Manufacturing industry performance and stabilisation policies in South Africa

Abstract

Background: Manufacturing performance in South Africa is concerning, with the sector displaying signs of early deindustrialisation. South African authorities use a strategic blend of stabilisation policies in managing these unique macroeconomic conditions.

Aim: In light of that, the study examined the combined impact of fiscal and monetary policy on manufacturing sector performance.

Setting: The analysis was based on data obtained for aggregate and selected South African manufacturing industries.

Method: The study employed an autoregressive distributed lag (ARDL) technique between 1998 and 2020.

Results: Results revealed that raised tax revenue positively impacted aggregate manufacturing, food and wood production. Metal production, however, conformed to expectations, with increased tax revenue reducing output. Government spending expansion negatively impacted aggregate manufacturing and wood and metal industries, possibly signalling crowding out. Contrastingly, spending had a significant positive impact on chemical production. Aggregate manufacturing and wood and metal manufacturing had the expected negative relation with lending rates (LR). Food and chemical industries exhibited significant negative links with money supply (M3). This suggests that the type of credit extended towards these industries was not conducive to productivity.

Conclusion: The findings imply heterogeneity in industry responsiveness towards stabilisation policies in South Africa. Expansionary fiscal stimulus packages should target the industries that will most benefit. Reserve banking authorities consider output fluctuations in policy setting, but this is not legislated.

Contribution: The study contributes to the literature on policy coordination efforts in African countries at the disaggregated industry level.