The Absa Manufacturing Survey for the fourth quarter of this year shows that production, domestic and export sales, and new orders have improved and recorded better levels than initially expected.

Confidence levels among local manufacturers increased by eight points to reach 36 index points during the fourth quarter, which is the highest level since the first quarter of 2022.

A zero on the confidence index reflects an extreme lack of confidence and 100 extreme confidence.

While both domestic and export selling price inflation eased, the total cost of production per unit also declined significantly. The reduction in the raw material price per unit contributed the most to the overall production cost dropping sharply by 20 points quarter-on-quarter.

“The sharp decline in unit production cost comes on the back of lower inflation, lower oil prices and rand strength over the past few months. As we head into peak sales season, manufacturers will be well positioned because of lower production costs,” says Absa Business Banking manufacturing sector executive Justin Schmidt.

The latest reduction in the repo rate is also expected to result in higher consumer demand over the next few months.

“After a difficult year characterised by demand side challenges and lingering logistics headwinds, it is encouraging to see an upward shift in business confidence,” he says.

The subsectors that contributed the most to the overall increase in confidence include metals and machinery, chemicals and food and beverages.

The food and beverages subsector's confidence reading increased the most, by 28 points, to 52.

However, confidence among manufacturers in the transport sector dropped sharply from 28 in the third quarter to 13 in the fourth quarter, mainly owing to subdued demand in the sector.

Overall, manufacturers feel that business conditions have improved considerably, with the business conditions indicator increasing by 29 points, likely driven by the reduced production costs and the improvement in demand with new domestic orders increasing by 26 points and new export orders increasing by 13 points.

In the previous third quarter survey and when taking a 12-month forward view, manufacturers expressed an improved likelihood of investing in fixed assets.

“We are starting to see some of that materialise with the indicators measuring realised fixed investment and investment in machinery improving by six points and equipment improving by ten points,” highlights Schmidt.

Further, in terms of the constraints on current activities, most indicators remained stable since the last read, however, manufacturers did highlight an increase in the shortage of skilled and semi-skilled workers.

Also encouraging was a further decline in the political constraint after a sharp drop was recorded in the third quarter, he adds.

“With the severity of loadshedding in preceding years, manufacturers have usually focused their efforts on building resilience into operations by investing in backup power and renewable-energy solutions.

“We are now starting to see investment to improve capacity and efficiency in operations as well as consideration for technology and equipment that will enable their journey to green manufacturing,” says Schmidt.