Analysis of the Q3 2021 GDP report showed the manufacturing sector’s real GDP grew by 4.29% y/y. Since the start of the year, the sector amassed positive growth following the contraction witnessed in 2020. Reasons for such growth could be partly attributed to the low base in the prior year, yet the sector is also experiencing a boom in local demand and the continued interventions by the monetary authority to critical sectors of the economy on the path of inclusive growth. Also, the readings for Manufacturing PMI rose to 47.3 index points in October from 46.6 index points in September 2021, showing a gradual recovery of output growth, though still below the 50-index point mark. Meanwhile, we observed that the negative impact of the oil refining subsector has continued to drag performance in the manufacturing sector with consolidated refining capacity at zero levels.
We recall that the outbreak of the coronavirus negatively affected the manufacturing activities, 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, we believe 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.
When looking at the catalyst that impacted the sector, we see that 2021 is shaping up to be a positive year for the manufacturing sector, a situation that was last seen in 2019. As the economy continues to recover, we expect further improvement in the manufacturing sector. Although the emergence of the Omicron Covid-19 variant appears to be a downside risk. On the flip side, 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 manufacturing sector will remain lacklustre.
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