The March 2025 ABSA Purchasing Managers’ Index shows tentative signs of recovery in South Africa’s manufacturing sector, with notable rebounds in business activity and export sales, despite the sector remaining in contractionary territory overall. But persistent headwinds such as load-shedding, port inefficiencies, and shaky South Africa-United States trade relations continue to weigh on employment, business confidence, and broader momentum. To unpack the latest PMI, CNBC Africa is joined by Sello Sekele, Economist at ABSA CIB.
The March 2025 ABSA PMI shows tentative signs of recovery in South Africa’s manufacturing sector, with notable rebounds in business activity and export sales, despite the sector remaining in contractionary territory overall. But persistent headwinds such as load-shedding, port inefficiencies, and shaky South Africa-United States trade relations continue to weigh on employment, business confidence, and broader momentum. For more insights, I'm joined by ABSA Economist Sello Sekele. Sello, welcome to Power Lunch Southern Africa and thank you for your time. So I think a great place to start is if you could just give us an overview on what does the rebound in the PMI signal about the broader direction of South Africa's manufacturing sector? Yeah, so as you correctly pointed out, the PMI increased by four points on a month-on-month basis after declining for five consecutive months before. But what's significant here is that although the PMI has increased, it has remained below the neutral 50-point mark. So what that tells us is that there is some improvement, but business conditions remain tough in the sector in the month of March. Despite the March uptick, Q1 2025 remains weak overall. How concerned should we be about the momentum going into Q2? You know, it's tough to pre-empt how manufacturers will feel or assess business conditions moving forward. But I must say the start to the year has been quite mixed. So if you look at manufacturing output, it increased by 0.4% on a month-on-month basis in January. So that's not strong at all. And when you look at the PMI in Q1, it averaged, as I said, below the 50 neutral points. So what that tells us is that the growth momentum in the sector is slowing down. Perhaps if you look at expected business conditions in six months, if you look at that, you'll be a bit worried because we saw that index declining to the lowest since May of last year. So manufacturers themselves are not that optimistic about expected business conditions. What's driving the dip in that six-month expectations index? Is it mostly related to local factors, things such as the return of load shedding, or is it more around global trade risk? I think it's mainly on the external side in terms of, you know, the worry of whether, you know, the restrictive trade policies will get worse. Because on the domestic side, things are improving. Yes, load shedding returned, but it's just, it's not that intense as we saw in the previous years. And there is clear signs that, you know, electricity supply is improving. So I would say it's mainly on the export side of things. And are we seeing material impact from geopolitical risks or the S.A.U.S. trade tensions yet, or is it still largely sentiment-based? So it's sentiment-based for now, and maybe some expectation of, you know, what has been announced in terms of, for example, the blanket 25 per cent tariff increase on automobile imports, not just from S.A.U.S., but all over the world. So maybe manufacturers are, you know, pre-empting what that could mean for their businesses. So for now, it's mainly quite based on sentiment, yeah. Right, and export sales returned to expansionary territory despite the global headwinds. What markets or products are driving or drove this resilience? And how much of this rebound was actually just related to higher gold prices on gold exports? So it's tough to tell because manufacturers are not, you know, forthright in terms of countries. But we know South Africa's main trading partners is the U.S., Germany and China. So it could be one or a combination of those markets. So it's definitely welcome news, especially given that the index has been, you know, quite subdued. And, you know, we hope that this is a start of an upper tend going forward. Still looking at the specific subcategories, the supply deliveries index improved slightly. Now, in the last quarter, we looked at this was more signal of weaker demand rather than improvements in supply chain. Is that still pretty much the case? Yeah. So in the recent past, especially when we moved, you know, out of COVID and economies were stimulated, what we saw is that, you know, even when activity was subdued, we saw supply delivery times increasing. So that showed to us that there were some supply chain issues. So when you look at December, for example, we saw something similar, right? When activity indices declined, but supply delivery times lengthened. So we suspected it's mainly due to supply chain issues. Now, this time around, you have the opposite. You have activity improving and supply delivery times shortening. So perhaps that's an indication that, you know, logistical issues in the month of March eased a bit. And then finally, how are manufacturers adjusting to ongoing logistical challenges, particularly those around the ports? Are there any signs that the challenges are starting to ease? So two parts to your question. The first is, how are they, you know, maneuvering this issue? Well, we've seen people substitute rain for road transport, but we know that road transport is much more costly. But for some goods, you know, road is better. So in terms of whether the logistical constraints are getting better or not, the answer is yes. Things are improving on that side, but they're not improving as fast as businesses would like to see. But, you know, the logistical roadmap that Transnet is trying to implement and other reforms on that side look like, you know, it's going to positively impact rail volumes going forward. Selah, that's all we have time for. Thank you for your insights and thank you once again for your time. That was Selah Sekele, economist at AFSA CIB.
Theme: Recovery and Challenges in South Africa's Manufacturing Sector
South Africa's manufacturing sector is showing tentative signs of recovery, as indicated by the March 2025 ABSA Purchasing Managers' Index (PMI). The PMI revealed notable rebounds in business activity and export sales, despite the sector remaining in contractionary territory overall. However, persistent challenges such as load-shedding, port inefficiencies, and uncertain South Africa-United States trade relations continue to impact employment, business confidence, and the sector's momentum. Selah Sekele, Economist at ABSA CIB, provided insights on the recent PMI data, highlighting both improvements and lingering concerns. While the rebound in the PMI suggests some progress, the sector still faces tough business conditions following several months of decline. Although the March uptick provides a glimmer of hope, the manufacturing output in Q1 2025 remains weak overall, with growth momentum showing signs of slowing down. Looking ahead to Q2, there are uncertainties about the sector's future performance, particularly as expected business conditions have declined to the lowest level since May of the previous year. Manufacturers appear cautious about the outlook, with sentiment reflecting concerns about external factors, such as global trade risks and trade tensions between South Africa and the United States. While domestic factors like load shedding have improved to some extent, the focus remains on export markets and the potential impacts of trade policies. Export sales have returned to expansionary territory, driven by markets like the U.S., Germany, and China. The resilience in export sales is a positive development, potentially signaling a positive trend for the sector moving forward. Additionally, improvements in the supply deliveries index suggest a possible easing of logistical challenges for manufacturers. The reduction in supply delivery times in March indicates a potential improvement in logistical issues, which have been a persistent concern for the sector. Despite challenges around ports and logistics, there are signs of gradual improvement, albeit not as fast as desired by businesses. Efforts to address logistical constraints, including reforms by Transnet, are expected to have a positive impact on rail volumes in the future. The overall picture for South Africa's manufacturing sector is a mix of progress and challenges, highlighting the need for ongoing monitoring and strategic responses to navigate the current environment. While improvements in certain areas are encouraging, it is essential for stakeholders to remain vigilant and proactive in addressing the lingering headwinds to ensure sustainable growth and resilience for the sector.
"The rebound in the PMI suggests some progress, but the sector still faces tough business conditions following several months of decline."
South Africa, manufacturing sector, ABSA PMI, export sales, business activity, global trade, logistical challenges, economic recovery