BUSINESS
CONMESA
EXPECTS NO FIREWORKS
Suppliers of construction and mining equipment are having a tough time in a stagnant South
African economy, writes Leon Louw.
www.equipmentandhire.co.za
Sweating equipment
Many of the embattled construction
companies are selling their fleets into the
used equipment market, while more and
more companies are procuring second-
hand machines. This might have had an
impact on the declining number of new
units being sold annually. “Moreover,”
says Fennell, “owners are sweating their
equipment much longer now than they did
in the past.”
The tough economic situation has
forced companies to change replacement
policies. For example, if there are two
units, the owner will use one on a
project, while the other machine is used
only for spare parts in case there is a
breakdown. At the moment, there is just
not enough work to keep both machines
operating. In addition, Fennell says the
scale of contracts has become smaller.
“Customers no longer have the comfort
of purchasing a piece of equipment and
settling the account after three or four big
contracts on the order book, most of them
only have one contract in sight. The work
has all but dried up,” he says.
Jim Rankin, Secretary of Conmesa, says
its time government comes to the party.
“Throughout the Zuma years we heard that
government was going to spend R700 to
R800-billion on infrastructure. This never
happened. The noise never translates into
action. The chickens have come home to
roost. Things have to happen, and there has
to be some tough action,” says Rankin.
He adds that if growth continues to
stagnate or decrease, and if there is no
visible improvement in the next three
years, equipment suppliers might be in a
lot of trouble. “Machine margins are under
enormous pressure, and if the business
environment doesn’t improve, companies
will have to start scaling down, which in
turn, has a whole range of knock on effects,
including job losses,” says Rankin.
Finding financing solutions
According to Fennell, Original Equipment
Manufacturers (OEMs) and suppliers of
new capital equipment are under more
and more pressure. “Not only are their
margins down, but it has become difficult
for both established companies and new
A
range of factors are dragging
the South African economy
down and the ripple effect
of policy uncertainty and
corruption continues to spread. Suppliers
of construction and mining equipment have
not been able to escape the headwinds.
Although there are some positive signs,
most indicators remain in the red, or
persistently hover just above flatline.
Construction companies have been hit the
hardest, and although Sanral has issued
several big-ticket tenders, it will take time
to resuscitate a flailing industry.
According to Calvin Fennell, chairman
of the Construction and Mining Equipment
Suppliers Association (Conmesa), the South
African government has limited spend on
core infrastructure projects since 2008. This
has left the decimated construction sector
stranded, and the beleaguered equipment
suppliers up a creek without a paddle.
“For more than ten years government has
been projecting growth, which has not
happened, and this has obviously had a
significant impact on infrastructure and thus
the equipment industry,” says Fennell. “That
said, there has been a bit of an uptick over
the past six months after a very difficult
start to 2019,” Fennell adds. Despite a hint
of optimism, the equipment fraternity might
as well prepare themselves for more pain
in 2020 as the economy creaks under more
of the same. Debilitating costs, corruption,
political and policy uncertainty and limiting
labour prescriptions continue to haunt
President Ramaphosa’s reforms.
“Almost all of the major construction
companies have gone into business rescue,
and there are a lot of second tier companies
heading in the same direction as a result
of non-payment by government,” says
Fennell. “There has been a steady year-on-
year decrease in the volume of units being
sold since 2013, which is a clear indicator
of what is happening in the economy, and
infrastructure” he adds.
Jim Rankin, secretary of Conmesa (left) and Calvin Fennell, chairman of the
Construction and Mining Equipment Suppliers Association (Conmesa).
JANUARY/FEBRUARY 2020
25