uploads/2015/08/South-Africa-Manufacturing-Production1.jpg

South Africa’s Manufacturing Production Falls: Is China to Blame?

By

Updated

EZA fell on indicator news

The iShares MSCI South Africa ETF (EZA) fell 1.5% on August 11 as manufacturing production continued to contract in South Africa for another month. However, South African firms Gold Fields (GFI), AngloGold Ashanti (AU), and Harmony Gold Mining Company (HMY) gained 4.90%, 1.4%, and 6.86%, respectively, as the extent of the contraction was milder than in the previous months.

Article continues below advertisement

South Africa’s manufacturing production is still in contraction

Manufacturing production in South Africa contracted for yet another month. Production was down 0.4% on a year-over-year basis in June, according to figures released by Statistics South Africa on August 11. The contraction was greater in the last two months. April saw manufacturing production dip by 2.2% over the previous year while May’s production fell short of the May 2014 figure by 1.6%.

Key economic issues in South Africa

Since the Great Recession (2008–09), growth in South Africa has been sluggish. Part of the slowdown in South Africa’s economy has been blamed on global recessionary conditions and the country’s reliance on external capital.

  • high unemployment rate (currently over 25%)
  • low-skilled labor force
  • over-regulation
  • high government borrowing
  • high corruption and crime rates
  • deteriorating infrastructure
  • rising income inequality

Is China’s slowdown affecting South Africa?

China (FXI) became Africa’s largest trading partner in 2009, surpassing the United States. China’s key motive in investing in Africa is to take advantage of the continent’s rich natural resources in order to meet its people’s growing needs. China accounts for the largest share of South Africa’s exports as well as its imports. With the economic slowdown in China, South Africa should feel some repercussions.

On August 11, markets had some more bad news from the BRICS (Brazil, Russia, India, China, and South Africa). Russia’s gross domestic product declined further in Q2. Let’s take a look in the next part of this series.

Advertisement

More From Market Realist