THE growing optimism about the South African economy was reflected in the Manufacturing Circle’s recently released 2017 fourth quarter investment tracker (MCIT).
The quarterly index tracks investment trends in the manufacturing sector. The focus is on actual expenditure patterns in the areas of property, plant and equipment, inventory, human capital and research and development.
In the last quarter of 2017, MCIT rose by three index points to 63, mirroring the first quarter of 2017 and jumping five index points on the same quarter in 2016. The increase was mainly driven by new investments in property, and higher spend on salaries and wages, which is expected in the fourth quarter, as firms hire more temporary staff to meet increased demand at this time of the year.
“Sentiment is changing and there is growing optimism about the prospects of the SA economy. Management teams are more positive about the future.,” said André de Ruyter, chairman of the Manufacturing Circle.
“MCIT reflects an upward trend, after a dip in quarter 3, with results consistently above the neutral 50-point mark, which is evidence of the resilience of the respondents, who are mostly medium to large firms.”
There was a 16 index point increase to 66 in investment on expanding existing property and/or purchasing of new buildings. Expenditure on property maintenance also rose from 58 to 66 points, the highest level since the introduction of the MCIT.
This is partly a result of the fact that general maintenance has been put off for an extended period due to the economic environment. It had reached a critical stage and needed to be attended to. In addition, there is always extra expenditure prior to the festive season.
Companies surveyed expect a further increase in the first quarter of 2018 which can be attributed to the general sentiment that the SA economy is improving.
Expenditure on new plant and equipment remained above the 50-point mark between Q3 2017 and Q4 2017 although at a lower rate, dropping from 72 points to 70.
Spending on the maintenance of existing plant and equipment increased in Q4 2017, continuing the increase from the previous quarter and adding a further 10 index points in Q4 to 66. Many companies use the December closure period for large maintenance projects so as to make effective use of downtime.
Looking ahead, manufacturers indicated that investment in new plant and equipment is likely to increase by the same rate in Q1 2018 as it did in Q4 2017, while expenditure on the maintenance of existing plant and equipment is likely to fall following extensive maintenance in the fourth quarter.
Spending on inventory follows demand patterns. In Q4 2017, it fell below the neutral 50-point threshold to 46 points after it had risen to 56 in the previous quarter. This is expected since sales generally increase in the fourth quarter every year, using up existing inventories. Looking ahead, manufacturing firms expect spending on inventories to fall in Q1 2018 although not to the same extent as Q4 2017. In Q4 2017 there was an increase in the expenditure on salaries by a further 14 index points compared to Q3, rising from 54 to 68. This was likely due to firms taking on more (temporary) workers to meet increased demand. There was also an increase in training similar to that in the previous quarter.