Confidence levels among local manufacturers held steady at 28 points during the third quarter, driven mainly by their optimism regarding policy direction after a peaceful election and the formation of the Government of National Unity (GNU), the Absa Manufacturing Survey for the third quarter shows.

Prior to the elections, manufacturers highlighted the political climate as a key constraint to current activities, but this indicator improved by a substantial 21 points in the third-quarter survey results, thereby aligning with levels last experienced more than a decade ago, the financial services firm highlighted.

“The current positive sentiment towards the developments in the political landscape seems to have offset the demand side challenges, as well as an increase in unit production costs and a decline in output,” says Absa Business Banking manufacturing sector executive Justin Schmidt.

“This level of confidence is the highest since the beginning of 2022 and bodes well for a further uptick in confidence in the fourth quarter survey results,” he notes.

However, the stronger performance in July can mainly be attributed to a backlog of orders as a result of the wait-and-see approach taken prior to the elections, and this seems to have masked some of the underlying headwinds, he highlights.

Demand also continued to slow, with domestic sales declining by seven points and export sales by 25 points, he adds.

The knock-on effect was evident with seasonally adjusted production lower by 17 points and capacity underutilisation up by ten points, resulting in a sharp increase in total production cost per unit from 65 to 75 points quarter-on-quarter.

Meanwhile, manufacturers consider business conditions to have improved slightly in the third quarter, up by two points, likely driven by the 12-point increase in export selling prices.

Supply chain constraints appear to have eased, and current raw material stocks relative to planned production increased by 11 points and finished goods stocks relative to expected demand rose by eight points.

“Slowing inflation, nearing rates cuts, fuel price relief and more than 155 days of no loadshedding are some of the factors that are keeping manufacturers positive about the next 12 months,” Schmidt says.

Further, survey participants expect business conditions to improve, with this indicator increasing 32 points, supported by an expected increase in both imports, up by five points, and exports, up by seven points.

In addition, while still taking a 12-month forward view, manufacturers have expressed an improved likelihood to invest in fixed assets. This indicator showed a 34-point increase, he highlights.

“Given loadshedding in preceding years, manufacturers have usually focused their efforts on building resilience into operations by investing in backup power and renewable-energy solutions. Perhaps now we will start seeing investment in improving capacity and efficiency in operations,” adds Schmidt.