JOHANNESBURG — South Africa’s struggling manufacturing sector staged an unexpected revival last month, with a key survey out on Monday hitting a six-year high as local factories began to take advantage of the weaker rand.
The 4,3 points jump in the Kagiso purchasing managers’ index to 56,5 was broadly welcomed, as it suggested continued growth in manufacturing activity — a positive for economic growth prospects.
“While the threat of industrial unrest remains, there is finally some sign that recovery in the rest of the world and the promise implied by a weaker ZAR (rand), is helping,” head of Africa research at Standard Chartered Razia Khan said.
“It also suggests that the outlook for trade in the second half may not be as dismal as in the first.”
The purchasing managers’ index (PMI) for China indicated activity in its manufacturing sector was at its highest in more than a year, while recent signs of improvement also continued in the eurozone — both good news for South Africa’s export-reliant manufacturing sector.
The rand gained to as much as R10,15/$ in early trade on Monday, on the stronger local PMI, which is seen as an accurate guide to manufacturers’ intentions.
Kagiso asset management head of research Abdul Davids said he was surprised by the extent of the increase in the Kagiso PMI, which has now been above 50 for five successive months.
“The PMI has been rising since March and the momentum is building. This shows us conditions in the sector are improving,” Davids said. The PMI has been supported by gains in some of its main subindices, such as business activity and new sales orders.
The new sales orders index rose 2,5 points to 57,5 last month, suggesting the demand for manufactured goods had improved, according to Kagiso.
Davids said they were seeing what might be the first signs of import replacement as the weaker rand improved the competitiveness of locally-manufactured goods.
Trade figures are, however, still pointing to a heavy reliance on imports. Imports rose almost R14bn, or 18%, in July while exports increased by R7,45bn, or 10,9%, official figures showed last week.
Manufacturers said it could be some time before import replacement started to reflect in the figures given volatility in the rand.