Business Maverick

MANUFACTURING SECTOR

An April without rolling blackouts lifts Absa PMI back into positive terrain

An April without rolling blackouts lifts Absa PMI back into positive terrain

The Absa Purchasing Managers' Index, a key measure of confidence in South Africa’s manufacturing sector, rose briskly back into positive territory in April – a month that was notable for its lack of rolling blackouts. Hopefully, that trend will not prove to be an April fools' prank.

The Absa Purchasing Managers’ Index (PMI) rose almost five points in April to 54 from 49.2 in March, bringing it back into positive territory as the range is zero to 100. In the lingo used by economists, this means it is in “expansionary terrain”, signalling that the manufacturing sector is growing. 

It’s also the highest reading so far in 2024 and one of only two months – February being the other – when it has been above the neutral 50 mark this year. 

“In all, the survey results reflect a good start to the second quarter of 2024,” Absa said. “The rebound comes from improved business activity, while better domestic demand filtered through to higher new sales orders.”

“A full month of no load shedding was likely positive for sustained business activity.”

That is an understatement of note. The power crunch has been the biggest constraint on the manufacturing sector and economic growth more widely. A month without rolling blackouts was like an early Christmas present. 

Eskom has pointed to improvements in its ageing power station fleet under the Energy Action Plan and the generation recovery plan as the key reasons for its current good run. But the private sector’s embrace of renewables and a decline in demand are also seen as key factors behind the much-improved performance. 

The state-run power utility has cautioned that power cuts are likely to return in winter. 

Opposition parties and other observers remain suspicious of the timing ahead of the 29 May elections, seeing an April fool’s political prank. 

So, it is an open question whether the relative optimism reflected in the April PMI reading can be sustained. It’s also worth noting that at 54, it’s hardly shooting the lights out, even as it has been lifted by the lights staying on. 

It is encouraging that the business activity sub-index shot up to 57.2 in April – its highest level in more than two years – from a lowly 44.5 in March. 

But the signals are also mixed, with the employment index falling back below 50. This suggests that the growing optimism has not led to any significant job creation in the manufacturing sector. 

“We do not foresee any meaningful improvement for the South African economy in the near term as structural constraints together with a high-cost environment weigh on growth prospects. Consequently, businesses are not expected to expand their operations and hire more people rapidly,” Jee-A van der Linde, senior economist at Oxford Economics Africa, said in a note on the data. 

The power supply needs to be reliable for more than one month to spur job creation and get the economy growing at a faster rate. But at least it’s a step in the right direction. DM

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