Nervous future for damaged manufacturing sector

"There seems to be an immense insensitivity and lack of concern that the effect of input costs, especially electricity, has on South African manufacturers", founder and chief executive of Pan-African Capital Holdings, Dr Iraj Abedian, said at the Manufacturing Circle 2012 third quarter bulletin and survey results on Thursday.

The survey is compiled by the Pan-African Investment and Research Services (Pairs) on behalf of the Manufacturing Circle. It aims to reflect business and economic conditions in the local manufacturing sector.

South African export manufacturers across various industries, including Arcelor Mittal, Saab Grintek, Altron and others are part of the circle.

The survey was conducted on small, medium and large scale manufacturers, which was to ensure a fair reflection of the concerns of the industry on a whole. This quarter was "marred by damaging industrial action, record low PMI figures, declines in industrial output and the announcement of Eskom's Multi-Year Price Determination 3 (MYPD) proposals," said the Manufacturing Circle.

Earlier this month Eskom requested a five-year determination with a 16% tariff increase, resulting in the cost of 128 cents per kilowatt hour compared to the current 61 cents.

The Manufacturing Circle stated in its review that "Brazil, at almost the same time, announced discounts in electricity for industrial users of almost 30%".

Eskom has also been in the spotlight this year after it was reported that they have been subsidising BHP Biliton for their electricity tariffs, stating that mining and petroleum giant only pays a tenth of the price of electricity normally charged to consumers.

The survey confirmed that input costs for manufacturers are rising, and this is one of their main concerns.

However, manufacturing employment increased in the third quarter in comparison to the second. And despite the high input costs, employment in the sector has not decreased. Domestic sales were also higher in the third quarter than global sales. Abedain said that this "was because of the fluctuation of the rand, poor market conditions and increased tariffs and duties".

Manufacturers now see Africa as a new market in which to expand in the coming years, which will boost opportunities.

Abedian said that cheap imports, a crisis in the eurozone, high domestic consumer debt and high production costs are the sectors main concerns.

The mining and manufacturing sectors are also closely linked, and the impact of the mining strike will still be felt by the manufacturing sector.  "The next two quarters will give a reflection of how the mining strikes have affected the manufacturing industry. Give it three to six months to see the full effects," said Abedian.

The decline in investment in mining was also noted as a negative impact for manufacturing.

Cheap imports have also been a concern, but Abedian said that the focus must be put on domestic issues such as high input for manufacturers, and that the issue of cheap imports can be dealt with in counter methods.

China is currently one of South Africa's main importers. Abedian said, "We are positive that three years from now, the Chinese will be less of a threat to South African manufacturers."

Skills development was highlighted as a necessity, citing government and business as important players in ensuring that practical skills are included in qualifications.

"The lack of skills is one of the major issues that the manufacturing industry acknowledges. The country is not focused on motivating young people on the level of merit, but more on certification. There is a very big difference between certified and being skilled," he said.

On a whole, majority of the manufacturers who participated in the survey revealed a fragile and poor business confidence.

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