Metals and engineering (M&E) firms in South Africa have encountered enormous challenges in recent years, with the Covid-19 outbreak adding to an already challenging situation.
They are faced with a dwindling domestic market, declining production, weak production sales, a lesser contribution to the economy, rising unemployment, cheap imports, and low investment levels, to name a few difficulties.
These challenges do not plague the M&E sector only and their knock-on effects are felt throughout the economy due to its role as supplier and customer into the auto, motor, mining, construction and other manufacturing sub-industries.
“Manufacturing companies play an integral part in the supply chain of the South African economy and the sector will struggle to recover without support. The sector already relies heavily on demand from Government projects to boost its production and sales, especially for products such as steel and other downstream products.
This is why the Government must speed up the implementation of its infrastructure investment plan and reforms across state-owned enterprises (SOEs) as the lack of progress on these and other projects are delaying the revival of our economy,” says Lucio Trentini, the CEO of the Steel and Engineering Industries Federation of Southern Africa (SEIFSA).
Some form of protection against the dominance of imports while promoting domestic manufacturing and suppliers can also make a difference, though in the longer term the international competitiveness of the sector will need to improve before local producers can assume the role of preferred supplier to both domestic and international markets, he says.
There is also help at hand in the form of the African Continental Free Trade Area (AfCFTA) agreement, which offers new opportunities for trade on the continent in the M&E sector.
Costs remain an issue for manufacturers. The unexpected acceleration in producer inflation in December highlighted the effect of higher energy prices globally and global supply chain problems. According to the latest data released by Statistics SA, the producer price index (PPI) for final manufactured goods rose 10.8% year on year in December, up from 9.6% in November. Stats SA said coke, petroleum, chemicals, rubber and plastic products were the main contributors to the higher number; these product categories incorporate petrol and diesel prices, which are close to record highs.
Manufacturers also have to contend with falling prices, which benefit buyers of the M&E sector’s products, but put enormous pressure on manufacturers’ profit margins, which in turn leads to job losses as companies look for ways to cut costs.
