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SIMON BROWN: I’m chatting now with Dr Greg Cline. He’s head of portfolio management at Investec. Greg, appreciate the early morning. Manufacturing locally – we’re seeing oil prices higher. We’re seeing the rand weaker. We’re seeing all sorts of challenges in terms of logistics, fuel prices.
Manufacturing in many senses really is the front line to this and taking the pain, although maybe different timings. But it is hurting. The longer it goes on the more it hurts.
Dr GREG CLINE: Absolutely. Morning, Simon. And morning to your listeners. I think manufacturing is certainly at the front line of driving consumer spend ultimately and the price inputs there.
What we’ve seen is that we’ve come through a December/January where gold prices were doing well, platinum group metals doing well. There was a lot of optimism in the economy. Load shedding was a thing of the past.
The oil price was at $65. We had a little bit of the benefit still coming from the two-pot system, a pull-down of about R40 billion into the economy and things were looking quite rosy. In fact, the economists were predicting another two further rate cuts of 50 basis points each.
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Fast forward to today, and things have changed somewhat. The rand is still doing well, which is a good indicator of support for our economy, along with the ratings upgrades. But the cost inputs have just gone out of control. The oil price is up 40%.
And when it comes to manufacturing, we’re sitting in an economy where we’re importing about R1.6 trillion worth of raw goods. So if you take that into account along with the fuel prices and the difficulty of the supply-chain disruptions that we’re now seeing, and the costs of getting goods into South Africa, the fuel costs have gone up dramatically.
We’ve seen the cost of sea freight going up to 250%, and airfreight up to 600%. So all of those cost inputs just together speak to a story where ultimately the consumer is going to have to foot the bill.
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SIMON BROWN: One-hundred percent. And, reading a piece that you wrote, it sort of comes in stages. the fuel costs – some of them, such as airline, were immediate. The fuel at the pump arrived in the April update. If you have inventories, as you wear those down you need to replace. You might only at this point be taking some of the impact. It’s coming in stages, but it is coming. That’s the key point, even if staggered.
Dr GREG CLINE: Absolutely. And I think that disposable income is certainly under pressure now. What we’re seeing is that foot traffic through the doors of retailers, just listening to your previous interview.
Retailers are under pressure and you’re seeing that actual spend is lower than anticipated, so coming off a little bit of a softer December.
Read: Current SA consumer spending habits
What you’re seeing is that from a manufacturing and wholesale position inventory isn’t moving as fast.
So we’ve seen that the number of imports, the rand values, are steady to lower. The number of imports has gone down. But what it means is that inventory levels aren’t being replenished as fast as were forecast. And so, with sales slowing, we’re seeing that the orders on supplies are dropping.
The inventory levels aren’t being ordered to the same effects as they were last year. So the stock turn that we’re seeing within our clients certainly has slowed. And in order to be ready to service customers, the levels of stock that are being called upon certainly are just not moving.
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So what this means is that with the lowest stock turn, even though the top line might be okay, in order to get rid of that stock, stock is being sold at a lower price and fire sale margins are impacted. And so the headline earnings are dropping, even though the top line is okay.
What we’re seeing is an economy that certainly is slowing down.
SIMON BROWN: I get your point, and I hadn’t thought of that. Of course, you’ve still got the revenue coming through, but your costs are up across the board. It’s inventories, it’s fuel. Everything is hurting in that regard.
Read: SA’s economy grew 1.1% in 2025
We’ll leave it there. Dr Greg Cline, head of portfolio management at Investec, I appreciate the early morning time.
#economy #certainly #slowing