Optimism attributed to Ramaphosa factor
The “Cyril Ramaphosa factor” has been largely credited with the optimism prevailing in the economy, the January reading of the Absa purchasing managers’ index has shown.
The “Cyril Ramaphosa factor” has been largely credited with the optimism prevailing in the economy, the January reading of the Absa purchasing managers’ index (PMI) has shown.
The seasonally adjusted PMI rose to its best reading in nine months in January as business activity recovered and new sales orders increased, a survey released on Thursday showed.
The index, which gauges activity in the sector, showed pessimism among manufacturers was decreasing.
It rose to 49.9 in January, from 44.9 in December. A score above 50 indicates an expanding manufacturing sector; below 50 indicates a decline.
The PMI tends to be a reliable forecaster of the monthly manufacturing sales and output figures that Statistics SA publishes about two months later.
The biggest jump was in the index measuring expectations of future conditions, which rose 10.9 points to 72.8 — the highest level since 2010— after an 11.9 point rise in December.
Absa said the improvement was probably due to the stronger global growth outlook as well as better prospects for the domestic economy.
Capital Economics economist John Ashbourne said that this jump was probably because of the election in December of Ramaphosa as leader of the ANC. He said respondents to the PMI survey seemed optimistic that Ramaphosa, seen as a probusiness figure, would succeed in enacting investor-friendly reforms and boosting growth.
The rand has recently strengthened after Ramaphosa’s ANC election victory and the dialogue afterwards on ending corruption, fixing governance at state-owned entities, restoring public finances and maintaining key institutional strengths.
The domestic economy could begin to recover in 2018 given the boost in confidence, said Investec economist Kamilla Kaplan. “Strengthening confidence could translate into increased rates of private consumption and investment.”
NKC economist Gerrit van Rooyen said the index could move back into expansionary territory in 2018 if the global growth momentum and positive local political developments continued. The World Bank projects a global average of 3.1% growth in 2018, which would place economic growth at its full potential for the first time since the 2008-09 financial crisis.
Absa economist Miyelani Maluleke said the sector needed to see an improvement in confidence before there could be a sustained improvement, particularly on the investment side.
Manufacturing Circle executive director Philippa Rodseth said it was too early to make a definitive statement about whether the sector was benefiting from the Ramaphosa factor as it was a complex ecosystem. “We, however, note that the improvement in January’s PMI is certainly a positive leading indicator,” she said.
Rodseth stressed that increased business confidence combined with consistent and aligned policies were necessary to increase investment in the sector.
She added that the focus for the Circle was to grow the sector with the government’s support. Using the Map to a Million Initiative launched at the end of 2017, which aims to create a million jobs in the sector, Rodseth said the Circle was focusing on achieving a competitive manufacturing environment.
So far, the Circle has met with the government to clarify policy around the sector and speed up implementation.
Rodseth hoped the sector would improve in 2018 given the global upswing but a strong emphasis on checking supplyside factors such as energy supply, labour skills and material inputs was required.