Sluggish demand weighs on industrial investment

Local manufacturers are showing resilience, but the Manufacturing Circle’s third-quarter investment tracker released on Wednesday reflects a decline in investment in the sector.

The tracker fell five index points to 60, indicating contraction in investment, specifically in plant and equipment, and salaries and wages. Respondents said this reflected sluggish domestic and global demand, which would improve only marginally in the fourth quarter.

The index tracks spending in property, plant and equipment, inventory, human capital and research and development. Investment in new plant and equipment fell 22 index points. Most firms providing input to the index operated in Gauteng (46%), KwaZulu-Natal (22%) and the Western Cape (16%). Respondents employed nearly 87,000 people and had average yearly revenue of R1.8bn and median revenue of R95m.

“Although [the index] reflects a downward trend, from 70 points in [the third quarter of 2016], results were consistently above the neutral 50-point mark, which is evidence of the resilience of the respondents, who are mostly medium to large firms,” said André de Ruyter, chairman of the Manufacturing Circle and CEO of JSE-listed packaging group Nampak.

He said: “We believe there is room for more supportive trade policy and for faster reaction to imports that threaten South African manufacturing. We need appropriate tariffs and duties.”

Subsectors include vehicle parts and accessories and other transport equipment (30%); basic iron and steel, nonferrous metal products, metal products and machinery (26%); and petroleum, chemical, rubber and plastic products (20%).

Manufacturing Circle executive director Philippa Rodseth said manufacturers were able to cut capital spending according to the state of the economy.