About 50% of factories eye job cuts over next year

NEARLY half of all firms are looking at cutting jobs over the next year as the fragile business environment is plagued by weak demand, low commodity prices, a struggling economy and lack of adequate skills, according to results of the Manufacturing Circle’s third quarter survey.

Pan African Investment and Research Services chief economist Iraj Abedian said yesterday at the release of the survey that the survey indicated that 26 percent and 28 percent of firms planned to increase employment during the coming 3 months and 12 months, respectively. It also showed that 33 percent and 45 percent employers in the sector were planning to cut their labour force in 3 months and 12 months time, respectively.

Confidence low

The survey found that business confidence in the sector was low with the majority of respondents expressing a lack of confidence in business conditions.

It said 26 and 49 percent of respondents said they found business conditions in the third quarter to be “poor” and “weak”.

Poor domestic and global conditions are responsible for the surveyed manufacturers’ negative sentiments with China’s economic conditions, mainly lacklustre growth, negatively impacting South African and global businesses.

“Some respondents indicated that due to generally muted global demand, Chinese producers are lowering their prices even further to become competitive, resulting in even further cheap imports entering the South African market to the detriment of local producers,” the report said.

Factors such as the volatile exchange rate, labour unrest along with rigid labour laws, as well as the current drought were presenting challenges in the business environment.

The majority of respondents expressed a lack of confidence in business conditions.

“Eskom’s continued inability to provide the country with a reliable electricity supply continues to come up as a reason for the dampened business confidence. Concerns have also been raised at the new tax laws and the uncertainty they are raising,’ the report said.

Noteworthy was that Eskom had, apart for two hours in September, kept a relatively clean sheet without loadshedding for over 85 days.

At the same time, the country’s business confidence index continued its downward trend from the first quarter of this year. It declined by 10 index points from the second quarter’s 48 index points to 38 in the third quarter, making it the lowest level since the last quarter of 2011.

The survey pointed out that South Africa’s economy skated on the brink of a recession in the third quarter with the Rand Merchant Bank (RMB)/ Bureau of Economic Research (BER) business confidence index falling close to the precarious level of 30, which historically signals a looming recession.

“The manufacturing sub-index picked up marginally to 34 index points from 29, this after falling for three consecutive quarters.... therefore, there is reason to worry as an index of 38 is not very far from 30,” the report said.

Retailers’ unhappy

The report indicated that during the third quarter of this year, more than six out of every 10 respondents were unhappy with prevailing business conditions and that the fall in the index over the period was due to sharp declines in confidence amongst retailers and wholesalers with declines of up to 14 to 18 points, respectively.

The manufacturers also showed that consumer’s spending power has been compromised due to, for example, a high unemployment rate and generally weak economic conditions, which has led to low demand for their output.

Abedian said conditions in the manufacturing sector were expected to stabilise somewhat in the short- to medium-term.

The majority of participants in the survey fall in the small- to medium-firms category. Seven out of 10 participating firms had a turnover of less than R300 million and almost three out of 10 had a turnover ranging from R300m to R3 billion.