Power curbs hit production

Load-shedding blamed for low PMI figure

THE worst bout of load-shedding so far hit the economy hard last month, causing manufacturing activity to plunge to a fouryear low, a key index showed on Monday.

While public holidays also affected the sector, the frequency of the power outages had added to its woes.

The Kagiso purchasing managers’ index (PMI) – which gauges manufacturing activity – fell to 45.4 points last month from 47.9 points in March, mainly because of a decline in business activity.

A level below 50 indicates a contraction. The index has been below 50 for three consecutive months.

The severity of the loadshedding had affected manufacturing production more than any other factor, Manufacturing Circle executive director Coenraad Bezuidenhout said.

Manufacturers would have been severely affected by electricity outages, particularly the number of stage 3 outages, he said.

Heavy industries are required to stop production equipment during stage 3 load-shedding.

Bezuidenhout called this expensive to run, saying: “Op- timal operating conditions are impossible under stopstart conditions.”

Anticipated strikes in the gold mining and public sectors, and uncertainty over South Africa’s continued inclusion in the African Growth and Opportunity Act by the US government, were also factors that could have affected manufacturing activity, Bezuidenhout said.

The PMI suggested that production in the manufacturing sector began the second quarter on a slow footing, which would slow economic growth.

The decline also indicated that a quick recovery was unlikely for the manufacturing sector, Kagiso Asset Management research head Abdul Davids said.

He said conditions in the sector could worsen further in the second quarter after possibly contracting in the first quarter.

Investec chief economist Annabel Bishop said actual production could have contracted about 3% on a seasonally adjusted and annualised basis in the first quarter.

Barclays Africa economist Miyelani Maluleke said although the PMI data could have diverged from actual manufacturing output, last month’s figure was an important early indicator of the magnitude of the effects of load-shedding on factory output at the start of the second quarter. And it was weaker domestic demand rather than global appetite that contributed the most to a decline in new sales orders – the PMIs of South Africa’s major trading partners remained above the 50 level last month.

The eurozone recorded a PMI at 52 points, while the US’s ISM manufacturing index was at 51.5 points.

Releasing the eurozone PMI, London-based Markit said the region’s manufacturing production had risen for the 22nd month in a row.

Although the rate of increase had eased slightly, it said, it had remained above average for the first quarter.

However, the HSBC Chinese PMI remained marginally below 50 at 48.9, in line with slowing demand and economic growth.

After the 2008 global economic crisis South Africa sought export markets in African countries with resilient growth and demand.

Bezuidenhout said feedback from members indicated that the recent wave of xenophobic attacks might also have affected domestic manufacturing sentiment.

South Africa’s PMI also revealed challenges for the manufacturing sector.

The business activity subindex fell four points to 40.6 – its lowest level since July 2011. – BDLive