the eighth month last year with a sub-50 point print on the PMI – which suggests a contraction in factory activity – and the fifth on the trot.

The outlook for the manufacturing sector remains downbeat, with the expected business conditions index stuck below the 50-point neutral level for the second month running. The PMI suggests the manufacturing sector contracted in the final quarter of last year, which does not bode well for overall GDP growth.

While electricity supply issues were to blame for the weak performance during the first half of the year, weak demand – both locally and from abroad – is to blame for the manufacturing sector not being able to gain traction in recent months. Even though the weak exchange rate provides some export competitiveness, we expect demand conditions to remain constrained going into 2016.

Perhaps the most serious news was the announcement by US President Barack Obama on Monday, January 11, that the application of duty-free treatment for all African Growth and Opportunity Act (Agoa)-eligible goods in the agricultural sector from South Africa would be suspended from March 15, 2016.

Contradicting South Africa’s Trade and Industry Minister Rob Davies, Obama said that the country was “not meeting the requirements described in the Act […] and that suspending the application of duty-free treatment to certain goods would be more effective in promoting compliance.”

We are confident that the suspension will ultimately be avoided, but this game of chicken over the poultry trade has dragged on too long, with the protection of a few struggling industries taking precedence over the interests of the broader agricultural sector.