The third quarter results from ABSA’s Manufacturing Survey, released this morning, show that confidence levels among local manufacturers held steady at 28 points during the third quarter. This level of confidence being the highest seen since the beginning of 2022. To discuss the latest survey, CNBC Africa is joined by Justin Schmidt, Executive for the Manufacturing Sector at ABSA Business Banking.
the third quarter results from ABSA’s Manufacturing Survey, released this morning, show that confidence levels among local manufacturers held steady at 28 points during the third quarter. This level of confidence being the highest seen since the beginning of 2022. To discuss the latest survey, we are joined by Justin Schmidt, Executive for the Manufacturing Sector at ABSA Business Banking. Justin, welcome to Power Lunch South Africa and thanks for your time. Thanks for having me Normande. This is an interesting result coming out of the survey, given that manufacturing in South Africa remains subdued. You've cited much of this optimism as being driven by a positive sentiment towards the formation of the Government of National Unity. How sustainable is that in the face of ongoing headwinds and some of the divisive issues we are seeing playing out in the GNU? The first point Normande is that this has been the biggest constraint to the manufacturing sector for over a decade. These are the best figures we've seen in a decade. I think it's broader than just the election. It's things like the overall policy environment, investments in areas like ESCOM, more clarity there, projects like Operation Voolend Lela. So while the election is one component, I think there's a lot of the other work that remains sustainable. We've seen it in the renewable energy and energy space where there's a lot more policy clarity. We're starting to see it in areas like the transnets and the ports. So I do think there's a level of sustained optimism that we can achieve. It's just continue having the winds. Manufacturers are also saying they're optimistic, forward-looking. I think our bigger issue right now is in spite of all the optimism, there are constraints on the local and global economy and I think that's what's holding us back a bit. What would be interesting to know is which industries are the most significant drivers of the confidence for the manufacturing sector? Interestingly, in terms of confidence, it's something, an area that popped up previously in COVID, the textiles industry, we're also seeing some opportunity in terms of the furniture industry. So those are the two standouts where confidence is increasing. I think when we start looking at investments and opportunities long-term, it's the normal store wards like your transport, you know, the automotive sector as well as food and beverage that looking forward are areas that are looking at investing more. So we note that stronger July performance in the manufacturing sector was mainly attributable to a backlog of orders being fulfilled. Once the sector catches up in this regard, what then? So we are looking at that quite closely. So the supply chain constraints in terms of forward-looking demand is less of a constraint, meaning, you know, there is raw material, there's stocking up and therefore the sector can lean into this peak season, which is traditionally quarter four, and hopefully achieve more sales. I think what the issue is, it's not the stock necessarily, it is the demand. So like you say, what then? And we are seeing in spite of the kind of areas of improvement, there is an issue with number one, local demand. So that is causing constraints. I think we're seeing that in terms of the production and the utilization on plants. So that is decreased at the moment. And likewise, exports, you know, there is an increasing price for exports, but there's also a reduction in demand. So we're already starting to see some of that where there are some tail headwinds. What we're hopeful for and what the industry is looking at is with these lower CPI prints, you know, less inflation, the reduction on interest rates, hopefully to spur some of the local demand. So yes, forward-looking, a lot of positives, but I think we need to see some of that short-term good news, not just the reduction in load shedding, which has improved the sector, but I think we need the demand side to continue. You touched on an interesting point there on the exports and the demand for exports being low. So in addition to the low demand for exports, a significant ongoing challenge South Africa faces is the poor state of our railways and inefficiency at the ports continuing to hinder exports potential. How do you see this impacting the manufacturing industry going forward? Yeah, so in terms of ports, we started talking about this during lockdown and COVID, you know, there was a huge constraints under that and delays in timing. With ports, you know, what we want to see is the improvements. I think even with rail, you've got to see more goods moving on rail, but I think the transport sector, the truckers, etc, have taken some of that supply. It's got to improve long term because I think if we do want to achieve the export opportunity of the sector, bringing in these foreign operators to support the efficiencies at port is key, because what happens to manufacturers if you're not unlocking that efficiency, the transporter is sitting for longer at the port, it's taking longer to get that good in place and therefore there's more working capital constraints, and even worse, potentially lost sales. So what manufacturers are saying is they're optimistic about more exports, they're optimistic about more sales locally. So I think that's where the industry is saying actually we'll be positive over the next 12 months, even to the point where they're saying we're looking at replacing machinery, as well as improving on existing, refurbishing existing machinery. So it's definitely something that we need to improve to reach our potential, but I think as a sector, the role players are saying well actually in the next 12 months, we're quite optimistic that we're going to see an increase in demand. So top of mind at the moment is the expectation that the Saab will be cutting rates at the end of this month. So my final question to you would be around how much of a boost could we expect this to give manufacturers? Yeah, I think across the economy, right, manufacturers play into, you know, if people are buying more food, food and beverages, if they're purchasing automotive cars, etc, there's the demand for this product. So I think the better the health of the consumer, the better news that is for manufacturers. Hopefully we also see spillovers from the global economy where we're seeing rate reductions expected as well in lower CPI figures. So I think it's both the local and export markets, and I do think that's just the next positive point for manufacturers who will see their own costs of funding go down, but also then the consumer of those goods that they manufacture will have greater disposable income and therefore greater demand. So it is positive and I think that sustained reduction in rates should kind of give us a bit of a tailwind. Thank you for your time again, Justin. We look forward to talking to you again. That was Justin Smit, Executive for the Manufacturing Sector at APSA Business Banking.
