Weak consumer demand, elevated input costs and even industrial action may lead to job cuts over the next year, says an employer organisation.
The odds are stacked against the manufacturing sector which, as a result of weak consumer demand, elevated input costs and even industrial action in the platinum industry, expects job cuts over the next year.
Employer organisation the Manufacturing Circle on Thursday released the results of a survey which showed the short-term outlook for manufacturing conditions to be bleak, with 74% of respondents indicating employment would either be kept the same or job cuts would be likely over the next 12 months as the domestic economy is expected to continue to slow.
The sector has already lost jobs in the second quarter of this year. Statistics South Africa measured a loss of 59 000 quarter-on-quarter, or a loss of 93 000 if compared with the same period in 2013.
Manufacturing production contracted in the second quarter of the year as measured by the Kagiso purchasing managers’ index (PMI), which fell to 46.1 index points versus 50.8 points in the second quarter of 2013. A rating of 50 points or more indicates expansion in the sector.
‘Reasons for the weak outlook’
“Key reasons for the weak outlook include uncertainty in the labour market, elevated wage and input costs, competition from imported goods, low productivity of labour, a lack of adequate skills, and faltering consumer spending,” the organisation’s executive director Coenraad Bezuidenhout said in a statement.
“Shortages of adequate skills and raw materials, electricity and water disruption as well as a fall in labour productivity characterised supply conditions experienced by the survey participants in in the second quarter of 2014,” he said.
The survey found that profitability in the second quarter of 2014 was strained as result of these factors and others, including industrial action in the platinum industry.
“Relative to the outcome in the second quarter of 2013 domestic and export demand for South African manufactured goods performed dismally in the second quarter of 2014,” Bezuidenhout said. “Among the factors that affected demand are: a number of construction projects reaching their terminal phase over the quarter, the poor performance of the domestic motor industry performance as well as increased competition on the global market.”
The government’s local procurement programme has been deemed important to the growth of manufacturing operations, but the majority of respondents said they did not benefit from the programme in the second quarter of this year.