Load shedding leaves another sector in South Africa battered
Sustained load-shedding has been a severe drain on the manufacturing sector in South Africa, new data shows.
Recent data from Absa’s latest Purchasing Managers’ Index (PMI) for December 2022 – in collaboration with the Bureau for Economic Research (BER) – showed that despite a slight rise in PMI to 53.1 from 52.6 in November, the underlying picture of the sector is mixed.
Absa said there is weak momentum in the business activity index – dragged by persistent load shedding.
“The business activity index ended the year on a weak level. In fact, barring the first three months of 2022, the index has failed to rise above the neutral 50-point mark through the year,” added the bank.
In December, Absa reported a business activity index of 45.2, down from November (49.5) and October’s reading (48.8).
The Purchasing Managers’ Index (PMI) is a leading indicator of economic activity in the South African manufacturing sector. The index measures the activity level of purchasing managers in the manufacturing industry, with a value above 50 indicating an expansion of the sector, while a value below 50 indicates a contraction.
In South Africa, the PMI is closely watched as a critical indicator of economic performance and can provide insight into future business conditions and trends.
As indicated by Absa and BERs previous findings over the September 2022 period, when heavy load shedding was underway- both business activity and the number of new sales orders plunged.
Manufacturing takes a hit
Key findings from Statistics South Africa (StatsSA) reveal that manufacturing production as a whole decreased by 1.1% in November 2022 – indicating the first monthly decline in the manufacturing sector after a four-month-long upward trend.
This was also during the time of record levels of load shedding in the country.
The largest negative contributors included food and beverage production (-2.5%), wood and paper products (-4.5%), petroleum, and other chemical products (-2.5%).
According to StatsSA, the largest positive contributor to production and sales was the motor vehicle industry, which grew 13.4% year on year.
Investec’s chief economist Annabel Bishop said an economy could not function to its full potential with an insufficient electricity supply. GDP growth, of which manufacturing is a key driver, relies on sufficient electricity supply.
As seen back in Q2 of 2022, both business and consumer confidence fell into a depressed territory, when there was a significant collapse in South Africa’s manufacturer’s confidence when 71% were dissatisfied with prevailing conditions in the country, said Bishop.
“Load shedding contributed to the decline in economic growth from above 5.0% y/y in 2008 to 0.1% y/y by 2019,” added the economist.
Load shedding has become a norm for businesses and consumers across South Africa, stalling the economy close to every day – with no reprieve expected any time soon.
On 27 December 2022, South Africa passed 200 days of power cuts in 2022, equaling 55% of all the days in the year.
Executive chair of financial products company Sygnia, Magda Wierzycka, said that the fluctuations in the supply of electricity could be viewed as the biggest risk to economic growth and, in turn, the country’s future.
Tuesday, 10 January, marked the push to Stage 6 by national power utility Eskom. The company said that the need for an increase in more frequent outages resulted from seven units tripping.
Eskom aims to keep breakdowns below 13,000MW this year to avoid severe load shedding; however, it struggled to keep outages below 16,000MW – the worst-case scenario in its plan for 2022/23.
Other metrics
Beyond business activity, Absa’s other indices show a mixed underlying picture of the current economy.
Regarding the new sales orders index, there was sustained growth ticking down slightly from November by remaining firmly above the 50-point mark for a second month.
Purchasing managers have become more optimistic about business conditions in the next six months, reported Absa. The index has risen to 54.9 from 51.7 in November.
“The purchasing price index declined to its lowest level since late 2019 and is now even well below its long-term average reading.”
The bank pointed to the renewed uptick in the supplier deliveries index as ‘somewhat worrying’ – with new sales orders dipping, this could mean renewed friction in supply chains rather than strong demand.
Read: Load shedding pushed to stage 6 – here’s the new schedule
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