The winter of South Africa’s discontent has left the manufacturing sector out in the cold, if the latest Absa Purchasing Managers’ Index (PMI) is anything to go by. Based on detailed monthly surveys of purchasing managers in South African manufacturing, the Absa PMI is a key barometer of the sector’s health.
July’s topple took the index to 43.5, which is deeply negative territory as 50 is the neutral level.
“July was a particularly challenging month, with the broader economy and the manufacturing sector hit by several supply-side and confidence shocks. These include a severe Covid-19 third wave, the associated harsher adjusted level 4 lockdown restrictions for a large part of the month, as well as the unprecedented looting/arson attacks in KwaZulu-Natal (KZN) and parts of Gauteng. The riots disrupted supply chains, industrial output and the demand for manufactured goods,” Absa said in a statement.
“In addition, the manufacturing sector may also have been negatively impacted by the recent cyber-attack on Transnet, which saw operations at SA’s major ports temporarily grind to a halt. The July PMI reading suggests that these factors vastly outweighed the positive spillovers to parts of the manufacturing sector from robust SA mining sector activity amid elevated commodity prices.”
The business activity sub-index fell to its second-lowest level ever, topped only by the trough hit in April 2020, the first month of hard lockdown. The bottom fell out of it as it sank almost 30 points, an unprecedented decline, to 26.6.
“The riots, particularly in KZN, could be equated to the level 5 hard lockdown in April 2020, with even those firms not directly affected by the looting forced to close amid security concerns. One PMI respondent remarked that they effectively lost two weeks of output,” Absa said.
The employment index also fell back below 50, suggesting that the manufacturing sector is currently not a source of badly-needed job creation.
The latest Absa PMI also indicates that the third quarter of 2021 got off to a very rocky economic start in July. Other data sets for the month which will come out down the road, notably manufacturing production, will likely confirm this is the case. Expect gross domestic product (GDP) growth forecasts for the entire year to get whittled down even further.
And if domestic purchasing managers are taking such a dim view of things, imagine the perspective of the foreign investors whom President Cyril Ramaphosa is desperate to woo. Who would want to commit outside capital to such a pile of goo? DM/BM