12. Projections for the m&e sector for 2021 and beyond

The year 2020 was a rough year for the Manufacturing sector and the economy in general, amid COVID-19 lockdown regulations being implemented in March 2020. It is important to reiterate that the industry was under strain even before the pandemic hit. South African industrial base cannot be eroded any further. Fixed investment remains key to the revival of the sector. Yet South Africa’s level of Gross Fixed Investment to total GDP is been on average below 20% on average since 1994. To grow the industrial base of South Africa, fixed investment share of GDP needs to move to levels above 40%, similar to other countries such as China at 42%.

Government’s commitment to spur investment is commendable. This includes the R791.2 billion that is to spent on infrastructure projects over the next three fiscal years.

12.1 Projections for the Manufacturing sector and M&E sector to 2023

The M&E sector is heavily reliant on demand from key Government projects to boost its production and sales, especially for products such as steel and other related downstream products such as roofing material. We applaud Government efforts to address the challenges in the industry through the Steel Master Plan.

SEIFSA expects improved market conditions, which will improve production patterns and capacity utilisation for the total manufacturing and the M&E sectors, with the vaccine roll-out bringing further confidence in the economy for industry to operate at full capacity.

As noted, there are some green-shoots in the economy, as demonstrated with data to June 2021 such as improving business confidence, improved sales of construction and building materials in recent months, as well as improving production volume and production sales in M&E sector products, we present the following revised projections to 2023, as contained in table 16.

Table 16: Projections for South Africa Manufacturing production and M&E Sector

Macroeconomic performance and projections

INDICATOR

2018 2019 2020 2021 2021 2022 2023 Q1 Q2 Q3 Q4

Manufacturing production (y-y %)

Manufacturing capacity utilisation (%) M&E production (y-y %) M&E capacity utilisation (%) 1.1 81.4 1.1 79.9 -0.01 80.9 1 78.6 10.9 72.3 13.7 67.6 45.6 78.6 356.2 77.1 16.4 76 94.9 75.2 15.1 79.7 58.9 78.6

Source: Stats SA, Quantec, SEIFSA calculations 0.5 76.3 13.7 67.9 19.4 77.7 128.4 77.0 1.1 78.8 0.9 79.2 1.3 83.0 1.0 82.0

SEIFSA projections above are under the assumptions of the following:

• Implementation of the Government’s economic recovery plan (infrastructure investments); • A stable labour market environment; • A stable monetary policy environment (low interest rates and inflation rates); • A continued pick-up in construction and building material demand (> 10%); • Low import penetration of related goods into the local market; • Stable electricity supply; and • Improved investment conditions into the sector.

12.2 Projections across M&E sub-sectors to 2023

Across the M&E sub-sectors, SEIFSA projects a moderate production growth rate pattern, with easing declines in production for the Basin iron and steel subsector. As Government infrastructure projects are being implemented, with adherence to the local procurement policy, demand conditions are improving for local producers.

PMI data is suggesting an expansionary phase in the manufacturing sector as order books improve for both domestic and export market on the African region. The mining industry is recovering well amid improved commodity prices and demand. The automotive sector is receiving more attention from the Government, and we expect improved demand conditions for local and export markets. Building and construction activity is also seeing some new light, with signs of improved activity being depicted. As demand conditions improve further, we are already seeing improvement in capacity utilisation to address supply issues.

The above view leads into a moderate production outlook for the M&E sub-sectors into 2023, as presented in table 17.

Table 17: M&E sub-sectors production growth rates projections to 2023

Year-on-year percentage change in production of M&E products

13 Metals and Engineering (M&E)sub-components 2018 2019 2020 2021 2021 2022 2023

Q1 Q2 Q3 Q4

-1.9 6.8 3.1 0.2 -5.0 2.3 -1.7 0.1 4.4 -6.5 6.3 9.2 -3.3 1.1

Rubber products 1.1 Plastic products 0.8 Basic iron and steel products -6.3 Non-ferrous metal products -3.2 Structural metal products 1.6 Other fabricated metal products -2.6 General purpose machinery 2.6 Special purpose machinery 0.6 Household appliances 6.9 Electrical machinery and apparatus -2.7 -2.0 Bodies for motor vehicles, trailers and semi trailers -2.0 Parts and accessories (motor veihicle) Other transport equipment -7.8 Average -1.0

Source: Stats SA, SEIFSA projections -14.4 -6.4 -23.4 -7.9 -14.4 8.1 -8.7 -12.4 -17.4 -16.3

-7.3

-19.3 -22.1 -13.7

5.3 -2.7 -16.6 2.5 -2.5 10.4 -1.4 6.3 -7.7 4.2 114.9 21.3 150.1 12.1 189.2 112.2 86.5 55.8 135.8 82.1

22.1 323.1

36.3 -9.6 3.6 2996.3 351.9 356.2 32.1 10.3 78.3 18.5 54.7 43.1 39.5 35.7 54.2 41.6

129.7

459.7 236.8 94.9 15.2 8.5 35.6 10.8 35.6 25.9 20.3 18.5 20.1 17.5

65.8

3468 145.6 58.9 41.9 9.3 61.8 11.0 69.3 47.9 36.2 29.1 50.6 36.4

135.2

959.8 181.2 128.4 12 0.5 -1.5 0.9 -1.3 1.4 1.4 1.1 1.2 1.5

3.1

1.3 0.9 0.9 1.3 1.2 -0.7 1.1 -0.7 1.1 1.1 0.9 1.5 1.3

2.8

1.3 0.7 1.0

It remains imperative that the Government addresses the challenges the industry is facing through prioritisation of implementation of all policy interventions.