Theme: ABSA Manufacturing Survey Reveals Steady Confidence Amid Challenges and Optimism
The latest third quarter results from ABSA's Manufacturing Survey have revealed that confidence levels among local manufacturers remained steady at 28 points, marking the highest level seen since the beginning of 2022. To discuss these findings and the current state of the manufacturing sector, CNBC Africa had an exclusive interview with Justin Schmidt, Executive for the Manufacturing Sector at ABSA Business Banking. Schmidt highlighted various aspects contributing to the optimism in the sector, such as positive sentiment towards the formation of the Government of National Unity (GNU) and improvements in policy environments and investments in critical areas like ESCOM and renewable energy. Despite the positive outlook, challenges such as supply chain constraints, low local and global demand, and inefficiencies at ports continue to impact the industry's potential growth. However, Schmidt remains hopeful for the future, especially with anticipated rate cuts from the Saab that could boost manufacturers and consumers alike. As the manufacturing sector in South Africa navigates through a mix of optimism and challenges, industry experts and stakeholders are closely monitoring key trends and developments to drive sustainable growth and recovery. The recent ABSA Manufacturing Survey results have shed light on the sector's confidence levels, which have held steady at 28 points, signaling an upward trajectory from previous periods. One of the primary drivers of this optimism, according to Justin Schmidt, Executive for the Manufacturing Sector at ABSA Business Banking, is the positive sentiment surrounding the formation of the Government of National Unity (GNU). Schmidt emphasized that while the election played a role, broader factors such as policy clarity, investments in essential infrastructure like ESCOM, and projects like Operation Voolend Lela are contributing to sustained optimism. Schmidt highlighted industries like textiles and furniture as significant drivers of confidence in the manufacturing sector, with opportunities also emerging in key sectors like transport, automotive, and food and beverage. However, despite the positive outlook, challenges such as supply chain constraints and low local and global demand present hurdles for sustained growth. The issue of poor railway infrastructure and inefficiencies at ports continues to hinder South Africa's export potential, impacting manufacturers' ability to reach their full capacity. Schmidt emphasized the importance of unlocking efficiency at ports through the involvement of foreign operators and improving transport logistics to reduce delays and working capital constraints. The sector remains optimistic about increasing exports and local sales, with plans to invest in machinery upgrades and refurbishments. Looking ahead, the anticipated rate cuts by the Saab are poised to provide a significant boost to manufacturers by lowering their funding costs and potentially increasing consumer disposable income. Schmidt pointed out that a healthier consumer environment translates to higher demand for manufactured goods, both locally and in the export markets. Overall, the expected rate reductions and positive consumer outlook offer a promising outlook for the manufacturing sector in the coming months.
"I think the better the health of the consumer, the better news that is for manufacturers. Hopefully we also see spillovers from the global economy where we're seeing rate reductions expected as well in lower CPI figures."
['ABSA', 'Manufacturing Survey', 'confidence levels', 'Government of National Unity', 'exports potential', 'Saab rate cuts', 'supply chain constraints', 'global economy', 'policy clarity', 'railway infrastructure']