Manufacturing Sector in South Africa Faces Uncertainty Amid Global Challenges

Strategic Insights -

The South African manufacturing sector is grappling with severe uncertainty as it faces significant headwinds from global challenges, according to economists. The sector, which is a key driver of job creation and economic growth, has witnessed a sixth consecutive month of contraction, with a 6.3% year-on-year decline in April. This downturn is attributed to deep-rooted structural challenges, including unreliable electricity and water supply, logistical infrastructure constraints, and the impact of the European Union's Carbon Border Adjustment Mechanism (CBAM).

Key Takeaways:

  • The manufacturing sector's contribution to South Africa's gross domestic product (GDP) fell to 13% in 2024, with a nominal GDP forecast to grow by an average rate of 5.7% per annum over the next decade.
  • The sector employs over 1.6 million people and is a significant driver of the country's export economy, however, it faces significant challenges, including high carbon intensity and lower export prices.
  • The sector's growth has stagnated, returning to levels last seen in early 2010, and has failed to contribute positively to South Africa's GDP since the 2008 global financial crisis.
  • The sector faces significant structural challenges, including unreliable electricity and water supply, logistical infrastructure constraints, and the impact of the European Union's CBAM.
  • The sector's lacklustre outcome is in line with the performance of the ABSA Purchasing Managers Index (PMI), which has moved further into contractionary territory in April.
  • Broad-based weakness in manufacturing activity has persisted through the first four months of the year, with output down by 3.4% compared to the same period last year.
  • Operating conditions for domestic manufacturers remain unfavourable, as reflected in the continued decline in the manufacturing PMI.

Statistics:

  • Manufacturing output fell 6.3% year-on-year in April.
  • The sector's contribution to South Africa's gross domestic product (GDP) fell to 13% in 2024.
  • The nominal GDP forecast for the sector is to grow by an average rate of 5.7% per annum over the next decade.
  • The sector employs over 1.6 million people.
  • Output down by 3.4% compared to the same period last year.
  • The ABSA Purchasing Managers Index (PMI) moved further into contractionary territory in April.

Sources:

  • Maarten Ackerman, chief economist at Citadel.
  • Nicolai Klaassen, director of industry statistics at Stats SA.
  • Thanda Sithole, senior economist at FNB.
  • Statistics South Africa (Stats SA).