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Manufacturing Bulletin Q1-2011
Presentation for : Manufacturing Circle
15 July 2011
By
Dr Iraj AbedianPan-African Investment & Research Services(Pty) Ltd.
Slide # 2
Outline
IntroductionOverall Manufacturing Business ConfidenceCurrent South African Manufacturing TrendsManufacturing Survey Results: Q1 2011Concluding Remarks
Slide # 3
Introduction: Q1 2011 Manufacturing Circle Survey
SectorsPharmaceutical
Electrical machinery
Food & beverages
Vehicles & parts
Wood & wood products
Basic iron & steel & other
Glass, non-metallic products
Construction Materials
Textiles, clothing, footwear
Electrical and Electronics
Paper and Packaging
Profile of Survey Participants
Overall Manufacturing Business Confidence
Current South African
Manufacturing Trends
Robust Q1 2011 Manufacturing Output
Source: Statistics South Africa, Q1 2011 GDP
Manufacturing production grew sharply in Q1 2011, to q/q, seasonally adjusted and annualised rate of 14.5%.
Robust growth was driven in part by the then optimistic global output prospects, stronger domestic demand, higher commodity prices and most importantly statistical base factors.
Manufacturing Output
Manufacturing Employment in Q1 2011
Source: Statistics South Africa, Q1 2011 Quarterly Labour Force Survey
Employment in the manufacturing sector increased by 20 000 in Q1 2011, benefiting from the recovery in manufacturing output.
Employment Trends in the Manufacturing Sector
Fixed Investment Remains Constrained
Source: South African Reserve Bank, Quarterly Bulletin, March 2011
Fixed investment in the domestic manufacturing sector increased modestly in Q1 2011, rising by a seasonally adjusted and annualised 1% (q/q).
Manufacturing Investment
Manufacturing Outlook Remains Fragile
Source: Bureau for Economic Research
PMI deteriorated for the full three months of Q2 2011.
Employment component of the index remains below critical 50 mark.
Kagiso Purchasing Manager’s Index
DATE PMI (sa) PMI (nsa)Business
ActivityNew Sales
Backlog of
order salesInventories
Purchasing
commitments
Suppliers'
performancePrices Employment
Expected
business
conditions
May-10 52.1 50.3 50.3 53.6 35.1 55.5 51.9 53.9 67.8 49.0 64.1Jun-10 50.4 47.5 48.1 52.0 38.5 55.6 50.0 50.6 64.1 48.2 59.5Jul-10 50.7 48.6 50.5 51.4 40.1 54.5 48.3 50.1 59.4 48.6 57.7Aug-10 50.7 51.4 47.9 51.9 38.8 53.5 49.5 53.0 60.6 49.5 59.6Sep-10 48.6 53.3 45.9 49.4 38.7 50.9 52.7 49.9 62.2 48.5 58.8Oct-10 49.8 56.6 48.7 51.5 39.8 56.4 51.7 50.7 56.4 44.8 60.3Nov-10 52.9 59.1 54.8 56.5 42.2 51.4 57.2 50.6 61.8 47.6 64.6Dec-10 51.7 55.1 54.5 53.2 43.8 56.2 53.1 49.8 63.1 45.0 62.5Jan-11 54.6 47.8 51.0 59.6 35.0 58.9 44.4 56.5 71.3 47.8 67.1Feb-11 54.8 52.0 51.6 59.0 41.4 54.7 50.0 56.1 81.7 51.6 61.3Mar-11 57.2 54.8 59.7 62.0 45.3 59.0 52.0 55.6 88.0 46.9 58.1Apr-11 56.4 51.8 58.4 61.1 39.2 61.5 53.8 50.4 82.9 49.0 58.1May-11 55.1 53.2 56.8 61.0 43.8 54.5 56.8 49.6 80.0 48.7 66.7June-11 53.9 50.8 55.2 58.0 40.3 58.8 52.6 49.0 76.0 47.7 64.3
sa - seasonally adjusted
nsa - not seasonally adjusted
Manufacturing Survey: Q1 2011
Demand Conditions: Export-Orientation Profile
Demand Conditions:Domestic vs. Exports Sales
0
Demand Conditions: Export vs. Domestic Market
The ratio of export sales to total sales outweighed that of domestic sales.
This occurred, as export activity picked up due to favourable global conditions.
Local manufacturing is competing against increasing imports, driven by continued strong rand, for its domestic share.
Sustained export growth is necessary if some industries are to survive.
Supply Conditions: Input Costs and Ratio of Components
Total input costs were higher in the first quarter, driven mainly by a surge in imported input components owing to higher commodity prices.
Employment Conditions
Employment levels remained relatively unchanged from Q4 2010.
Sector reluctant to increase employment in the short to medium term. Availability of skills in sector remains inadequate.
Labour Productivity and Regulatory Environment
Labour productivity levels unchanged from Q4 2010.
No tangible change within the regulatory environment.
Financial Conditions
Slight improvement in profit margins.
Lower debt burden.
The cost of capital for short-term and long-term borrowing still low.
Concluding Remarks:
Local manufacturing production will continue to be dependent on stronger domestic demand into the second quarter.
However, threats from increased competition from imports, partly due to strong rand, remain and likely to increase.
Renewed uncertainties within global economic recovery threaten global/export demand.
Compounded negative impact of the strong rand erodes export margins and reduces competitiveness.
Overall, the manufacturing sector remains vulnerable to major structural constraints.
Slide # 19
Thank you for your attention
Penetrating Africa’s market lies in identifying the country’s comparative edge
within the manufacturing sector…
Exports shares in manufacturing output remain low at 16.7% in 2010. Meanwhile, industries at the bottom reading may not be at a disadvantage, but may be hindered by structural factors embedded at the industry level. The share of manufacturing exports that goes to Africa stand at 18%, indicating that most manufacturing exports are still directed to the traditional western trading partners. However, given the fast growing African market, and as one of the next world growth frontiers, the promotion of the manufacturing industries that export the most to Africa should be the prime target.