In March, South Africa’s manufacturing sector recorded the highest level of sales (at current prices), according to data released by Statistics SA earlier this month. At R249 billion, the March figure was slightly higher than the previous record, set in November last year, but slightly lower when adjusting for inflation.
Source: Statistics SA
In the first quarter of 2022, total manufacturing sales amounted to R664 billion (at current prices), which surpassed last year’s first quarter sales of 11% and Absa / Bureau for Economic Research (BER) confirmed the encouraging trend of purchasing managers’ Index for Production (PMI). The latter has been running above the neutral 50 mark for 19 of the last 20 months – the only exception being the politically motivated instability in KwaZulu-Natal in July last year.
The other exceptional good news in the front sector of the economy is the new all-time record for the country’s exports. At the R186 billion level, March exports were 31% higher than in February and 11% higher than the previous record (March 2021).
It is clear that the sharp rise in the country’s export earnings is a continuation of the upward cycle of the current commodity price cycle, especially for coal.
Of late, the war in Ukraine has exacerbated Europe’s energy crisis and led to further upward pressure on the prices of several important South African exports, especially iron ore and coal.
Record exports have contributed significantly to one of the longest spells of trade surplus in decades. It also supported the RAND, which has remained one of the world’s best performing currencies against the US dollar since April 2020. In mid-May, the rand was 18% stronger against the US dollar than in early April two years ago. Other emerging market currencies, such as the Argentine peso.
From this unexpected development it is clear that the South African economy is generating steam. With the gradual recovery in the tourism-related sector and the forthcoming expansion of infrastructure spending (especially on energy), more jobs should be created in the coming months.
Unfortunately, many consumers are experiencing significant increases in fuel prices.
Carla Oberholzer, DebtSafe’s debt adviser, confirmed that “although we see a positive trend in the South African economy – growing energy growth is a concern.” He adds that many consumers face constant financial pressures and, as a result of high fuel prices, have to struggle to cover all their living expenses.
Hopefully, the war in Ukraine will end soon, which should be followed by a fall in oil prices and ultimately a reduction in pressure on South Africans and motorists.
Hopefully, the SA Reserve Bank will not react excessively to the recent rise in inflation and will not control any rise in interest rates. After all, the high prices are mainly due to the exorbitant rise in electricity and petrol prices and the high internal interest rates cannot solve this problem.
South Africa’s economy needs growth and job creation, not low inflation.
Dr. Roelf Botha is an Economic Adviser to Optimum Investment Group.