Power cuts push South African factory activity to lowest level in 14 months

Business activity in South Africa’s manufacturing industry fell to its lowest level in 14 months in September as electricity supply constraints in the continent’s most industrialized economy disrupted operations.

A gauge tracking business activity fell to 38.5 from 50.6 in August, the Absa Group said on Monday. It is the lowest monthly figure since July 2021, when deadly riots, looting and arson disrupted supply chains, industrial production and demand for manufactured goods. A result below 50 indicates a contraction.

Reduced factory activity contributed to a drop in the overall purchasing managers’ index, which fell to 48.2 from 52.1 the previous month, the Johannesburg-based lender said.

“Heavier load shedding during the month was likely driving the decline from August,” he said, using a local term for power outages.

South Africa is suffering from an energy crisis as the electricity utility Eskom, which produces almost all of the country’s electricity, struggles to meet demand. It imposed a record 119 days of outages so far in 2022, according to calculations by Bloomberg. The state-owned company cut power every month except January and forced the country to suffer 25 days of consecutive blackouts in September.

“Overall, the PMI results do not bode well for a strong recovery in real manufacturing output after a dismal second quarter,” Absa said. While the sector, which accounts for 13% of gross domestic product, is not expected to be as bad as the previous quarter, a strong rebound is unlikely, the bank said.

Manufacturing was among seven industries to contract in the three months of June after devastating floods wreaked havoc in the eastern province of KwaZulu-Natal in April, halting operations at vehicle manufacturing plants and shutting down the main port of the country.

The trade conditions forecast six months ahead indicator fell to 51.1 from 57.9 in August, as “concerns about continued load shedding, the health of the global economy and perhaps the lingering effects of rising borrowing costs have likely affected sentiment,” Absa said.

The Absa Purchasing Managers Index is compiled by the Bureau for Economic Research.

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