Manufacturing Bulletin Q Presentation for : Manufacturing Circle 15 July 2011 By Dr Iraj Abedian Pan-African Investment & Research Services(Pty) Ltd.

Slide # 2 Outline Introduction Overall Manufacturing Business Confidence Current South African Manufacturing Trends Manufacturing Survey Results: Q Concluding Remarks

Slide # 3 Introduction: Q Manufacturing Circle Survey Profile of Survey Participants

Overall Manufacturing Business Confidence

Current South African Manufacturing Trends

Robust Q Manufacturing Output Source: Statistics South Africa, Q GDP Manufacturing production grew sharply in Q1 2011, to q/q, seasonally adjusted and annualised rate of 14.5%. Robust growth was driven in part by the then optimistic global output prospects, stronger domestic demand, higher commodity prices and most importantly statistical base factors. Manufacturing Output

Manufacturing Employment in Q Source: Statistics South Africa, Q Quarterly Labour Force Survey Employment in the manufacturing sector increased by in Q1 2011, benefiting from the recovery in manufacturing output. Employment Trends in the Manufacturing Sector

Fixed Investment Remains Constrained Source: South African Reserve Bank, Quarterly Bulletin, March 2011 Fixed investment in the domestic manufacturing sector increased modestly in Q1 2011, rising by a seasonally adjusted and annualised 1% (q/q). Manufacturing Investment

Manufacturing Outlook Remains Fragile Source: Bureau for Economic Research PMI deteriorated for the full three months of Q Employment component of the index remains below critical 50 mark. Kagiso Purchasing Managers Index

Manufacturing Survey: Q1 2011

Demand Conditions: Export-Orientation Profile

Demand Conditions: Domestic vs. Exports Sales 0

Demand Conditions: Export vs. Domestic Market The ratio of export sales to total sales outweighed that of domestic sales. This occurred, as export activity picked up due to favourable global conditions. Local manufacturing is competing against increasing imports, driven by continued strong rand, for its domestic share. Sustained export growth is necessary if some industries are to survive.

Supply Conditions: Input Costs and Ratio of Components Total input costs were higher in the first quarter, driven mainly by a surge in imported input components owing to higher commodity prices.

Employment Conditions Employment levels remained relatively unchanged from Q Sector reluctant to increase employment in the short to medium term. Availability of skills in sector remains inadequate.

Labour Productivity and Regulatory Environment Labour productivity levels unchanged from Q No tangible change within the regulatory environment.

Financial Conditions Slight improvement in profit margins. Lower debt burden. The cost of capital for short-term and long-term borrowing still low.

Concluding Remarks: Local manufacturing production will continue to be dependent on stronger domestic demand into the second quarter. However, threats from increased competition from imports, partly due to strong rand, remain and likely to increase. Renewed uncertainties within global economic recovery threaten global/export demand. Compounded negative impact of the strong rand erodes export margins and reduces competitiveness. Overall, the manufacturing sector remains vulnerable to major structural constraints.

Slide # 19 Thank you for your attention

Penetrating Africas market lies in identifying the countrys comparative edge within the manufacturing sector… Exports shares in manufacturing output remain low at 16.7% in Meanwhile, industries at the bottom reading may not be at a disadvantage, but may be hindered by structural factors embedded at the industry level. The share of manufacturing exports that goes to Africa stand at 18%, indicating that most manufacturing exports are still directed to the traditional western trading partners. However, given the fast growing African market, and as one of the next world growth frontiers, the promotion of the manufacturing industries that export the most to Africa should be the prime target.