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According to Roberta Noise, Junior Economist at the Steel and Engineering Industries Federation of Southern Africa (SEIFSA), metals and engineering producers are under severe pressure. The Producer Price Inflation (PPI) data released by Statistics South Africa (StatsSA) indicate significant margin pressure for companies in the sector, with a negative deferential recorded between input cost and selling price inflation, she says.

Roberta Noise Junion Economist SEIFSAThe PPI Index for May 2017 showed a 4.8% annual change in final manufactured goods. This is a 0.5% increase when compared to April 2017. The annual increase was driven by food products, beverages and tobacco products with a 1.9 percentage point contribution, followed by coke, petroleum, chemical, rubber and plastic products contributing 1.6 percentage points.

Noise says that SEIFSA’s input composite cost index showed a 11.4% increase for May 2017. “The growth in input cost inflation relative to the growth in selling price inflation reflected in the PPI Final Manufactured and Intermediate Manufactured continues to record a significant negative deferential gap between input costs and final selling price inflation,” she explains.

“The fact that the difference between input cost and selling prices is not narrowing draws one to the logical conclusion that producers are carrying this cost differential in the market, putting their margins under severe pressure.”

Manufacturing Circle chairperson Andre de Ruyter recently told delegates at the Manufacturing Indaba that South Africa’s manufacturers are “woefully underperforming”. The sector’s contribution to gross domestic product (GDP) has fallen from 24% in 1980 to less than 13% in 2015, he says, and should be contributing more than double that to GDP considering our stage of development.

“If manufacturing were to have the appropriate 28% to 34% contributory share of GDP in line with the country's developmental stage, around 800 000 to 1.1-million jobs would be created. The multiplier effect – the highest of any industry – would be five to eight indirect jobs for every one manufacturing job,” he said.

“Our difficulty in turning the situation around is exacerbated by high energy and labour costs, lagging infrastructure, policy and regulatory uncertainty, the export of unbeneficiated goods and a reliance on imports. With the drop-off in consumer demand, South Africa has seen lower capacity utilisation, delays in investment by the private sector, lower investor confidence, cancelled projects and companies seeking higher returns outside the country’s borders. We need a macroeconomic environment that facilitates more capital investment in local manufacturing.”

Image credit: https://www.linkedin.com/in/roberta-anronique-noise-26323a67/?ppe=1

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