Civil Engineering March 2021 | Vol 29 No 2

Civil Engineering March 2021 59 SEIFSA Chief Economist Chifipa Mhango, who led the compilation of the report, revealed that the M&E sector faced signifi- cant obstacles over the past year, some of which already plagued the industry prior to 2020, such as rising energy costs, unreli- able energy supply, rising logistical costs, limited raw material supply, exchange rate volatility, capacity under-utilisation, subdued demand, declining net operating surplus and rising imports. However, the report findings show that the Covid-19 pandemic and lockdown measures implemented by the govern- ment negatively impacted manufacturing activity and the broader M&E industries. “The impact of lockdown measures led to a decline in the production of products such as steel, one of the key sub-sectors within the M&E sector, as well as a significant drop in its trade. Global com- modity prices are influenced by produc- tion in this sector and lockdown measures significantly affected the prices, which dropped to their lowest levels in April last year,” said Mhango. PRODUCTION The report shows that production levels in the M&E sector fell to their lowest levels in April 2020, dropping 70.7% year on year due to the lockdown restriction measures that were implemented in March 2020. The sector was 13.6% weaker in 2020 when compared to 2019, with the basic iron and steel sub-sector, which was the hardest hit, being 23.4% weaker in production than in 2019. Production sales also dropped to their lowest level, falling 69.3% year-on-year in April 2020. M&E sector production sales were 12.3% weaker in 2020 when compared to 2019, with the basic iron and steel sub-sector being the hardest hit, at 20.5% weaker in production sales than in 2019. TRADE With borders closed as part of measures to stop the spread of the coronavirus, trade in South Africa was brought to a screeching halt. In the M&E sector, both import and export values dropped between the first and second quarters, with imports dropping from R134 billion to R105 billion and exports dropping from R92 billion to R59 billion. EMPLOYMENT According to the report, employment in the overall manufacturing sector remained on a downward trend, with the M&E sector shedding 25 857 jobs during the lockdown period. However, the report also shows that the easing of restrictions led to a revival of industrial activity. The third and fourth quarters of 2020 saw a rise in demand for construction and building material sales from a low level of R1.9 billion in April 2020 to a high of R12 billion in November 2020. BUSINESS CONFIDENCE “Business confidence also picked up to an index measure of 40 in the third quarter of 2020. However, the M&E sector was under pressure in 2020. Production remained weak throughout the year due to the impact of Covid-19 lockdown regu- lations, with a total production decline of -15.3% year on year. Production sales were also affected by the restrictions as de- mand from key market segments declined. Total sales to November 2020 amounted to R668 billion, which fell 13.4% year on year,” said Mhango. FUTURE CONCERNS Still, the report paints a worrying picture for companies in the M&E sector, with decreasing price patterns in intermediate manufactured goods PPI since 2016. It shows that high electricity prices have compounded the existing gap between the selling prices for M&E intermediate goods and production. Of concern, as noted in the report, is the massive surge in prices of mining input products to 32.5% in 2020, which is higher than the price increases of intermediate manufactured goods, raising questions over the sustain- ability of the M&E sector. As outlined in the report, the M&E sector is facing several pressures which have resulted in poor performance, ac- cording to most indicators. “It is, therefore, critical that the government supports the recovery of the sector through sustainable policy inter- ventions, including the speedy implemen- tation of the Steel Master Plan and other supportive measures,” said Mhango. He believes there is reason to remain hopeful of recovery given some commit- ments made by the government: “In [the 2021] budget speech, Finance Minister Tito Mboweni said the government has allocated R791.2 billion for public infrastructure spending, which will boost the M&E sector. The plans for the rolling out of Covid-19 vaccines as well as other investment incentives for the manufac- turing sector also provide a platform to bring business confidence back to much higher levels to return industrial activity to full production.” Concluding the report, Mhango said SEIFSA envisages projected growth of 0.8% for M&E sector production in 2021 and 0.9% for total manufacturing. Government policy support essential to revive M&E sector The State of the Metals and Engineering Sector Report 2020-2022 , released recently by the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) provides a comprehensive review of the metals and engineering (M&E) sector over the past year, considering local and external economic variables.