Ina Opperman

By Ina Opperman

Business Journalist

Politics triggers business confidence: Manufacturing output up in SA

Election time is usually a volatile time for economies. The South African economy did not escape the effect of politics in May.

Manufacturing output was up more than expected in April, although it is doubtful how long it will last, while the politics around the election affected business confidence in May.

The rebound in South Africa’s seasonally adjusted manufacturing production in April was probably stronger than most would have anticipated, Jee-A Van der Linde, senior economist at Oxford Economics Africa, says.

“However, it remains to be seen whether this momentum will persist throughout the second quarter. Loadshedding reprieve is helping, but demand for manufactured goods remains weak,” says Van der Linde.

Seasonally adjusted manufacturing production increased sharply by 5.2% in April compared to the 2.5% decrease recorded during March compared to February.

Manufacturing production increased by 5.3% compared to a year ago and improved across the board after the previous month’s broad-based 6.5% decline compared to March 2023.

However, Van der Linde says, seasonally adjusted output was down 0.5% during the three months ended April 2024 compared to the previous three months. Motor vehicles, parts, accessories and other transport equipment (-9.1% and contributing -0.9 percentage points) and textiles, clothing, leather and footwear (-5.1% and contributing -0.2 percentage points) were the main laggards.

This chart shows how the load-shedding reprieve sees factories ramp up output at the start of the second quarter

ALSO READ: Manufacturing output falls sharply and unexpectedly in March

Uptick in manufacturing in April good starting point for second quarter

Van der Linde says the uptick in manufacturing output for April sets a better starting point for the second quarter of 2024. “Although no load shedding was implemented during April, overall demand for manufactured goods is still fundamentally weak and it remains to be seen whether this momentum carried over to May as the manufacturing PMI fell below the neutral 50 level in that month.”

In addition, he says, the risk of sporadic load shedding remains alive with South Africa having recently entered its winter period, which usually results in increased electricity demand. “Our base case remains for the South African economy to grow by 0.7% in 2024.”

The election and the politics around it also affected the business climate, according to the South African Chamber of Commerce and Industry (SACCI) Business Confidence Index.

“The advent and outcome of the national and provincial elections near the end of May 2024 had a notable effect on business confidence during April and May 2024,” the organisation said in a statement.

ALSO READ: Business confidence improves in the second quarter, but businesses still gloomy

Business confidence dipped in May

The South African Chamber of Commerce and Industry (SACCI) Business Confidence Index dipped by 5.8 points in April 2024 to 108.9 and further to 107.8 in May 2024, a decline of 6.9 points over the two months. SACCI said the formation of the new government, given the election results, will largely determine the future course of business confidence.

Three sub-indices negatively affected the business climate in May 2024, outweighing the three neutral and eight minor positive effects of the other sub-indices In the short term (month-to-month).

The decrease in overseas tourists and the decline in merchandise import volumes particularly weighed on the index in May, while the main but modest positive impacts came from merchandise export volumes and new vehicle sales, SACCI says.

Over the year to May 2024, the index increased by 0.9 points to 107.8 from 106.9 in May 2023. SACCI says inward tourism and the improved rand exchange rate had the largest positive year-on-year impact on the index in May.

“Positive effects also came from the higher global price of precious metals and lower inflation. The almost unchanged year-on-year index suggests a probable regressive business climate due to possible unwarranted political developments. Political developments are of special concern given their potential effect on economic policy and the business climate,” adds SACCI.

Concern about real economic growth slipping below 1%

SACCI says it also notes with concern that real economic growth slipped to below 1% at 0.5% year-on-year in the first quarter of 2024, after measuring 1.4% year-on-year in the fourth quarter of 2023. The primary sector output dipped by 1.7% year-on-year in the first quarter of 2024, while the secondary sector output declined by 1.4% year-on-year, but the tertiary sector output increased by 1.1% year-on-year.

“The recent parliamentary and provincial elections had an insightful outcome, implying a change in the political guard. This adjustment could have unwarranted and unintended consequences for the economy and the well-being of South African citizens. Political stability and policy certainty will be fundamental assurances that drive business and investor sentiment.”

ALSO READ: 7 out of 10 businesses dissatisfied with business conditions

South Africa has an opportunity and duty to set the economy on the road to recovery through responsible and accountable governance, SACCI says.

“The public and private sectors, as well as citizens, should exercise their respective duties and abilities in line with the constitution and sound economic values and perspectives. The political deviousness of parties during the election process should give way to pragmatism and reality that serve future economic improvement, performance, prosperity and inclusiveness” says SACCI.

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