The productive sectors in South Africa ended the third quarter of 2023 on a negative footing as both manufacturing and mining output significantly declined as the country suffered the worst power cuts on record during September.
This could signal the beginning of a negative contribution to the country’s economic growth for the next quarter after gross domestic product (GDP) rose by 0.6% in the second quarter.
Data from Statistics South Africa (Stats SA) yesterday showed that manufacturing production slid by 4.3% year-on-year in September, after five consecutive months of growth in the sector.
This manufacturing print was more than an expected 2.6% slump following a downwardly revised 1.5% increase in July, and was also the steepest decline in industrial activity since last December.
Stats SA director of industry statistics Nicolai Claassen said that output fell significantly for food and beverages, motor vehicles, parts and accessories and other transport equipment.
“Eight of the 10 manufacturing divisions reported negative growth rates over this period, with food and beverages and automotive products the key downward drivers,” Claassen said.
“Manufacturers in food and beverages recorded a year-on-year decline of 10.5%. Output in the automotive division was down by 19.7% over the same period.
“Three manufacturing divisions recorded positive growth in September. These include petroleum, chemical, rubber and plastic products, electric machinery and metals and machinery products.”
Seasonally adjusted manufacturing production shrank by 1.2% in the third quarter compared with the second quarter.
On a seasonally adjusted monthly basis, manufacturing output fell by 0.5% in September, after a downwardly revised 0.4% increase in July.
Eskom’s generation capacity deteriorated in September and the power utility was forced to implement higher stages of rotational load shedding after making it out of the winter months better than expected.
Investec economist Lara Hodes said advance indications provided by the October’s headline purchasing managers’ index (PMI) reading showed that the gauge moved further into contractionary territory, evincing a weakening in South Africa’s manufacturing sector at the start of the fourth quarter.
Hodes also said electricity production and consumption readings were down 6.1% and 5.6% year-to-date by the end of September, negatively impacting the productive sectors.
“Indeed, South Africa’s numerous domestic challenges including electricity supply and logistical constraints continue to impede activity,” Hodes said.
“Additionally, the subdued global manufacturing environment continues to undermine export potential.”
Meanwhile, Stats SA said that mining production shrank by 1.9% from a year ago in September, following a downwardly revised 2% fall in July.
This marked the third consecutive month of receding mining activity, largely due to lower output from diamonds, other metallic minerals, and manganese ore.
Gold production moderated by 0.1% from a year ago following a downwardly revised 0.5% increase in August, marking the first decline in gold mining since December 2022 amid fading low-base effects.
Stats SA's principal survey statistician Juan-Pierre Terblanche said diamonds recorded the largest decrease, contracting by 61.4% year-on-year while copper production was also weaker in September.
“On a positive side, coal, platinum group metals, iron ore, nickel and chromium ore recorded a stronger month,” Terblanche said.
On a seasonally adjusted monthly basis, mining production decreased by 0.3% in September, following an upwardly revised 1.2% rise in the prior month.
Mining plays a critical role in the South African economy, which is currently undergoing slower-than-expected growth.
However, the sector faces various challenges such as currency fluctuations, high inflation, power blackouts, and logistical issues in mineral exports due to the deterioration of road, rail, and port infrastructure.
The fragile global environment, especially the subdued manufacturing sector has weighed heavily on commodity demand, with the World Bank’s metals and minerals index down more than 13.0% in the year-to-date to end October.
Hodes said the subdued global economic environment, with a slower-than-projected rebound in demand from China, has weighed on diamond sales.
“Tax proceeds from the mining sector remain a significant source of revenue for the fiscus,” Hodes said.
“While the decline in commodity prices is largely influenced by global factors outside our control, costs can be significantly reduced, and operational efficiencies improved by urgently resolving the electricity supply and logistics crises in the country.
BUSINESS REPORT