Assessing the Significance of Electricity Supply, Inflation and Fuel Price on Food and Beverage Production and Sales in the Manufacturing Sector

Abstract

The manufacturing sector occupies a critical position in the South African economy. However, in recent decades, this sector has experienced significant changes due to the country’s economic fluctuations. The sector’s challenges include electricity distribution, growing inflation rate and commodities price instability. This study assessed the effects of electricity supply, inflation and fuel prices on food and beverage production and sales in the manufacturing sector. To this end, it applied different econometric approaches — the Johansen test for cointegration, vector error correction model (VECM) and Granger causality test — on monthly time series data ranging from January 2002 to December 2019. The study’s findings suggest the existence of a joint long-run relationship between electricity distribution, inflation rate, fuel price, production and sales of both food and beverages within the manufacturing sector. The result also indicated that both electricity supply and inflation highly impact food and beverage sales production compared to the effect of petrol price. Furthermore, Granger causality results have shown that inflation rate can predict short-term production and sales of food and beverages in the manufacturing sector. Given the aforementioned findings, the study suggested a reduction in petrol prices and the introduction of new policies to control the inflation rate. Additionally, besides the government support for electricity production in Eskom, more effort and resources (financial) should be allocated to generate and improve other sources of energy such as solar, wind, gas and biogas.