After much economic gloom fuelled by consistently rising interest rates in South Africa, there was a brief respite for consumers, particularly in the manufacturing sector, when the interest rate was kept on hold last month.

Against the backdrop in which South Africa's economic conditions appear to have improved, according to the Reserve Bank, the longer-term outlook mirrors the uncertainty of the global environment.

But there is room for optimism. Amith Singh, National Manager for Manufacturing at Nedbank, says that while understanding the pain points of clients and providing solutions to the industry is vital, being mindful of the current economic climate provides impetus to help clients make sense of it all.

Singh adds that while there are global challenges, it is important to understand what is happening in the sector and what is keeping clients awake at night. Understandably, these factors are heightened by load-shedding, crime and economic conditions harming growth in the manufacturing sector.

However, there was good news from the motoring industry heavyweight naamsa last week. The Automotive Business Council indicated that last month’s pause on interest rates after 10 hikes, totalling 475 basis points since November 2021, provided a respite for new-vehicle buyers.

So, when opportunities are evident from the latest reports from the motor manufacturing sector, one must consider the benefits to clients and the advantages to the economy, especially from a manufacturing perspective.

We understand that the South African automotive sector has been a trusted partner and dependable ally for government to position manufacturing as a springboard for development and inclusive growth in the country. Over the years this has been demonstrated by significant levels of automotive investments.

The automotive sector has been one of the most visible sectors receiving foreign investments, with the 7 original equipment manufacturers (OEMs), according to naamsa, investing R7,3 billion in 2019 while also making investment commitments of R40 billion over the next 5 years.

Concurrently the component sector invested R3,5 billion in 2019, while expecting to invest a further R20 billion in domestically sourced components over the next 5 years, which will promote local value-addition.

One of the OEMs, Mercedes Benz South Africa, has been in the country for 65 years and manufactures millions of vehicles from its East London plant, mainly for export purposes, employs 4 000 people and continues to invest in the country. And, considering the solid exports of Volkswagen, BMW and Ford, it is clear that the automotive industry can boost the South African economy.

Indeed, at a broader level, the welcome announcement in July of the much-needed collaboration between government and businesses after 115 private sector CEOs pledged to help government turn the tide on the South African economic challenges is a step in the right direction. It means that the automotive sector is integral to the recovery efforts in South Africa.

Nedbank Commercial Banking is premised on its understanding of the manufacturing sector's pain points and offers solutions with adequate support so that clients can better navigate the current difficulties facing South Africa. As such, Nedbank aligns with the industry optimism that while challenges remain, the upswing of the hold on rates can lift the sector.

This is also the view of naamsa CEO Mikel Mabasa, who welcomed the South African Reserve Bank's decision to keep interest rates at 8,25% in July.

Improvement in economic conditions, the lower fuel index recorded at 8,3%, lower food inflation at 10,3%, and consumer price inflation below the Reserve Bank's target range of 3% to 6% at 5,4% in June 2023 were the main reasons behind the unchanged rates. The last time the consumer price index was below the Reserve Bank's target of 6% was more than a year ago, in April 2022.

According to Mabasa the unchanged rates and improvements in inflation rates bode well for the car market as the second-largest household investment cost for many South African consumers, considering the distressed borrowing patterns among households as the debt service costs share of disposable income remain high at 8,4% on average. The producer price index also eased significantly to 4,8% in June 2023 compared with 7,3% in May 2023.

Mabasa said that naamsa is encouraged by the collaboration between government and businesses and added that the pledge will assist in achieving sustainable development and inclusive economic growth. 'Through the stewardship of Andrew Kirby, naamsa’s Immediate Past President and Toyota’s President and CEO, the auto industry will remain invested in supporting our country’s recovery efforts and strengthening our investment story into the future'. 

In a webinar hosted by Engineering News last month, the National Association of Automotive Component and Allied Manufacturer's Executive Director Renai Moothilal explained why the automotive manufacturing sector is integral to the country’s growth prospects.

Moothilal said its established history and sophisticated network, both from an OEM perspective and the supplier base that has developed, have given it a solid foundation.

While there is always room for improvement, Moothilall added that the sector has a strong base of infrastructure support, location advantages, dedicated maintenance of industrial policy and favourable export trade policies, which is why the industry has been a mainstay of the country’s manufacturing economy for some time.

Moothilal also noted that the country has well-established industry structures, with good bodies and associations supporting automotive development as well as robust engagement with an organised labour environment.

Adding to the encouraging – yet challenging – outlook, Singh said Nedbank has a clearly defined commitment to the manufacturing sector, creating solutions that align with its unique needs and expectations.

'We know that there is no such thing as a one-size-fits-all approach. It is important to understand the market in which our clients operate, their off-takers and their trade partners, and to provide services that suit their needs.'

While challenges remain, Nedbank is optimistic that the industry is resilient enough to weather the headwinds and continues to support the industry with confidence that manufacturing will continue to grow the economy and create employment.

For more information contact manufacturing@nedbank.co.za

https://business.nedbank.co.za/commercial-banking/industry/manufacturing.html