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The lack of month-on-month change in the Kagiso Purchasing Management index from April to May shows manufacturers are holding the fort in tough trading conditions. Kagiso asset management is correct in their assessment that the slow international demand, slowing local demand, and significant cost pressures remain significant challenges.

Inventory improvements also show manufacturers are overcoming first quarter supply-side constraints (steel, tinplate and high-grade coal), whereas improvements in business activity may be a function of May not having such a high number of public holidays as in previous.

Manufacturing costs are still driven chiefly by rapid, bunched-up administered price increases and the productivity that has not kept apace with salary increases. This leads to unavoidable margin squeeze, especially where the local manufacturer is unable to pass the cost increases on to the consumer, as a result from competition in the domestic environment from unfairly incentivised imports.

Whereas the rand has now dropped below the R9-9.50 consensus that have for some time reigned amongst manufacturers, the more competitive levels that the rand has been trading at overall has helped to relieve destructive margin squeeze, thereby bolstering the resilience of the sector.

A more competitive currency will only aid manufacturing growth significantly if the former can be can be sustained, if we address numerous domestic policy challenges, if demand picks up in the Eurozone and America, if we can secure improved access to Asian and South American markets, and the systemic complexities challenging expansion into Africa receives resolute attention.

Whereas manufacturing's employment outlook remains stable at present, industrial unrest in the upstream sectors of mining and agriculture remains a significant risk. Systemic supply-side side constraints such as security of electricity supply and inbound and outbound port and rail capacity could also keep growth momentum at bay in manufacturing.

Consecutive improvements in the expected business conditions-component of the index concur with the more optimistic outlook registered in the 2013 Q1 Manufacturing Circle survey.