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JOHANNESBURG – The Absa manufacturing purchasing managers index (PMI) plunged to a five-month low in March on rolling power cuts in that month.
The PMI fell to 45 points last month from 46.2 points in February – the reading pointed to the third consecutive contraction in manufacturing activity.
The index measuring expected business conditions in six months’ time fell to 59.6 points in March from 65.9 points in February, while the employment index plunged by 5.4 points in March to 42.7 points.
The purchasing commitments index swung back to contraction, falling to 41.5 points in March from 50 points in the previous month.
Capital Economics senior emerging markets economist John Ashbourne said the fall in the PMI was due to power cuts and soft demand having weighed on the sector.
“Almost all of the key sub-indices were weaker than in February. And the only exception – the new orders index – only ticked up from 42.3 points in February to 42.4 points in March. The falls were on a larger scale; the survey’s measure of business activity slipped from 46.2 points to a five-month low of 41.7 points,” Ashbourne said.
Public Enterprises Minister Pravin Gordhan last month said that the government would allow Eskom to bypass stringent procurement requirements to deal with its operational challenges swiftly. This after the power utility said procurement red tape prevented it from working in speed to power the economy.
Investec economist Kamilla Kaplan said the pace of contraction in new sales orders in March quickened on weaker aggregate demand conditions.
“Lower demand will have also affected production, with output falling at an accelerated rate in March. Additionally, production will have suffered interruptions from the extensive and frequent electricity load-shedding in the month of March,” Kaplan said.
Fitch Solutions, a part of the Fitch Group, in January said the troubles plaguing ailing state-owned power utility Eskom would put a further strain on the manufacturing sector, which has seen its contribution to the gross domestic product (GDP) dwindle in the past two decades.
The sector has also shed jobs at an alarming speed, with last year being one of its most difficult years to date.
Natie van der Westhuizen, the chief operations officer at Lixil Africa, said with South Africa’s current economic situation it was more important than ever to support and promote locally manufactured goods.
“Part of the GDP of any country, manufacturing should constitute at the very least 24 percent of the fiscus. Presently manufacturing in South Africa reports a paltry 12 percent of GDP and continues to decline,” Van der Westhuizen said.