Manufacturing under threat
17 August 2012 | Malcolm Rees
This is according to renowned economist, Dr Iraj Abedian who spoke to CitiBusiness following the release of the Manufacturing Circle’s second quarter bulletin yesterday.
The survey showed a sharp decline in respondent’s confidence regarding the domestic economic and business conditions facing the sector.
This was evidenced by an increase in the number of those reporting poor to fragile business confidence to 43% in the second quarter from 33% the quarter before.
According to Abedian, the job creating potential of the sector dropped from an estimated 66 000 jobs in the first quarter to
44 000 in the second quarter
“Technically the manufacturing sector is losing momentum,” and this is “driven by two key factors: international demand is contracting (and) competition based on lower cost is increasing,” said Abedian.
While this is not to suggest that the sector is currently shedding jobs, “if the trend continues then the end of this process is shedding jobs,” he said.
Abedian believes that should we hope to reverse a trend which has seen the manufacturing industry shed some half-a-million jobs in the last decade, then South Africa will need to “make sure to use a package of policies not just a single policy”.
“In some areas it’s the cost base (with tax and rates needing to be adjusted), in other areas at a macro level we need to rethink our exchange rate volatility (and) in other areas we need to look at labour productivity.”
The second quarter’s survey was completed by 67 small‚ medium and large businesses as opposed to 49 that participated in the first quarter.
The proportion of surveyed firms considering business conditions to be stable reached 33% in the second quarter‚ down from 45% in the first quarter.
“The industry remains more vulnerable than in the previous quarter‚” Abedian‚ who is the chief executive of Pan African Investment and Research Services said.
The survey also indicated that the sector was losing jobs momentum.
Just over 60% of surveyed firms reported positive changes to their operating profits and cost of capital.
The recent interest rate reduction last month could further improve manufacturers’ cost of capital‚ according to Abedian.
“Their cost of capital has gone down by half a percent.
That makes a difference‚” Abedian
Most surveyed firms’ long-term outlook for the next 24 months was for business confidence to likely remain stable.
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