1. Manufacturing Circle Bulletin Quarterly Review First Quarter 2012 Presentation for Manufacturing Circle 18 May 2012 by Dr Iraj Abedian P AN -A FRICAN I NVESTMENT & R ESEARCH S ERVICES (P TY ) L TD.

2. Slide # 2Outline 1. Introduction 2. Overall Manufacturing Business Confidence 3. SA Manufacturing Environment in Q1 2012 4. Survey Results 5. Concluding Remarks

3. Introduction

4. Slide # 4 Profile of Respondents Profile of Respondents A Total of 49 (previously 48) Participating Firms in Q1 2012

5. Manufacturing Business Confidence

6. Slide # 6 First Quarter 2012 First Quarter 2012 Mostly Stable Business Conditions in Q1 2012 Relative to Q4 2011

7. Slide # 7 Short to Long-Term Short to Long-Term Risks to Outlook on Business Confidence (Short to Long Term) Upside risk: 1.Planned infrastructure investment spending programme by the government Downside risks: 1.Shortage of water and electricity supply 2.Scarcity of raw materials (e.g. good grade coal and steel) 3.Higher transport and energy costs 4.Uncompetitive labour rates 5.A strong rand 6.Uncertainty and slowdown in global economic activity 7.Poor service delivery from the municipalities 8.Original equipment manufacturers (OEMs) relocating outside South Africa due to uncertainties over the automotive production and development programme (APDP)

8. South African Manufacturing Environment in Q1 2012

9. Slide # 9 Kagiso Purchasing Managers Index Kagiso Purchasing Managers Index Quarterly Average Source: Bureau for Economic Research Most component indices of the PMI in expansion terrain in Q1 2012… But developments in the global economy to dampen the local manufacturing sector Proof: disappointing manufacturing outcome in March 2012 DatePMI* Business activity New sales Backlog of order sales Inventories Purchasing commitments Suppliers' performance PricesEmployment Expected business conditions Q1 2011 55.554.160.240.657.548.856.180.348.862.2 Q2 2011 55.156.860.041.158.354.449.779.648.563.0 Q3 2011 48.344.647.942.351.448.453.174.742.058.0 Q4 2011 50.551.050.445.252.151.455.482.845.759.6 Q1 2012 55.458.960.641.553.150.352.076.747.064.6

10. Slide # 10 Manufacturing Production Q1 2012 Source: Statistics South Africa Manufacturing Division Weights 2005 Q/Q Seasonally Adjusted % Growth Food & beverages15.4 -0.5 Textiles, clothing, leather & footwear4.9 2.5 Wood, paper, publishing & printing products10.2 -1.5 Petroleum, chemical & rubber products22.1 3.8 Glass & non-metallic mineral products4.8 0.6 Basic iron & steel, non-ferrous metal products & machinery22.9 1.6 Electrical machinery2.5 -3.7 Radio, tv communication apparatus & professional equipment1.1 1.9 Motor vehicle parts & accessories and other transport equipment10.9 6.2 Furniture & other manufacturing division5.2 6.1 Total100.0 1.9

11. Slide # 11 Quarterly Manufacturing Employment Quarterly Manufacturing Employment 67,000 Manufacturing Jobs Lost in Q1 2012 Source: Statistics South Africa

12. Summary of Q1 2012 Survey Results

13. Slide # 13 Demand Conditions Disappointing domestic demand sales Some improvement s in export sales... But not enough to offset the slowdown in domestic sales (ratio of domestic sales to total sales still outweighs that of exports) Could lead to high inventories

14. Slide # 14 Supply Conditions Lower input costs in Q1 2012 relative to Q4 2011, in line with a slowdown in producer price increases and a moderation in the price index of the PMI

15. Slide # 15 Manufacturing Employment Conditions Only 31% of Respondents reported a growth of at least 1 % in Manufacturing Employment compared with 43% during the previous quarter

16. Slide # 16 Manufacturing Employment Conditions Manufacturing Employment Conditions Factors Explaining the Fall in Manufacturing Employment during Q1 2012 1.Increased tendency by municipalities to procure lower-cost imported goods 2.Seasonal effects, i.e. certain jobs are not required out of a particular season during a year 3.High fixed costs 4.Unfair trade practices. For example, exports to Brazil facing between 8 to 14 per cent taxes 5.Sluggish vehicle sales in Europe 6.Increased investment in less labour intensive assets as a result of uncompetitive costs of labour and lower production

17. Slide # 17 Labour Productivity & Regulatory Environment Same levels of labour productivity in Q4 2011 & Q1 2012, generally Mostly, unfavourable regulatory environment in Q1 2012 relative to Q4 2011

18. Slide # 18 Financial Conditions 1.Rise in the share of respondents reporting operating losses before cost of funding (from about 30 per cent in Q4 2011 to about 60 per cent in Q1 2012 ) 2.Increase in the share of respondents (from about 12 per cent in Q4 2011 to 16 per cent in Q1 2012) registering a debt to equity ratio of at least 65 per cent. 3.In line with the increase in credit lending during Q1 2012, higher number of respondents accessing credit at JIBAR +3 - +6 per cent in Q1 2012, relative to Q4 2011.

19. Outlook

20. Slide # 20 Manufacturing Outlook 1.Economic activity in South Africa to moderate to 2.5 per cent in 2012, due to (a) A mild recession in the eurozone on the back of the protracted sovereign debt crisis and (b)a slowdown in China. 2.Trade linkages between South Africa and (1) the eurozone and (2) China, will represent the major channel through which the effects of the eurozone recession and the hard landing in China will be felt in the South African economy. 3.Inflation-adjusted manufacturing value added is expected to shrink by 0.7 per cent during 2012. 4.Recovery in the global economy from 2013 going forward coupled with the implementation of the government’s infrastructure investment drive to boost the manufacturing sector from 2013, going forward. 5.The rand exchange rate (as determined by capital flows) to present downside risks to the manufacturing sector’s outlook.

21. Concluding Remarks

22. Slide # 22 Concluding Remarks 1. Despite a better overall performance in Q1 2012 relative to Q4 2011, manufacturing production is prone to both a weaker global and domestic demand, going forward 2. Manufacturing jobs and profitability will remain under pressure during 2012. 3. The government infrastructure investment drive needs to be fast-tracked in order to cushion the effect of a slowdown in global economic activity on the domestic economy

23. Slide # 23 Thank you for your attention abedian@pan-african.co.za Tel: 011 883 8036/7 Fax: 011 883 8038 Q & A