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Johannesburg - Business conditions in manufacturing improved slightly in the fourth quarter of 2011 but the sector remains under pressure, the Manufacturing Circle said on Wednesday.
"Manufacturing production grew at a rate of 1% in the fourth quarter of 2011 compared to a 0.1% contraction in the previous quarter," Manufacturing Circle chairperson Stewart Jennings said in a statement.
The Manufacturing Circle was releasing its quarterly manufacturing bulletin which assessed economic and business conditions in the manufacturing sector in the fourth quarter of last year.
It found the purchasing managers' index (PMI), a gauge of the manufacturing sector's health, improved to 50.5 points in the fourth quarter of last year from 48.3 points the previous quarter, indicating an improved business environment.
"The sector, however, remains under pressure and will be greatly influenced by developments in the domestic and global economic environment, including wages and electricity prices locally," Jennings said.
It would also be affected by international commodity prices, investors' risk appetite and the volatility of the rand exchange rate.
Some 53 000 new manufacturing jobs were created in the quarter, according to the Statistics South Africa Quarterly Labour Survey.
"The increase in employment remains, however, sluggish as suggested by the employment component of the PMI which was, on average, in contraction territory during the quarter," Jennings said.
"This could be attributed to higher labour costs, coupled with an uncertain outlook on the domestic and global economic environment."
During the period, domestic demand for locally manufactured goods outweighed international demand.
"As such, we expect sustained domestic demand for locally manufactured goods to remain for the foreseeable future."
Jennings said there was increasing competition from cheap Asian products, impacting export demand from developing markets.
Demand from developed markets was affected by the volatility of the rand exchange rate.
Jennings said production costs were high and margins were expected to remain under pressure due to rapid escalations in administered prices like electricity.
"We are pleased that, in his state of the nation address, the president requested Eskom to deliver new options to stabilise electricity costs.
"It is imperative that these options extend beyond behaviour-changing incentives to actual absorption of electricity costs in order to save and even create jobs."
Jennings said the Manufacturing Circle would be open to any pacts with government, labour and communities to support such action.
The majority of manufacturers expected stable business conditions in the foreseeable future.
"Manufacturing output is expected to register slower growth with an estimated 3.75% and 4.23% in 2011 and 2012, respectively," Jennings said.
The survey contains the views of 48 South African CEOs of manufacturing companies with revenues ranging from R300m and R10bn.
