Economic uncertainty : implications for investment strategies of South African manufacturers

Abstract

This paper examines the capital allocation decisions of a small sample of South African manufacturers in the context of macroeconomic uncertainty for the period 2006 - 2015. Employing a mixed methods approach, the research finds a moderate, negative relationship between a constructed proxy for uncertainty in the economy and non-maintenance-related investment spend. Moreover, there is evidence to suggest that investment has been less responsive to improvements in the uncertainty index in more recent years. This is traced to the declining profitability of manufacturing operations in the sample, and hence firms' abilities to invest in future capabilities and capacity. These findings probe an investigation of the business strategies employed by South African manufacturers, given the increasing price pressures resulting from the commodification of manufactured goods in the global economy. Rather than competing on price, this study points to the importance of investment strategies that aim not only to enhance production efficiencies, but also to reengineer the value proposition of traditional South African manufacturing away from a cost-focused approach. This is suggested as a potential means of improving profitability and thus developing greater opportunity for investment activity when more favourable economic contexts arise.