South African manufacturers’ confidence has rebounded to the highest level in two years, mainly due to the suspension of load shedding, according to the second quarterly Absa manufacturing survey of the year, released on Wednesday.

“Over the last few years, manufacturers’ confidence levels have been broadly correlated to the intensity of load shedding,” said Justin Schmidt, Executive of Sectors: Manufacturing, Renewable Energy and Logistics at Absa Relationship Banking.

“Although business conditions remain tough, the suspension of load shedding has been the main factor supporting improved sentiment this quarter.”

The survey, covering approximately 700 businesses in the manufacturing sector, was conducted by the Bureau for Economic Research at Stellenbosch University from May 9 to 27. Its confidence index ranges between zero and 100 with zero reflecting an extreme lack of confidence and 100 extreme confidence when all participants are satisfied with current business conditions. South African manufacturers’ confidence rose seven points to 28 during the second quarter of this year.

Manufacturing capacity utilisation also improved by 11 points to the best level since the last quarter of 2021. Relative to planned production and expected demand, current raw material and finished good stocks returned to positive terrain, increasing 17 and 16 points respectively, reaching the highest levels recorded since 2020 and 2022.

There was also a nine-point increase in seasonally adjusted production while raw material shortages and insufficient demand were considered less constraining on current activities.

After five consecutive quarters of negative readings, manufacturers are also more upbeat about fixed investment, which increased by 12 points.

“Given energy constraints, manufacturers have focused their recent efforts on staying operational by investing in renewable energy or generators. Perhaps now we will start seeing investment into capacity building,” Schmidt said.

Manufacturers also indicated a significant improvement (up 21 points) in their intentions to invest in machinery and equipment over the next 12 months.

Looking ahead, more manufacturers are also expecting business conditions to improve over the next 12 months (up 20 points) and expect an increase in import and export volumes (up seven and six points respectively).

“While improved sentiment is an encouraging development, competition from cheaper imports, rand volatility, muted consumer demand and port-related issues remain concerns. The recent storms in KwaZulu-Natal could also result in downside risk,” said Schmidt.