According to Statistics South Africa (StatsSA), the country’s manufacturing output has increased by 4.6% compared to the same period in 2020. March 2021 was the first month since December 2020 that industrial output increased year-on-year. The last time positive growth was experienced across the industry was in May 2019.
Before the pandemic ravaged South Africa’s economy, the sector was struggling on a number of fronts. However, this recent growth is a welcome change and a positive step in the right direction since the onset of Covid-19. It points to greater collaboration between companies in the manufacturing sector, government and foreign businesses.
Investment and collaboration are the foundations of growth
Formex Industries recently made a R70-million investment into its production facilities, which also helped to boost job creation in the Nelson Mandela Bay Area. “There’s been a demand in what we offer and all this results in the creation of jobs,” explains Formex chief executive officer (CEO) Hennie Venter. The money has been used to purchase new equipment, such as metal presses, and certainly helped to boost the company’s output of automotive components and assemblies.
In addition, recent collaboration such as that between the African Association of Automotive Manufacturers (AAAM) and the African Export-Import Bank (Afreximbank) has helped to improve investment and financing in the automotive sector. These sorts of partnerships improve regional automotive value chains and help to increase capacity-building efforts – all of which lead to growth in the sector.
The third likely reason for the growth is increased foreign investment in the automotive sector. Ford Motor Company recently made a $1-billion (~R15.2-billion) investment into the South African automotive sector that will create around 11 200 jobs across the supply chain and boost the manufacturing capacity and output of a number of suppliers and partners, including Formex Industries.
Automotive sector played large role in growth
The two largest contributors to this economic growth were the food and beverage industry and the automotive manufacturing industry. Automotive components and vehicle manufacturing accounted for 25.9% of the country’s total output, contributing 2.1 percentage points. The food and beverage sector contributed 10.4% of the total output and 3 percentage points.
The growth rebound in the automotive sector during the first quarter of 2021 can be explained by a few factors. One possibility is that the sector anticipated that a shutdown was imminent in March 2020, so it may have slowed production in preparation for lower demand when uncertainty was visible. It fell by 13% in March 2020, so the 2021 rebound came from a low base.
Another motivator could be a scarcity of replacement components, which has shifted the industry into full force. When compared to the fourth quarter of 2020, seasonally adjusted manufacturing production increased by 0.3% in the first quarter of 2021. This came after a 1.1% month-on-month drop in February 2021 and a 0.3% month-on-month drop in January 2021.
During this time period, 5 of the 10 manufacturing divisions recorded positive growth rates. However, the petroleum, chemical products, rubber and plastic products sector produced the greatest negative contribution to the national output (-7.1%, contributing -1.5 percentage points). With the threat of a third wave of Covid-19 during the middle of the year, it remains to be seen what impact this will have on South Africa’s manufacturing output from June onwards.
Formex Industries is a metal forming and assembly company that supplies a variety of complex products to the local automotive industry and the export market. The company is based in the Nelson Mandela Bay metropole, South Africa’s foremost region for automotive manufacturing and export.
Formex is a supplier with over 80% black ownership, of which more than 40% are black women. The company is owned by Deneb Investments Limited – a subsidiary of Hosken Consolidated Investments Limited (HCI) – one of South Africa’s biggest true B-BBEE companies listed on the Johannesburg Stock Exchange (JSE).
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