SA’s manufacturing sector is sliding deeper into crisis as infrastructure decay, import dumping and regional trade barriers drive the country’s long-standing tile industry to the brink, Italtile says.
In his letter to shareholders published in the company’s latest annual report, Italtile CEO Lance Foxcroft said SA has become “one of the least manufacturing friendly economies”, with energy insecurity, municipal cost spikes and policy uncertainty accelerating deindustrialisation.
“This unstable environment is detrimental to manufacturing growth and is leading to the acceleration of deindustrialisation,” Foxcroft said.
The warning comes after the closure of Johnson Tiles, a 110-year-old tile producer that ceased operations in June, cutting 5-million square metres of annual regional capacity and leaving only two major local manufacturers.
Foxcroft said the collapse highlights how the industry is being suffocated by dumping, overcapacity and deflationary pricing as neighbouring countries protect their own markets with tariffs and attract new investment.
Latest data from Stats SA and the Absa purchasing managers’ index (PMI) shows the manufacturing sector remains fragile but there are tentative signs of recovery after a prolonged slump. Manufacturing production rose 1.9% year on year in June, the second straight month of growth after a 0.5% uptick in May that ended a six-month decline.
The Absa manufacturing PMI climbed to 52.2 in September, signalling expansion for only the second time this year, driven by stronger domestic demand. Despite these short-term gains, the sector’s contribution to GDP has fallen to about 13% in recent years, with more than 309,000 jobs lost since 2005, according to Stats SA.
“The sector’s nominal GDP [is] forecast to grow by an average rate of 5.7% per annum over the next decade. Significant future growth opportunities available through localisation and workforce upskilling will boost the country’s competitive advantage and attract new investment and needed employment opportunities,” consulting firm PwC said in its 2024 analysis of the country’s manufacturing sector.
Regional barriers erode exports
Italtile’s manufacturing arm, Ceramic Industries, reported a drop in exports after Zambia and Zimbabwe imposed import duties to defend their domestic industries. Those measures, Italtile said, have wiped out market share in two of its biggest regional markets.
At home, unregulated product dumping continues to distort prices. “SA persists in allowing unequal playing fields due to uncontrolled dumping of product in the country, which, coupled with import tariffs imposed by neighbouring countries, worsens the trading environment and places margins under pressure,” Foxcroft said.
“In the longer term, it is our view that there will be further consolidation in our industry and rationalisation of capacity. As an industry leader, we are ready to take advantage of opportunities in the market,” he said.
Production cutbacks and margin pressures
To cope with the glut of supply and weak consumption, Italtile has mothballed kilns across several Ceramic Industries’ factories, cutting utilisation to 66% for the year and only 56% in the final quarter. System-wide turnover fell 2% to R11.3bn, while trading profit was flat at R2.06bn. Earnings per share rose on tighter cost control.
Despite new product launches, including large-format and polished porcelain ranges, tile volumes declined 5% and average selling prices fell 2.1% per square metre.
The establishment of major new manufacturing facilities in neighbouring countries due to their investor-friendly environments highlights SA’s difficult and relatively unsupportive investment climate for manufacturers.
— Lance Foxcroft, Italtile CEO
Italtile said the sector is buckling under a combination of policy uncertainty, unreliable logistics, power interruptions and rising municipal tariffs. The group described SA as “difficult and relatively unsupportive” compared with its regional peers, which are attracting new factories and jobs.
“The establishment of major new manufacturing facilities in neighbouring countries due to their investor-friendly environments highlights SA’s difficult and relatively unsupportive investment climate for manufacturers,” the CEO said.
Though Italtile’s integrated model, spanning CTM, TopT and Italtile Retail, helped sustain profitability, the company warned that “continued headwinds will subdue growth, margins and profitability” in the coming year.
The home improvement retailer is pivoting its focus to the growth-rich Kenyan market, with the group saying the East African economic powerhouse offers far more upside than its mature SA market.
Foxcroft previously confirmed to Business Day that East Africa, particularly Kenya, which is the region’s biggest economy, is a top growth market for the group. He said the company sees potential not just in retail but also in complementary businesses such as adhesives and other building products, with the aim of creating an integrated business model similar to SA.
Italtile’s share price has declined by more than 15% in the past 12 months and 5% in the year to date taking the company’s market capitalisation to R12.5bn.
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