Ina Opperman

By Ina Opperman

Business Journalist

Mining and manufacturing did better in March, but will this help SA’s economy?

Mining and manufacturing performed better, but rolling blackouts mean it's unlikely to contribute to any meaningful economic growth.

Mining and manufacturing did better in March, but this does not mean much in the greater economic scheme although the data for these two sectors who that South Africa escaped a technical recession in the first quarter of 2023.

The Bureau for Economic Research (BER) at Stellenbosch University says manufacturing production performed notably better than expected in March but compared to last year manufacturing output still declined by 1.1%, although this improved from a 5.6% decrease in February.

Food and beverages output increased by 5.7% and contributed 1.2 percentage points to gross domestic product (GDP), while motor vehicles increased by 5.6% and contributed 0.6% percentage points.

The biggest drag came from petrochemicals (-8.8%; -2%pts) and clothing and textiles (-12.1%; -0.6%pts). Important for quarterly GDP dynamics, amid less intense load shedding, seasonally adjusted output increased by 4% March, following a 1.3% decline in February.

The BER says the sector will contribute positively to GDP in the first quarter as real manufacturing production increased by 1.4% compared to the previous quarter. “Unfortunately, the April Absa PMI suggests the sector experienced a tough start to the second quarter.”

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Factory output still down by 3.7%

Economic research group Oxford Economics Africa the 4.0% uptick in seasonally adjusted manufacturing production points to a positive contribution to overall GDP growth by the manufacturing sector, but factory output is still down by 3.7% compared to a year ago and highlights the impact of intensified power outages during 2023.

“We believe that manufacturers will become progressively resilient to the effects of rolling blackouts, as companies reduce their energy dependence on embattled Eskom.”

The group says although the manufacturing sector likely contributed positively to real GDP growth during the first quarter, there is no way of getting around the fact that South Africa’s manufacturing sector is taking serious strain.

“Incessant power outages are especially damaging to food producers, which will hold serious implications for food price inflation this year. A massive push in private-sector electricity generation is seeing businesses across South Africa scurry to become less dependent on Eskom.”

The group also points out that the Absa PMI increased to 49.8 index points in April from 48.1 in March, but despite the improvement, the index failed to edge back above the neutral 50-point level. In addition, the next batch of manufacturing output data will see annual comparisons become distorted after KwaZulu-Natal’s industrial sector was hit by devastating flooding in April 2022.”

ALSO READ: Mining and manufacturing output higher in January but lower than a year ago

Mining output down in March

Mining output also beat the consensus forecast and declined by ‘just’ 2.6% in March compared to March 2022, following a downwardly revised 7.6% drop in February compared to 2022. Diamonds remained one of the biggest drags, decreasing by 54.7% and contributing -3.3% percentage points together with platinum group minerals that decrease by 9.1% and added -2.2% percentage points.

Gold increased by 21.6% and contributed 2.8% percentage points and manganese ore by 23.1%, contributing 1.4% percentage points. On a positive note, production increased by 6.5% compared to the previous month in March, resulting in a 1% gain in the first quarter compared to the fourth quarter.

Oxford Economics Africa points out that mining output was still down 4.2% compared to last year, with the sector not posting positive annual production growth since January 2022. “The domestic mining industry is in decline, undermined by a myriad of factors which have made South Africa a less attractive investment destination of late.”

After construction, mining is the second-worst performing sector, remaining 8.1% smaller compared to pre-pandemic levels. To make matters worse, the Canadian-based Fraser Institute’s latest annual survey of mining companies showed South Africa was once again among the world’s least attractive investment destinations when it comes to mining, with a score of 44.76 points and ranking 57th out of 62 jurisdictions in the overall investment attractiveness index.

“The seasonally adjusted mining production figures for March were better than expected but mean little in the grand scheme of things. Total mining production contracted by 7.1% in 2022, compared with an 11.6% uptick in 2021 and a slump of 10.4% in 2020. Scheduled power outages have not let up since the start of 2023, which forebodes a depressing outlook for mining production this year.”

ALSO READ: Unlikely that slightly improved BETI signals economic recovery

SA escaped technical recession in first quarter

The BER says the mild quarterly expansions of the manufacturing and mining production in the first quarter add to its long-standing assumption that the country may have escaped a technical recession in the first quarter, although growth likely remained very poor.

“Economic growth in South Africa has become extremely volatile after power outages intensified. The post-pandemic recovery has been slow and uneven, with more than half of South Africa’s economic industries yet to recover to pre-pandemic levels. The electricity crisis is contributing to uneven economic growth via higher energy-related capital imports as the private sector aims to secure electricity generation capacity.”

The BER estimates that the economy grew by 0.5% in the first quarter but says that ongoing power outages and broad infrastructure failures mean the South African economy is not likely to produce meaningful economic growth this year. The economy is forecast to grow by just 0.6% in 2023.

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