Increased infrastructure activity needed to boost economy

The decline in manufacturing production, at a time when increased industrial activity is important to revive the ailing economy, is very concerning, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.

SEIFSA Chief Economist Chifipa Mhango said the decline once again highlights the negative impact Covid-19-induced lockdown regulations had on the manufacturing industry and the economy in general, and that this situation needs to reversed urgently. According to figures released by Statistics South Africa (StatsSA), total manufacturing production declined by 3,4% year on year in January, with a slight 0,5% month-on-month increase from December 2020. Total manufacturing sales increased by 1,4% year on year in January 2021 and by 0,9% from December 2020.

However, Mhango welcomed the 5,3% year-on-year increase in January 2021 in the performance of the Metals and Engineering (M&E) sector, which accounts for 29% of manufacturing production. Total sales across the sector’s 13 sub-industries increased by 10,6% to reach R68,3-billion. He said this performance would need to be sustained through the speedy implementation of the Government’s infrastructure plans if the sector and the economy as a whole are to recover.

StatsSA figures also showed that total capacity utilisation in the manufacturing sector was 72,3%, down from 81% in 2019. In the M&E sector, average total capacity utilisation for 2020 was only 68%, again demonstrating how Covid-19 has inhibited production within the sector.

Mhango noted that with the economy has contracted by 7% in 2020, it is imperative that the Government intensifies its efforts to revive the ailing economy and focuses on the implementation of its recovery plans. He said while the Government’s policies were attractive on paper, more needed to be done to speed up the implementation of critical interventions such as the Steel Master Plan in order to benefit both the upstream and downstream of the M&E sector.

Mhango said the current state of the M&E sector remains dire, with declining levels of employment and investment, as well as a weak trading position with the rest of the world. He said with the country’s unemployment rate now at 32,5%, it is important to ensure that the industrial base is not eroded any further. “Fixed investment is key to reviving the sector. To grow the country’s industrial base, the fixed investment share of GDP needs to move to levels above 40%, from the current level where it is below 20%,” he said.

Mhango said while the Government’s commitment to spend R791,2-billion in the next three years on various infrastructure projects is commendable, the slow rate of implementation and the mismanagement of funds have derailed progress towards achieving a higher ratio of fixed investment to GDP.

“The M&E sector is heavily reliant on demand from key Government infrastructure projects to boost its production and sales, especially for products such as steel and other related downstream products such as roofing material. The lack of progress towards the implementation of these projects will only serve as a hinderance to reviving the South African
economy,” Mhango said.

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