Figure 1<\/b><\/p>\n
<\/p>\n The severe contraction of 2008\/2009 was followed by a period of convalescence. Between mid-2009 and mid-2013, SA\u2019s manufacturing production showed positive growth, but between mid-2013 and the end of 2015, growth in manufacturing production was generally flat.<\/p>\n There are many factors that influence the manufacturing industry, e.g. the global and domestic business cycles, productivity, business confidence, investment, industrial relations, input and output prices, monetary and fiscal policy, infrastructure, the rand exchange rate. The graphs that follow focus on manufacturing production and the exchange rate.<\/p>\n Figure 2 shows manufacturing production compared with the R\/$ exchange rate. In the five-year period 2011 to 2015, the rand weakened from around R6,90\/$ (Jan-2011)\u00a0to around R15\/$ (Dec-2015). Rand weakness tends to assist South African manufacturers in two ways. Firstly, manufacturing exporters receive more revenue in rand terms for every unit of foreign exchange received, and secondly, it becomes more expensive for importers to compete with local manufacturers who are in competition with them. These benefits may be eroded over time if the weaker rand and related factors result in cost inflation for manufacturers, e.g. more expensive imports (and for manufacturers who rely heavily on imports for their inputs, a weaker rand is not good news at all).<\/p>\n Between January 2011 and December 2015, the rand lost 54% of its value against the dollar (measured in terms of the dollar price of the rand). Following growth of 4,6% in 2010, manufacturing production slowed to 2,8% in 2011; 2,2% in 2012; 1,3% in 2013; 0,1% in 2014; and 0,0% in 2015.<\/p>\n Figure 2<\/b><\/p>\n <\/p>\n However, comparing manufacturing production with the rand price of a basket of currencies (instead of the US dollar) provides a different perspective. The South African Reserve Bank (SARB) calculates the \u201ceffective exchange rate of the rand\u201d, which shows changes in the value of the rand against a basket of currencies. Five currencies account for approximately three-quarters of the basket, namely the euro (29%), the yuan (21%), the dollar (14%), the yen (6%) and the pound (6%).3<\/sup><\/p>\n The effective exchange rate of the rand is shown by the broken line in Figure 3. A higher value reflects a weakening of the rand (just as a higher rand\/dollar rate also reflects a weakening of the rand). In nominal terms (which means there has been no adjustment for inflation), the effective rand weakened during 2011\u20132013, was relatively stable during much of 2014, and weakened during 2015.<\/p>\n Figure 3<\/b><\/p>\n Figure 4<\/b><\/p>\n The SARB also calculates the effective rand in real terms, which is the nominal effective rand adjusted for inflation differences between South Africa and its trading partners (see Figure 4). For example, the benefits of a weakening in the nominal effective rand are counteracted if South Africa\u2019s inflation is higher than average inflation in its trading partners. In general, the benefits of a weaker rand for manufacturers would be eroded by higher cost inflation in South Africa (compared with its trading partners). \u201cThe real effective exchange rate of the rand may be regarded as a barometer of external competitiveness in manufacturing\u201d<\/b> (SARB Quarterly Bulletin, December 2008).<\/p>\n Figure 4 shows that the real effective rand weakened during 2011\u20132013, strengthened during 2014 and early 2015, and thereafter weakened again. The strengthening of the real effective rand in 2014 is a far cry from the weakening in the nominal rand\/dollar exchange rate shown in Figure 2.<\/p>\n How will manufacturers fare in 2016? That remains to be seen! As noted earlier, there are multiple factors that affect manufacturing, which makes it difficult to quantify their individual impact. An additional complication in measuring economic relationships between variables is that there may be lags between causes and effects, e.g. exporters may need time to respond to a weaker exchange rate if they face supply-side constraints such as shortages of production capacity, labour, electricity and other inputs.<\/p>\n Finally, let\u2019s take a brief look at the breakdown of manufacturing. There are 10 manufacturing divisions. Table 1 shows their performance in terms of production (volume) growth for the period 2011\u20132015.<\/p>\n Table 1 \u2013 Annual percentage change in manufacturing production (volume)<\/b><\/p>\n![\"Fig1\"](\"https:\/\/www.statssa.gov.za\/wp-content\/uploads\/2016\/02\/Fig1.jpg\")
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