Business Maverick


Robust SA June manufacturing, mining data underscore private power generation, hold promise for Q2 growth

Robust SA June manufacturing, mining data underscore private power generation, hold promise for Q2 growth
A mine worker walks through an underground tunnel at a gold mine in Westonaria, South Africa, on 9 March 2017. (Photo: Waldo Swiegers / Bloomberg via Getty Images) | A worker drives a forklift truck in a warehouse in Springs, South Africa, on 13 August 2020. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

Relatively robust mining and manufacturing data for June suggest that South Africa’s economy probably expanded again in the second quarter (Q2) though it’s still not shooting the lights out. The data are also a reflection of fewer power cuts during the month, a state of affairs that partly underscores how the private sector has stepped up to the generation plate.

The June mining and manufacturing data released on Thursday show that the thaw in power cuts as winter set in helped to underpin industrial activity.  

Mining production rose by 1.1% year on year in June after declining by 0.7% in May. On a monthly basis, output increased by 1.3%.  

The spurt in manufacturing was even more impressive. Production in the sector increased by 5.5% year on year in June and 1.2% on a monthly basis.  

And in the three months to the end of June on a seasonally adjusted basis compared with the previous three months, mining production rose by 1.5% and manufacturing output by 2.3%. This means that both sectors will make a positive contribution to the Q2 gross domestic product number and suggest that the economy probably grew again in the period after narrowly dodging a recession in Q1.  

The rand bounced back a bit on news of the data — both sets exceeded market expectations — rising to 18.74/dollar by mid-afternoon on Thursday from 18.99/dollar early in the day. If the readings had been bleak, it would almost certainly have stumbled past 19/dollar.  

A key factor in this industrial performance was the reduction in rolling blackouts during the month, and this is partly explained by the surge in self-generation by businesses and households in response to the energy crisis.  

According to Eskom data, the private sector has installed about 4,400MW of its own capacity, reducing the need for what it refers to as “load shedding” to prevent the national grid from collapsing.  

Eskom is also burning diesel like it’s going out of style and the weather in June was relatively mild. 

It all adds up to an economy that probably managed to eke out some modest growth in Q2 as the prospect of more intense power cuts did not materialise in June.  

“We have seen increased private-sector electricity generation, and I think we will see modest growth in the second quarter but it won’t be anything to write home about,” Jee-A van der Linde, senior economist at Oxford Economics Africa, told Daily Maverick

South Africa still faces plenty of economic headwinds even as winter slowly yields to spring. The intensity of the power cuts cranked up again in July, and the best that can be said is that the situation would have been worse were it not for solar panels piling up on private rooftops.  

The Absa Purchasing Managers’ Index (PMI) — a gauge of confidence in the manufacturing sector — declined slightly in July to 47.3 index points from 47.6 in June, suggesting that Q3 got off to a faltering start.  

“After what looks to have been a decent second quarter, at least in terms of quarterly growth momentum, the manufacturing sector had a setback at the start of the third quarter,” Absa said last week.  

“In a particularly stark move, the seasonally adjusted business activity index tanked by almost 11 points. Besides a ramp-up of load shedding intensity in July after the unexpected reprieve in June, it is not immediately clear what drove the large decline,” Absa said.  

The mining sector also still has challenges galore. 

“Despite the sustained quarterly growth momentum, the mining sector remains challenged by load shedding and logistics constraints, as well as moderating external demand. Commodity prices have come down relative to last year, weighing on earnings and the mining sector’s contribution to government tax revenue collection,” Thanda Sithole, FNB senior economist, said in a note on the data.  

The El Niño weather pattern may also bring drought to South Africa, though decent moisture levels after three seasons of its opposite, La Niña, may mitigate that.  

The bottom line is that in Q2 the economy may have fared better than many had feared, but it’s still hardly out of the woods. DM


Comments - Please in order to comment.

Please peer review 3 community comments before your comment can be posted


This article is free to read.

Sign up for free or sign in to continue reading.

Unlike our competitors, we don’t force you to pay to read the news but we do need your email address to make your experience better.

Nearly there! Create a password to finish signing up with us:

Please enter your password or get a sign in link if you’ve forgotten

Open Sesame! Thanks for signing up.

We would like our readers to start paying for Daily Maverick...

…but we are not going to force you to. Over 10 million users come to us each month for the news. We have not put it behind a paywall because the truth should not be a luxury.

Instead we ask our readers who can afford to contribute, even a small amount each month, to do so.

If you appreciate it and want to see us keep going then please consider contributing whatever you can.

Support Daily Maverick→
Payment options

Become a Maverick Insider

This could have been a paywall

On another site this would have been a paywall. Maverick Insider keeps our content free for all.

Become an Insider
Elections24 Newsletter Banner

On May 29 2024, South Africans will make their mark in another way.

Get your exclusive, in-depth Election 2024 newsletter curated by Ferial Haffajee delivered straight to your inbox.