Manufacturing in Africa’s most industrialised economy flatlined in 2015 after nearly five years of slow growth, mirroring the steady decline of the economy, an International Monetary Fund (IMF) report released this week showed.
South Africa’s share of global exports fell by 15% between 2011 and 2014 the IMF said, despite a weaker rand which would typically benefit manufacturers by making exports cheaper.
“Our analysis suggests that ,” the IMF report, released on Monday, said.
South Africa suffered severe power shortages in 2015 and near-daily black-outs in the first half of the year as state-owned Eskom’s ageing coal-fired power stations buckled under increasing demand.
Power supply has since improved, and Eskom has said it expects no power cuts through winter, which runs to the end of August.
The Treasury estimated in 2015 that the power cuts shaved as much as 1% off gross domestic product (GDP). But even with power supplies restored, the outlook is not good, with the central bank forecasting GDP will grow by 0.9% this year rather than by the 1.5% it previously predicted.
The rand has fallen nearly 27% against the dollar in the past year, and by more than 50% since 2009. Against the euro, pound and yuan — currencies of its major trading partners — it has shed over 22% in the past year.
Despite this apparently favourable currency tailwind, exports fell by 5.1% month-on-month in December, while inching up annually by 3.8% between 2014 and 2015, according to the South African Revenue Service.
“Clearly, rand weakness does not automatically translate into increased manufacturing production, especially when the sector is plagued by periodic electricity outages,” Kevin Lings, chief economist at investment firm Stanlib, said.
South Africa relies on exports of fresh produce, precious metals, minerals, and motor vehicles. The latter, which accounted for 7.2% of GDP in 2014, saw exports slump 21.9% in January.
A weak rand has also hit importers whose input costs have risen, making competing with local rivals costlier, Statistics South Africa said.
The country’s statistics agency also said the currency benefits were being eroded by inflation compared with the country’s trading partners.
Inflation jumped to 6.2% year on year in January, just above the central bank’s targeted upper limit of 6%. A slowing global economy and low labour productivity in manufacturing of about 1% in the year to June 2015 also dented exports, Sanlam Investments economist Arthur Kamp said.
The IMF said it was small South African businesses and exporters, rather than dominant large manufacturers, that could benefit from the weaker rand.
The government is targeting growing small- and medium-sized enterprises through special economic zones, township economies and a black industrialist programme, Khanyisile Kweyama, CE of trade group Business Unity South African, said.
“The stimulation of the SMME (small, medium and micro-sized enterprises) sector is absolutely crucial. And not only by government but by the private sector too,” Mr Kweyama, who is also a member of the National Planning Commission behind the country’s growth plan, told Reuters on Wednesday.