Manufacturers battle fuel hikes, broke consumers

A STRONG Namibia dollar and high fuel prices, coupled with weak consumer demand for local products overseas, are hitting Namibian manufacturers and dimming prospects of them employing more people.

Total orders placed during the first quarter of the year plummeted by 20 per cent compared to last the last quarter of 2011, while total export orders fell by 15 per cent, Simonis Storm Securities (SSS) said in its latest manufacturing survey.Only seven per cent of manufacturers surveyed during the first quarter reported an increase in their production. This is the lowest reading to date, SSS analyst Rudolph Kuschke said.During the first quarter of 2011, 20 per cent of manufacturers said their production figures were up, while 38 per cent indicated bigger production in the last three months of 2011.Kuschke said ‘muted revenue expectations on the back of slower production volumes and price increases’ have also causes a ‘substantial deterioration’ in the employment outlook. Four per cent of companies surveyed expected to employ less people in the second quarter.’This is the first time that a negative reading was recorded and a sign that manufacturers are focused on cost containment,’ Kusche said.He said lower order levels and the worse general business situation of manufacturers are most likely due to a stronger exchange rate, as well as petrol price increases which weights on the transport costs of businesses.The Namibia dollar has strengthened by about five per cent against the US dollar and by some 2,3 per cent against the euro during the first three quarters of 2012.The price of 95 Octane has risen 69 cents per litre so far this year, while 93 Octane has increased by 70 cents a litre. Diesel has become 21 cents a litre more expensive. Over the past year, the petrol price has increased by about 16 per cent, while diesel has gone up around 12 per cent.One of Namibia’s major manufacturers, the Ohlthaver & List Group, is feeling the pinch.’O&L is impacted through movements in both the exchange rate and oil price. With rising oil prices and weakening exchange rate the input cost of Hangana Seafood is severely impacted and equally for any input costs for Namibia Breweries and Namibia Dairies which will all increase significantly,’ Sven Thieme, group executive chairman of O&L told The Namibian.However, the group has a hedging policy ‘to ensure that we protect ourselves as much as possible against these movements in the short term’, he said. ‘In the long-term we of course will also see the full impact,’ said Thieme.Local meat producers’ pockets are equally hit. Despite high animal feed prices and Botswana dumping beef in the South African market, driving prices down, consumer demand is under pressure as the global financial crisis continues taking its toll.’Consumers in South Africa and Europe are under enormous pressure and are no longer willing to pay high prices for beef,’ Meatco said in its latest newsletter. ‘Although Meatco’s markets are under pressure, the company won’t lose its markets [in these countries]. Consumers under pressure will however put retail prices under pressure, which will flow through to wholesale prices, processing prices and, in the end, producer prices,’ Meatco said.Competitive imports remained the biggest stumbling block in manufacturers increasing their production, the SSS survey showed. A total of 57 per cent of food manufacturers and 60 per cent of chemical manufacturers locally named this their main hurdle.’While a net 33 per cent of manufacturers are expecting to increase volumes in the second quarter, more competitive entries into the local market from foreign manufacturers is expected to put downward pressure on selling price increases,’ Kuschke said.The majority of respondents had a neutral outlook on their business prospects over the next six months, while 41 per cent felt upbeat. Four per cent expected their situation to worsen.