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Companies cautious about risks

The slowdown in the global economy and the effect of cheaply manufactured goods on the local manufacturing sector are expected to continue to affect production, manufacturers have warned in a report. It was compiled by the Manufacturing Circle, an industry organisation comprising a number of South Africa’s leading manufacturing companies, including exporters and local companies competing with cheap imports.

The majority of respondents quoted in the report expected business confidence to remain stable in the coming six to 12 months and 48% of them predicted “stable” business confidence over the next two years.

But there were several concerns. Shortages of water, electricity and raw materials, increasing transport and energy costs, high labour costs, an appreciating rand, uncertainty over the world economy and a continuing slowdown, and the mediocre delivery of municipal services presented downside risks to their outlook. Some, however, were positive about the implementation of the government’s infrastructure investment drive.

Job losses
Employment cuts in the sector accounted for the second-highest number of job losses in the local economy – 35% of surveyed firms reported job losses compared to 27% in the previous quarter.

The bulletin said reasons for the job cuts included the increased tendency by municipalities to procure cheaper imported goods, seasonal effects, high fixed costs, unfair trading practices, sluggish vehicles sales in Europe and increased investment in less labour-intensive assets as a result of the uncompetitive costs of labour and lower production.

The report said that policy and administration in small manufacturing needed to be reformed and could add value and create employment opportunities.
 
Although small-scale manufacturing has proved to be fairly resilient in the difficult market, with 42% of respondents growing their staff over the past five years, the report said the country was “in very real danger of losing its small-scale manufacturing base”.

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