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Manufacturing Bulletin Q2-2011 Presentation for : Manufacturing Circle 27 September 20 11 By Dr Iraj Abedian

Manufacturing Bulletin Q2-2011 Presentation for : Manufacturing Circle 27 September 20 11 By Dr Iraj Abedian Pan-African Investment & Research Services(Pty) Ltd. Introduction Overall Manufacturing Business Confidence Current South African Manufacturing Trends

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Manufacturing Bulletin Q2-2011 Presentation for : Manufacturing Circle 27 September 20 11 By Dr Iraj Abedian

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  1. Manufacturing Bulletin Q2-2011 Presentation for : Manufacturing Circle 27 September 2011 By Dr Iraj Abedian Pan-African Investment & Research Services(Pty) Ltd.

  2. Introduction • Overall Manufacturing Business Confidence • Current South African Manufacturing Trends • Manufacturing Survey Results: Q2-2011 • Rand Weakness and Manufacturing • Concluding Remarks Outline

  3. Introduction: Q2-2011 Manufacturing Circle Survey Profile of Survey Participants

  4. Overall Manufacturing Business Confidence

  5. Current South African Manufacturing Trends

  6. Fall in Q2-2011 Manufacturing Output Manufacturing Output Source: Statistics South Africa, Q2 2011 GDP • Manufacturing activity slowed markedly in Q2-2011. Manufacturing output fell • to q/q, seasonally adjusted and annualized rate of minus 7%. • Contributing factors include, deteriorating global economic environment and • slower domestic demand.

  7. Manufacturing Employment in Q2-2011 Employment Trends in the Manufacturing Sector Source: Statistics South Africa, Q2 2011 Quarterly Labour Force Survey • Employment levels in the manufacturing sector were down 3.8% (minus 68000 • jobs) in Q2 2011, driven by lower production.

  8. Fixed Investment Remains Constrained Manufacturing Investment Source: South African Reserve Bank, Quarterly Bulletin, September 2011 • Growth in capital outlays moderated during the second quarter, rising by • 0.6%, from 1% in Q1-2011 (on a q/q, seasonally adjusted and annualized • basis).

  9. Manufacturing Outlook Remains Fragile Kagiso Purchasing Manager’s Index Source: Bureau for Economic Research • Activity is expected to remain subdued in the manufacturing sector during the • third quarter, dragged down by weaker global demand as conditions in the • global economy appear to be dreary. • On the domestic front: the negative impact of the prolonged strike action within • the sector will drive down third quarter production.

  10. Manufacturing Survey: Q2-2011

  11. Demand Conditions: Export-Orientation Profile • The ratio of domestic sales to total sales outweighed that of exports sales • during Q2-2011, with 88% of manufactures surveyed shifting 60% or more • of their allocations to the domestic market.

  12. Demand Conditions:Domestic vs. Exports Sales

  13. Supply Conditions: Input Costs and Ratio of Components • Input costs increased dramatically during the second quarter, with only 11% of • survey respondents recording a decrease in their cost base. • This is in line with rising domestic inflation.

  14. Employment Conditions • Employment levels amongst the • manufacturers surveyed were down in • in Q2-2011, as the share of manufactures • shedding jobs by 5% or more increased. • Availability of skills in sector remains • inadequate. According to the survey results • 74% of manufacturers struggle to find • qualified personnel in the domestic labour • market.

  15. Labour Productivity and Regulatory Environment • On the whole, labour productivity levels remained unchanged during • Q2-2011. • There was a slight increase in the number of survey • respondents (from 11% in Q1 to 14% in Q2) who felt that labour • productivity levels deteriorated- owing to the start of the strike season • within the sector.

  16. Financial Conditions • Moderation in profit margins, owing to softer manufacturing sales growth. • The share of respondents who recorded a profit change of 15% and • above fell from 33% in Q1-2011, down to 8% in Q2-2011. • The debt burden eased, as the number of respondents registering a • debt to equity ratio of 65% or more, remained low.

  17. Financial Conditions • The cost of borrowing capital for both short-term and long-term purposes • is still low, with the majority of respondents accessing finance at JIBAR • plus 3% or less.

  18. Rand Weakness and Manufacturing

  19. Rand vs. Major Currencies (Daily Close) Source: Inet Bridge

  20. Structural Issues: Rand Foreign Exchange Volatility

  21. Structural Issues: Reserves Remains Below the IMF Adequacy Range –More Accumulation May Be Needed…

  22. Structural Issues: Rand Foreign Exchange Volatility

  23. Manufacturing Glum: Why is South Africa’s Global Competitiveness Eroding?

  24. Concluding Remarks: Manufacturing output is expected to moderate further during the third quarter, driven by a combination of a weaker global economy and slower domestic demand. Third quarter production volumes will further be exacerbated by the prolonged strike action within the sector, in July. Overall, the manufacturing sector remains vulnerable to major structural constraints.

  25. Thank you for your attention

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