Glimmers of hope for businesses in South Africa

Despite a logistics crisis at South Africa’s ports, manufacturers can expect improved prices after a challenging 2023.

The latest Absa Purchasing Managers’ Index (PMI) climbed by 2.8 index points to 48.2 in November – the first in two months, even if it is still in negative territory.

Although the business activity and new sales orders indices indicate declining activity and demand, it is at a slower rate than before.

The business activity index climbed by 5.7 points to 46, while new sales orders increased by 6.9 points in November to 46.6 points.

“While these solid improvements are encouraging developments and point to some recovery in underlying demand filtering through to better activity, there are some worrying signs in the survey results,” the Bureau for Economic Research (BER) said.

For instance, despite the higher activity, the employment index remained largely unchained at a low 41.1 index points.

Delays at South African ports are also leading to slower delivery of supplies, with respondents stating that the unavailability of inputs could hurt production and increase costs, whilst exports were also under pressure.

“Worryingly, it seems like it will take at least a few months for the disruptions at the harbours to clear up, which means that this could have a lingering negative impact on the sector,” the BER said.

The expected business conditions also declined in November to 41 points in November – its lowest level since the harshest levels of the Covid-19 lockdown in 2020. Purchasing managers thus expect business conditions to worsen over the next six months.

Going beyond logistics issues, the recent increase in load shedding could have also negatively impacted the forward-looking sentiment.

However, there was some good news on the cost front, as the purchasing price index continued its downward trend to 61.5 points in November.

“This is the lowest level since early 2018 and suggests that after a brief reacceleration in price pressure earlier this year amid a sharply weaker rand exchange rate, the moderation continued through the second half of the year,” the BER said.

“The decline in domestic fuel prices next week should provide some further relief on the cost front and could alleviate some pressure on manufacturers relying on diesel generators during the recent higher stages of load shedding.”

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