June 28, 2022/CSL Research
Analysis of the Q1 2022 GDP report showed that the manufacturing sector sustained the positive trend seen in the past four consecutive quarters, rising by 5.89% in Q1 2022 from 2.28% y/y in Q4 2021 and 3.40% y/y in Q1 2021. The sector has been benefitting from a continued recovery in local demand and the sustained interventions given to critical sectors of the economy by the monetary authority. Across the subsectors that make up the manufacturing sector, the oil refining sector remained the laggard (-44.3% y/y), and continues to drag performance in the manufacturing sector with consolidated refining capacity at zero levels.
When the pandemic struck without warning, the impact negatively affected manufacturing activities, with Manufacturing GDP touching a low of -8.78% in Q2 2020. This, coupled with existing structural bottlenecks, forced many businesses out of operations. Several companies saw demand for their goods plummet on the back of movement restrictions, and consumer behaviour turned towards the search for essential items. However, since the reopening of the economy, gains from exports via open borders and increased credit supply to manufacturing businesses cut the sector some slack from the harsh effects of the pandemic.
In recent times, conversations around the manufacturing sector have been in the spotlight and has been receiving much attention from the government. From the 100 for 100 Policy for Production and Productivity (PPP) to the highly ambitious RT200 FX programme, and a new FX bidding regime, the government has been offering some support to the sector.
However, the existing FX constraints, supply chain disruptions and weak disposable income are all factors that will continue to undermine growth in the sector. The need to boost the manufacturing sector is pertinent to achieving the country’s output projection, and if structural constraints remain unaddressed, growth in the sector will remain sub-optimal.
Besides, the elevated diesel cost is currently throwing a spanner in the works on manufacturing operations and there is little room to pass the increased cost to consumers before demand, especially for discretionary goods, begins to wane.
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