The Manufacturing Circle Investment Tracker (MCIT) for the third quarter of 2018 revealed stable investment spending in line with industry expectation and firmly above the neutral 50-point mark, with the overall index flat at 58 index points.
Albeit stable on a quarter-on-quarter basis, the MCIT for the third quarter was lower than the 60-point level recorded in the third quarter of 2017 and 12 index points lower than the 70-point level in the third quarter of 2016.
The MCIT is a quarterly composite index tracking investment trends in the manufacturing sector. The MCIT focuses on the actual expenditure patterns of a sample of manufacturing firms, in the areas of property, plant and equipment, inventory, human capital and research and development (R&D).
Compared with the second quarter of this year, the new plant and equipment index decreased to 53 points in the third quarter, while maintenance and replacement of existing equipment increased to 68 points.
Expanding existing property increased to 50 points, while maintaining existing property decreased to 53 points.
Manufacturers’ inventory for the third quarter rose to 61 points.
R&D investment also increased to 63 points.
Salaries and wages increased to 68 points, while training and development decreased to 52 points.
“It is pleasing to note that all results this quarter are on or above the 50-point threshold, despite the country being in a technical recession,” said Manufacturing Circle executive Philippa Rodseth.
She explained that, according to the MCIT, paper and packaging manufacturers are counteracting rising input costs by raising prices and responding to increased demand for special packaging. They plan to invest further in property, plant and equipment expansion, maintenance and replacement projects, as well as high-quality products to remain competitive.
Encouragingly, some companies foresee opportunities for diversified investment across the manufacturing industry value chains, especially in the automotive sector where the demand for lightweight vehicles is increasing as the rise of the Fourth Industrial Revolution intensifies.
Manufacturers in the transport equipment sector continue to invest in collaborative strategic growth initiatives around the adoption of new technologies.
The inventory index’s increase to 61 points was above expectation, said Rodseth, pointing out that metals, wood, packaging and paper, chemicals, and transport equipment sectors, in particular, contributed to this increase.
However, the Manufacturing Circle expects weaker domestic demand and a weaker export performance to contribute to a depressed investment outlook in the fourth quarter of this year.
In line with the distressed manufacturing purchasing managers index, manufacturers’ investment sentiment for the fourth quarter is projected to drop to 50 index points. Investment cuts are expected on inventory and maintenance and replacement of plant and equipment, lowering the overall investment levels.
Regarding R&D, the Manufacturing Circle’s newly elected chairperson and Hulamin corporate affairs group executive Ayanda Mngadi said manufacturers’ focus is increasingly on market research and not as much products and technologies, owing to the changing trade policies around the world.
“Understanding and expanding markets has become more prioritized than developing new products, for the first time since the MCIT was published.”
Mngadi was welcomed to the board on Tuesday during the Manufacturing Circle's annual general meeting. She succeeds André de Ruyter as chairperson, and will hold the position for the next two years.
De Ruyter's parting comments included that one of the manufacturing industry's biggest challenges is the slow policy decision-making process within the various government departments.
Consequently, this prolongs the damage inflicted on manufacturers, which then results in the closure of factories and is often irreversible. One of the focus areas for the Manufacturing Circle next year will be facilitating a better understanding of, and active participation in, trade related issues.