BUSINESS
in Zimbabwe spiked just before and after
Emmerson Mnangagwa took over as
president of the country at the end of
2017. Fennell says that there was quite
a lot of work being done in Zimbabwe
at that stage, but that the interest has
gradually diminished, as it has in South
Africa, following the initial optimism after
Cyril Ramaphosa became president of the
ANC and later the country. “The purchase
of capital equipment has almost ground
to a halt in southern Africa. Namibia,
Zambia, Malawi and Mozambique have
all been plagued by financial constraints,
allegations of high-level corruption and
bad debt. Although there have been some
infrastructure projects in especially the
Western and Eastern Cape provinces
of South Africa, the market remains
constrained. It has really been tough
operating in these territories in the past
year and a half, however the second half of
2019 has been looking good and we have
also seen an improvement in Zimbabwe
and Botswana,” says Fennell.
In the sales of construction equipment,
Fennell says that there was an increase
www.equipmentandhire.co.za
of sales between 2010 and 2014 of about
36%. “Sales started dropping in 2012 by
8%, surprisingly increased substantially
in 2013 by 20%. In 2014 the market was
down by 5%, at the end of 2015 down
another 11%, in 2016 it dropped by another
22%, in 2017 down 3% and in 2018 by
3%. There has obviously been a significant
decline year-on-year, and are hoping that
2019 bucks the trend,” says Fennell.
The tough operating conditions in
South Africa has resulted in the demise
of the ‘Big 5’ construction companies
and as they went into business rescue,
they off-loaded a lot of capital equipment.
According to Fennell, there is currently
a lot of good quality used equipment in
circulation, which is another reason why
contractors are not buying brand new
equipment.
While the major construction
companies have virtually been wiped
out, the second-tier operators and sub-
contractors are feeling the brunt of the
economic headwinds and their cash flows
are decimated as a result of non-payment,
especially when working on government
contracts. Most of these small businesses
are emerging companies and do not have
the credentials or the credit record to
secure financing from large institutions, so
very few of them are buying new capital
equipment. “Hopefully we are close to the
bottom. If we are not, one certainly hopes
that it hasn’t much further to go before the
economy picks up and there is a demand
for new equipment again,” says Fennell.
So how do OEMs and dealers survive
in times like these? “We work very close
to our customers with an emphasis on
training and after-market support. There
are opportunities to buy equipment from
auctions and rebuilding used equipment.
We make sure not to neglect the emerging
contractors as this is where the future
lies, but the big drive is on the aftermarket
side. Customers are sweating their
equipment a lot more and not replacing
their equipment as often as they used to.
So, we assist them in doing that, but at
the same time, prevent them from running
their equipment into the ground. We assist
operators with preventative maintenance,
machine inspections and guiding them with
application, amongst others,” Fennell says.
Fennell says that Wirtgen’s main focus
will remain on South Africa. “South Africa
is still one of the biggest drivers in sub-
Sarahan Africa, although the activity we
see in East and West Africa is definitely
leaving us behind. When SANRAL
and the municipal councils get the
fundamentals right and start doing more
road rehabilitation to maintain our national
assets, there will be opportunities. But
at the same time, we are keeping an eye
on our neighbours, namely Botswana
and Zimbabwe, where a lot of work is
currently being done and there is a lot of
potential in Namibia and Zambia as well.
Tanzania and Kenya are doing very well in
terms of construction, and in West Africa
the major drivers are Ghana and Nigeria,”
Fennell concludes.
Construction activity on the up?
Meanwhile, economist Roelof Botha feels
that construction industry activity in South
Africa may increase substantially in the
third and fourth quarters of this year.
He was commenting after the release
of the Afrimat Construction Index (ACI),
which increased by 1.2% in the first
quarter, year-on-year, an ‘encouraging’
figure considering the zero real growth
recorded for the broader economy since
the first quarter of last year, he says.
“Gross domestic product declined
more than 3% in the first quarter over the
last quarter of 2018 and the recessionary
environment of the construction industry
was reflected in that the index was exactly
where it was six years ago,” Botha says.
Botha’s research indicated that the
ACI is likely to improve and that some of
the uncertainty among businesses and
consumers ahead of the last election had
started to dissipate. “We now have a
President who is committed to economic
growth and job creation. It won’t happen
overnight, but investor confidence will
increase,” he says.
The gradual implementation of
the recommendations of the National
Development Plan, especially the
emphasis on creating new infrastructure
and targeting sectors with high growth
potential, could soon lift construction to a
new sustained growth path.
He said the biggest inhibitor to growth
in the construction sector, however,
remained the restrictive monetary policy.
“The South African repo rate was
more than 450 basis points higher than
the Eurozone real central bank rate and
there was no reason for this high level
considering there was no demand inflation
in the economy,” says Dr Botha.
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