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Manufacturing2 image set
Sectors 10 May 2023

The outlook for Manufacturing in 2023 and beyond

As the sector braces for another tough year, supply chain disruptions and power security remain at the top of the agenda for South Africa’s manufacturers.

Weathering tough operating conditions has become the norm rather than the exception for South Africa’s manufacturers. The sector is also bracing for lower-than-expected earning potentials in 2023 in line with the International Monetary Fund (IMF) forecasts.

Strengthening and diversifying supply chains

Supply chain disruptions remain a top concern of manufacturers. Internationally, China’s zero-tolerance policy to Covid outbreaks and the resultant sporadic shutdowns of operations and ports continue to create sourcing bottlenecks, meanwhile, deteriorating performance and disruption to operations in South Africa are creating local pressures on the movement of goods.

The invasion of Ukraine exacerbates the problems impeding recovery. Despite the fact that direct trade and financial ties with Russia and Ukraine are limited, the war is likely to have an impact on economies in sub-Saharan Africa through higher commodity prices, higher food, fuel, and headline inflation, tightening of global financial markets, and reduced foreign financing flows into the region.

In this environment, supply chain finance and foreign trade tools have become essential risk mitigants for many manufacturers. We support our clients through specialised funding mechanisms to secure critical inputs, unlock working capital and lengthen payment terms.

Working together with our Trade Team, we’re also able to help our clients identify new pre-vetted trading partners in over 60 countries, provide Bank Guarantees and Letters of Credit to de-risk cross-border transactions with new trading partners, and supply end-to-end logistical support.

Addressing the power security issue

Another area of concern is that of power security. The cost of power outages to South African manufacturers cannot be overstated: lost materials and time-consuming recovery efforts, mounting labour costs due to idle factory floors and the need for overtime to meet output targets, delayed order fulfilment and the subsequent risk of losing clientele.

While many manufacturers have already invested in some form of power fallback system, South Africa’s Government announcement in July 2022 has opened the way for independent energy production at scale.

In 2021, Government amended Schedule 2 of the Electricity Generation Act, granting permission to private entities to self-generate up to 100 megawatts of power without requiring a NERSA licence to do so. The subsequent July 2022 proposal will completely eliminate the embedded generation licensing threshold making it possible for businesses to make unlimited investments into energy production, such as solar power.

This policy adjustment not only addresses the issue of power security but also allows for relief from looming electricity tariff hikes and may reduce the financial burden of carbon tax legislation, once fully enacted.

While there are numerous advantages to using solar power, solar PV installations are not without their risks. For those unfamiliar with industrial installations, it can be difficult to accurately assess energy and infrastructure needs, evaluate quotes, compare component specifications, determine the quality of the proposed technology and warranties, screen suppliers, and determine costs versus expected returns.

Our proprietary PowerPulse solution is a digital platform that enables businesses to cut through this fog and navigate the complex process of commercial solar PV installations with ease – by delivering an end-to-end technical, legal, and funding solution.

ESG-linked financing

As Africa’s largest bank by asset size, we are committed to driving sustainable and inclusive economic growth and human development across Africa, and to ensuring that our business activities create net positive social, economic, and environmental impacts.

We are therefore proud to be partnering with clients that are committed to making meaningful change by providing sustainability-linked loans and bonds in the form of Environmental, Social and Governance (ESG) financing.

Investing in the future

Manufacturers looking to gain and maintain competitive advantage will have to grow their IT infrastructure investments in 2023.

Progressive manufacturers are making investments in laying the technology foundation for their smart factories and investing in disruptive technologies such as augmented reality (AR), artificial intelligence (AI), Internet of Things (IoT), additive manufacturing and advanced analytics. These leading-edge technologies are transforming R&D, operational efficiencies, training and reskilling of employees, quality control processes and reporting.

Organisations must also keep abreast of cyber threats, by not only focusing on cyber defence but also on the resiliency and continuity of businesses in the event of a cyberattack. Ramping up monitoring efforts to detect anomalous behaviour in information and operational technology can prevent catastrophic damage.

Seeking new opportunities in Africa

Africa’s fast-growing population and markets present attractive prospects for local and international businesses looking for alternative opportunities in an environment of slower growth.

As Africa’s largest bank by asset size, our on-the-ground presence in 20 countries across the continent positions us to assist local manufacturers to extend their operations, sourcing and distribution networks.

We offer our African clients in-depth sector and regional expertise, specialist capabilities and access to global capital markets for transactional banking, trading, and funding support.

Our advisory team is also at hand to set up tax-effective structures and procurement hubs, while our in-country finance teams can assist with navigating local commercial and regulatory environments as well as providing flexible forex liquidity solutions for funding in both local and hard currencies.

Interested to learn more?

If you’d like to learn more about how we may assist your organisation to achieve its ambitions, please reach out to us to begin the conversation.