STANLIB > Economic Focus > SA's manufacturing recovery remains fragile and uneven
SA's manufacturing recovery remains fragile and uneven
Our recent update on manufacturing activity in Q1 2011 (17 May 2011) highlighted that although manufacturing activity is well out of recession, and achieved a solid growth in Q1 2011, the overall pace of the recovery remains fragile.
This fragility is reflected in the following facts:
- current level of activity remains more than 10% below the average level of output achieved in 2007/2008;
- capacity utilisation is around 6 percentage below the 2005 to 2008 level;
- employment levels in manufacturing are still depressed;
- strike activity remains problematic and extremely disruptive;
- manufactured exports remain subdued;
- manufactured imports (especially textiles and clothing), helped by the strong Rand, are eroding the local production base; and
- the pace of recovery is extremely uneven across the major manufacturing industry sub-sectors.
An example of the divergence in the performance of manufacturing sub-sectors is highlighted in the table below. While the recovery in manufacturing has been helped by the growth in vehicle production (off an exceptionally low base and three years of recession) as well as an increase in petroleum output (which forms part of the broader chemical sector), many other key sectors remain extremely depressed including textiles and clothing, glass and cement production as well as food production. The following are the current year-on-year growth rates for the 10 major sub-sectors within manufacturing.
| Manufacturing sector
| Current sector weight
| Current year-on year growth rate |
| Textiles and clothing |
4.9% |
-3.4% |
| Food and beverages |
15.4% |
0.8% |
| Basic iron and steel |
22.9% |
0.9% |
| Glass and non-metallic mineral products |
4.8% |
1.0% |
| Wood, paper and printing |
10.2% |
3.5% |
| Petroleum, chemicals, rubber and plastics |
22.1% |
7.1% |
| Furniture and other manufacturing |
5.2% |
7.3% |
| Electrical machinery |
2.5% |
8.9% |
| Communication equipment |
1.1% |
10.0% |
| Motor vehicles and parts |
10.9% |
15.4% |
| Total |
100% |
4.6% |
Overall, while the improvement in the manufacturing sector, since the low in mid-2009, has supported the recovery in SA’s GDP, the sector is still not back at pre-crisis levels of output and at the current rate of growth will take at least another two years to achieve peak output levels.
Crucially, there are still very few fixed investment expansion plans within the manufacturing sector and employment levels are (according to Stats SA) 185 000 below the peak level of employment achieved in early 2008. Hopefully, the various initiatives enacted recently by the Department of Trade and Industry coupled with continued low interest rates, and the ongoing recovery in the broader economy will support the continued expansion of the sector. But clearly SA’s manufacturing sector lacks a comprehensive set of initiatives/drivers/incentives that will ensure a sustained and vibrant expansion over the coming years.