Johannesburg - A decline of business confidence in the manufacturing sector adds credence to calls for decisive leadership, the Manufacturing Circle said on Wednesday.
Executive director Coenraad Bezuidenhout said the decline in business confidence added credence to the call made by SA Reserve Bank governor Gill Marcus for decisive leadership.
"It reflects... that allowing for coherent policy execution on matters important to the economy to be subverted at every seeming advance by competition in cabinet and outside... does not bode well for investor confidence," he said.
According to the Bureau for Economic Research (BER), business confidence in the manufacturing sector fell by eight index points in the second quarter of 2013, to 34.
Bezuidenhout said a climate that was conducive to investment growth needed a strong hand on the tiller of the economy, that could make decisions and stick to them.
BER economist Lissette IJssel de Schepper said the decline partially erased gains made in the previous two quarters, as the index stood just above the level it reached in the third quarter of 2012.
She said the fall in manufacturing business confidence highlighted a deteriorated sentiment in the sector.
A persisting sense of uncertainty was also reflected in the rating of the general political climate as a constraint on business. The indicator rose further from its multi-decade record high.
Contrasting the positive experience during the previous quarter, export performance worsened notably.
"While manufacturers were expecting further gains during the second quarter of 2013, both the indicators for export sales and order volumes fell into negative territory," she said.
Added to changes in the exchange rate, another development likely depressing manufacturers' sentiment was the indication that profitability had come under pressure.
The rate of increase in the average production costs remained unchanged at a fairly high level, but producers reported lower average selling price inflation for both domestic and export prices.
Production volume growth slowed compared to the previous quarter, but remained in positive territory.
In line with the moderation in production growth, manufacturers reported a decline in employment and average hours worked per factory worker.
"A decline in the average hours worked usually does not bode well for employment in the industry," De Schepper said.
Other indicators confirmed there was a significant slack in capacity within the industry. However, manufacturers were optimistic about domestic demand conditions during the next quarter.
"Producers might be anticipating a demand shift towards import-replacing [locally produced] products, due to the weaker exchange rate making imported manufactured goods more expensive," said De Schepper.