Blackouts fuel pessimism
MANUFACTURING’s contribution to the economy has shrunk over many years, because it has been growing slowly whereas sectors such as finance and government have grown much faster. The latest official figures show it actually shrank in absolute terms last year, with manufacturing production decreasing 0.1% compared with 2013.
The decrease, says Statistics SA, was mainly in subsectors such as iron and steel, metal products and machinery; and glass and nonmetallic mineral products. Last year’s metals sector strike did not help, nor did low prices and weak demand for some of the products.
However, Stats SA’s figures show a bit of bounce late last year, with manufacturing production increasing 2.5% in the fourth quarter compared with the third quarter. But that was before load shedding got going. It is hard to see how the sector can continue to improve given the demands on Eskom’s energy-intensive users to cut back and the effect of the countrywide blackouts on everyone.
No wonder, then, that the Manufacturing Circle paints a gloomy picture in its latest survey. The number of manufacturers that are pessimistic about their medium-term future has risen significantly. More than half of the respondents expect fragile or weak conditions to prevail over 12 months, and over the next two years they are even more pessimistic. More than 40% see themselves shedding jobs over the next 12 months.
Though electricity is a big factor, the pessimism is also being driven by factors including regulatory hurdles, strikes, weak mining activity and uncertainty about policy issues such as beneficiation.
These concerns highlight the extent to which manufacturing’s fortunes are closely linked with those of the mining sector — and there is a message here for policy makers who focus on industrial policy at the expense of making support for mining a priority.
We are just beginning to see, too, the extent to which continual load shedding, combined with incoherent government policy, take their toll on the economy. More pessimistic economists are now revising growth forecasts for this year and even, in some cases, next year, down to below 2%. SA’s economy is starting to look very bleak indeed over the short to medium term and without some serious structural reforms it may not be good in the long term either.