By Lehlohonolo Lehana.
A gauge measuring manufacturing sentiment dropped the most in nine months in April after the worst flooding in almost three decades left more than 400 people dead, damaged businesses and halted operations at the nation’s biggest port.
Absa Group Ltd’s purchasing managers’ index, compiled by the Bureau for Economic Research, dropped to 50.7 from 60 a month earlier. That’s the biggest monthly decline and the lowest reading since July, when deadly riots, looting and arson that erupted in the eastern KwaZulu-Natal province disrupted supply chains, industrial output and demand for manufactured goods.
The coastal province suffered the heaviest rainfall in at least six decades in April, triggering floods and landslides that washed away roads, bridges, houses and damaged infrastructure at the Port of Durban, sub-Saharan Africa’s biggest container hub.
KwaZulu-Natal province is the second-biggest contributor to South Africa’s gross domestic product and damage by the floods will run into billions of rands.
The impact of the floods, declared a national disaster by the government, continues to weigh on the South African economy after causing extensive damage to facilities owned by Toyota Motor Corp and paper company Sappi Ltd. It also forced Sasol Ltd to declare force majeure on some of its chemicals exports.
Factories not directly affected by the flooding probably saw a drop in demand and export sales that likely stemmed from the temporary closing of the harbor, the Johannesburg-based lender said Tuesday in an emailed statement. “While normal harbor operations resumed after a few days, export deliveries will remain strained for some time due to significant backlogs and limited availability of vessel space,” Absa said.
Breakdowns at electricity-generation plants, which forced the state power utility to double the intensity of nationwide outages, also affected manufacturers, the bank said.
Despite the monthly decline, the main index has now been above 50 – the level that signals expansion – for nine consecutive months. This suggests conditions in an industry that accounts for 13% of gross domestic product are continuing to normalize after stop-start coronavirus-lockdown restrictions, global supply chain disruptions and the civil unrest.
Purchasing managers appear more upbeat about short-term prospects, with the index tracking expected business conditions in six months’ time rising to 55.7 from 55.1. While a decline in oil prices saw the gauge measuring purchasing prices drop from a record high, input costs continue to increase at a rapid pace and could weigh on sentiment, Absa said.
The employment index increasing by three index points in April is somewhat surprising given the downward movements in the other indices, which may suggest that the declines in activity and demand may be deemed temporary, not necessitating producers to shed further jobs, the PMI added.
Meanwhile, there was some relief on the cost front, as the purchasing price index declined after reaching a record-high level in the previous month. The rand exchange rate was, on average, unchanged compared with the previous month, but the Brent crude oil price came down slightly, which may cap the magnitude or limit further increases in petrochemical prices.
The business activity index lost more than 20 points in April to 39.6 from 60.5 in March. Production stoppages owing to the KwaZulu-Natal flooding, as well as fairly intense load-shedding during the month, likely contributed to the drop.