MANUFACTURING slowed last month, with instability at SA’s mines placing further pressure on a sector hard hit by the global slowdown, a key survey shows.
Business leaders and analysts say the violence at Lonmin’s Marikana mine last month and the continuing illegal strike at Gold Fields are tarnishing investor confidence in SA.
Weak mining production over the past 18 months has started to erode demand for locally manufactured products. Mining and manufacturing together comprise a fifth of economic output.
"South African manufacturing operates on the back of the mining sector," Stewart Jennings, executive director of industry body the Manufacturing Circle, said yesterday. "Mines buy products from the manufacturing sector, like machinery … The unrest has also knocked confidence."
However, the government insisted that the strike which led to 44 deaths at Marikana had not affected confidence in SA.
"The events of the past weeks have not yet impacted on our ability to attract investors to our country," Minister in the Presidency Collins Chabane said at a briefing to the Foreign Correspondents Association yesterday.
"We have also not had any concerns raised through our foreign offices abroad about the damage done to investor sentiments.
"Government, through the Department of Trade and Industry, has facilitated several investments in the past weeks in mining, manufacturing and business process outsourcing."
SA’s purchasing managers index (PMI), a reliable health gauge for manufacturing, dipped to 50.2 last month from 51 in July in response to a sharp fall in new sales orders. That took the index, sponsored by Kagiso Tiso Holdings, close to the 50 point marking the difference between expansion and contraction. This reinforced concern that manufacturing may have curbed overall growth in the third quarter. The sector shrank by 1% in the second quarter, seasonally adjusted and annualised.
SA’s PMI was in line with global trends. China’s official PMI fell below 50 for the first time since November, while a similar survey yesterday showed that the eurozone’s PMI was 45.1, marking the 13th month of contraction.
China is SA’s biggest single trade partner and Europe is the main destination for its manufactured exports.
"We should see a further negative contribution to growth from the manufacturing sector in the third quarter if not slightly worse," said Abdul Davids, research head at Kagiso Asset Management.
Mr Davids said the PMI showed that "supply continues to exceed demand and this does not bode well for manufacturing sector production".
He also warned that the effects of the Marikana strike were starting to make themselves felt.
"Chemical companies are already seeing a cancellation of orders as a direct consequence of what is happening at Marikana."
SA was starting to be seen as "a high-risk investment destination", Mr Davids added.
Expected business conditions reflected by the PMI fell by 1.1 points to 52.9 — the sixth consecutive monthly drop. The new sales component of the index fell by 5.3 points to 46.9, while business activity slid to 50.6 from 50.8. The indices account for half of the weighting in the PMI index. Inventories, with a weighting of 10%, fell 4.3 points to 52.2.
Standard Bank said yesterday that waning business and consumer confidence "could hold the manufacturing sector to ransom for the rest of the year".