Producers’ mood darkens after floods

A gauge measuring South African manufacturing sentiment dropped the most in nine months in April after the worst flooding in almost three decades left more than 400 people dead, damaged businesses and halted operations at the nation’s biggest port.

Absa’s purchasing managers’ index, compiled by the Bureau for Economic Research, dropped to 50.7 from 60 a month earlier.

That’s the biggest monthly decline and the lowest reading since July, when deadly riots, looting and arson that erupted in the eastern KwaZulu-Natal disrupted supply chains, industrial output and demand for manufactured goods.

The coastal province suffered the heaviest rainfall in at least six decades in April, triggering floods and landslides that washed away roads, bridges, houses and damaged infrastructure at the Port of Durban. KwaZulu-Natal is the second-biggest contributor to South Africa’s R6.8 trillion gross domestic product and damage by the floods will run into billions of rands.

The impact of the floods continues to weigh on the South African economy after causing extensive damage to facilities owned by Toyota Motor Corporation and paper company Sappi. It also forced Sasol to declare force majeure on some of its chemicals exports.

Factories not directly affected by the flooding probably saw a drop in demand and export sales that likely stemmed from the temporary closing of the harbour, said Absa yesterday.

“While normal harbour operations resumed after a few days, export deliveries will remain strained due to significant backlogs and limited availability of vessel space,” Absa said.

Breakdowns at electricity-generation plants, which forced Eskom to double the intensity of nationwide outages, also affected manufacturers, the bank said.

Despite the monthly decline, the main index has been above 50 – the level that signals expansion – for nine consecutive months. This suggests conditions in an industry that accounts for 13% of gross domestic product are continuing to normalise after lockdown restrictions, global supply chain disruptions and the civil unrest.

Purchasing managers appear more upbeat about short-term prospects, with the index tracking expected business conditions in six months’ time rising to 55.7 from 55.1. While a decline in oil prices saw the gauge measuring purchasing prices drop from a record high, input costs continue to increase at a rapid pace and could weigh on sentiment, Absa said.