1. Manufacturing Bulletin Q1-2011 Presentation for : Manufacturing Circle 15 July 2011 By Dr Iraj Abedian Pan-African Investment & Research Services(Pty) Ltd.

2. Slide # 2 Outline Introduction Overall Manufacturing Business Confidence Current South African Manufacturing Trends Manufacturing Survey Results: Q1 2011 Concluding Remarks

3. Slide # 3 Introduction: Q1 2011 Manufacturing Circle Survey Profile of Survey Participants

4. Overall Manufacturing Business Confidence

5. Current South African Manufacturing Trends

6. Robust Q1 2011 Manufacturing Output Source: Statistics South Africa, Q1 2011 GDP Manufacturing production grew sharply in Q1 2011, to q/q, seasonally adjusted and annualised rate of 14.5%. Robust growth was driven in part by the then optimistic global output prospects, stronger domestic demand, higher commodity prices and most importantly statistical base factors. Manufacturing Output

7. Manufacturing Employment in Q1 2011 Source: Statistics South Africa, Q1 2011 Quarterly Labour Force Survey Employment in the manufacturing sector increased by 20 000 in Q1 2011, benefiting from the recovery in manufacturing output. Employment Trends in the Manufacturing Sector

8. Fixed Investment Remains Constrained Source: South African Reserve Bank, Quarterly Bulletin, March 2011 Fixed investment in the domestic manufacturing sector increased modestly in Q1 2011, rising by a seasonally adjusted and annualised 1% (q/q). Manufacturing Investment

9. Manufacturing Outlook Remains Fragile Source: Bureau for Economic Research PMI deteriorated for the full three months of Q2 2011. Employment component of the index remains below critical 50 mark. Kagiso Purchasing Managers Index

10. Manufacturing Survey: Q1 2011

11. Demand Conditions: Export-Orientation Profile

12. Demand Conditions: Domestic vs. Exports Sales 0

13. Demand Conditions: Export vs. Domestic Market The ratio of export sales to total sales outweighed that of domestic sales. This occurred, as export activity picked up due to favourable global conditions. Local manufacturing is competing against increasing imports, driven by continued strong rand, for its domestic share. Sustained export growth is necessary if some industries are to survive.

14. Supply Conditions: Input Costs and Ratio of Components Total input costs were higher in the first quarter, driven mainly by a surge in imported input components owing to higher commodity prices.

15. Employment Conditions Employment levels remained relatively unchanged from Q4 2010. Sector reluctant to increase employment in the short to medium term. Availability of skills in sector remains inadequate.

16. Labour Productivity and Regulatory Environment Labour productivity levels unchanged from Q4 2010. No tangible change within the regulatory environment.

17. Financial Conditions Slight improvement in profit margins. Lower debt burden. The cost of capital for short-term and long-term borrowing still low.

18. Concluding Remarks: Local manufacturing production will continue to be dependent on stronger domestic demand into the second quarter. However, threats from increased competition from imports, partly due to strong rand, remain and likely to increase. Renewed uncertainties within global economic recovery threaten global/export demand. Compounded negative impact of the strong rand erodes export margins and reduces competitiveness. Overall, the manufacturing sector remains vulnerable to major structural constraints.

19. Slide # 19 Thank you for your attention

20. Penetrating Africas market lies in identifying the countrys comparative edge within the manufacturing sector… Exports shares in manufacturing output remain low at 16.7% in 2010. Meanwhile, industries at the bottom reading may not be at a disadvantage, but may be hindered by structural factors embedded at the industry level. The share of manufacturing exports that goes to Africa stand at 18%, indicating that most manufacturing exports are still directed to the traditional western trading partners. However, given the fast growing African market, and as one of the next world growth frontiers, the promotion of the manufacturing industries that export the most to Africa should be the prime target.