Managing director of the Chartered Institute of Purchasing & Supply Africa Andre Coetzee.
Managing director of the Chartered Institute of Purchasing & Supply Africa Andre Coetzee.

ANDRE Coetzee is managing director of the Chartered Institute of Purchasing & Supply Africa.

SUMMIT TV: The Kagiso Purchasing Managers Index (PMI) is within sight of the key 50 index points level, above which SA factories are in expansion mode. The PMI inched up 1.7 points to 49.1 — it’s positive that we are heading towards the 50 level but effectively manufacturing is still contracting.

ANDRE COETZEE: Definitely. Any improvement is good news, but I think the fact that we are below 50 for the fifth consecutive month is a bit worrying because there is a bit of a negative trend forming. Also, the slight rise masked some sharp movements within some of the sub-indices. One can be either positive or negative — it all depends on which sub-indices you want to focus on.

STV: Let’s focus on the negatives. I think the most negative was the employment sub-index, which is now at the lowest it’s been since 2011 — so that’s going backwards.

AC: Yes, unfortunately it’s not a good news story, especially in a country where we need to create jobs. As we’ve said before, manufacturing is the second-largest sector in the economy and it looks like we are starting to shed jobs at a quicker pace, so we need to do something to turn this around.

STV: Are there any indications as to why we are shedding jobs at a quicker pace?

AC: I think one of the main reasons is the labour unrest that we saw in various sectors towards the back end of 2012, which seems to be continuing into 2013, which is the main contributor making people hesitant to employ new workers.

STV: Putting this into context: how long has the employment index been in negative territory? For how long has the manufacturing sector been shedding jobs? We are talking years, aren’t we?

AC: We are. We’ve seen spikes where jobs were added a little above 50 index points but, all in all, there is a very negative trend within the manufacturing sector that we are and unfortunately that’s now at a faster pace, so it’s not a good news story.

STV: What are the other worrying aspects of this month’s PMI reading?

AC: One thing that’s always worrying is the price index. The indication there is that we are experiencing price inflation from the purchasing manager’s point of view. That’s not great news if we see that against a backdrop of low growth. What’s also a bit worrying to me is the forward-looking indicator within the PMI being the leading indicator — which is the ratio between inventory and new sales orders — that indicates we can expect more weakness within the PMI and therefore more weakness in actual manufacturing, which is a little worrying.

STV: How does that square with the fact that there was an improvement in the PMI in January 2013 and what was behind that improvement of 1.7 points?

AC: That was really marginal so we are grasping at straws here but the positive news was contributed by business activity, new sales orders and inventory. That was on the positive side and, on balance, weighed slightly heavier, hence the small increase in the headline number.

STV: The weaker rand is a doubled-edged sword in terms of impact. Reading through the statement that Kagiso and the Bureau for Economic Research put out, it seems the weaker rand is helping sales orders but, on the other hand, leading to higher costs hence the rise we saw in input prices. On balance, do you think the weaker rand is more positive than negative at the moment?

AC: If you look at it in isolation for the PMI and new sales orders it’s definitely more positive — and as you’ve indicated that will put pressure on prices — but, in a more holistic view in terms of the South African economy, certainly my view is that a weak rand is not good for the economy. We’ve just seen the impact of the weak rand with the announcement that the petrol and diesel price is going to rise quite significantly. I think that will again weigh on growth.

STV: Is the petrol price something that the very clever analysts at the Bureau for Economic Research are taking into account? Will that have a further negative impact on the manufacturing sector?

AC: They do take that into account purely because of the pricing sub-index when they survey purchasing managers. Obviously, the impact of the weaker rand and rising oil prices is felt by purchasing managers — so that is definitely taken into account.

STV: We don’t square up particularly well in terms of what’s happening overseas — we’ve seen China move back into expansion mode and the USA has been expanding in its manufacturing sector. Could that help lift us above the 50 points level if those economies strengthen? Is that one aspect that’s kept our PMI depressed over the last few months?

AC: We’ve said all along that there are two issues here. One is the local issues that we’ve discussed but certainly what’s happening internationally, I’d want to see the eurozone turn around. Their flash PMI indicates there is a slight improvement but they are not out the woods yet. I’d expect if the eurozone can see a turnaround in terms of their manufacturing and those economies — that would have a positive impact on our PMI. There is always a lag. It’s not a definite two- or three-month lag but if we see the economies of our main trading partners improve, that will definitely have a positive effect on our numbers.