Fresh data highlight a steady decline of SA’s manufacturing and mining sectors



Manufacturing and mining data from Statistics South Africa this week indicate that the pace of deindustrialisation is picking up. The one bright spot is that while the mining sector’s output remains in a downward trajectory, sales are up because of prices.

Let’s start with the manufacturing data released on Monday. Production in the sector fell 10.8% in August compared with August 2019, the 15th consecutive month of year-on-year decline.

As NKC African Economics noted in a brief to clients, this underscores “how the sector was already struggling before the Covid-19 pandemic took hold”.

All 10 manufacturing divisions contracted year on year, led by motor vehicles, parts and accessories, and other transport equipment, which fell more than 30% — an extremely worrying sign as this is a key employer. But vehicles are hardly flying out of the dealerships these days. In September 2020, new car sales were down 33.4% compared with the same month in 2019, according to industry data.

On a monthly basis, the manufacturing sector’s overall output rose 3.6% in August compared with July, but its pace of growth has been slowing. In July it was up 5.9% and in June it spiked by 20.3% compared with May as lockdown restrictions loosened. Among other things, this suggests the economic rebound in the third quarter, which began on 1 July after the previous quarter’s 51% contraction, is not finding a lot of traction.

“Looking ahead, the manufacturing sector still faces a number of headwinds in the form of electricity supply and cost constraints, low domestic demand and declining global competitiveness,” FNB economist Geoff Nolting said in a note.

The mining data published on Tuesday showed production decreased by 3.3% year on year in August, but at least the pace of decline is slowing. In July it was down 6.5% and in June it fell 25.3%. The big blowout, of course, was April, when it plunged just above 50% during the first full month of draconian lockdown.

Mineral sales at current prices rose almost 21% year on year in August, underpinned by red-hot gold and platinum group metal prices, notably for palladium and rhodium.

Gold and platinum group metal producers have seen their earnings soar of late and dividends are flowing back to investors. This is obviously welcome, but it may still not be enough to spur fresh investment and expansion into the sector. Mining is a long-term game and foreign investors remain wary of South Africa despite its rich mineral endowment. It will be interesting to see when rising prices finally reverse the decline in production, which set in long ago, notably for gold. DM/BM


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