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First quarter 2015 industry comment

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A panel of members of CONMESA – the Construction and Mining Equipment Suppliers’ Association – reflects on market conditions in the first quarter of 2015 and takes a look at the period ahead.

“The construction and mining sectors in South Africa, which were booming pre-2008 have shown sluggish growth since 2010. The current flat market conditions look set to stay with us for a while,” says Stefan Otto, CONMESA’s chairman. “We were hoping to see an upturn in the economy in the next quarter, but with depressed worldwide commodity prices, low investor confidence, concerns about further strike action, instability of the workforce and political uncertainty, the crystal ball remains cloudy. There is no rosy picture.

“The Government’s inability to roll out its much flaunted capital and infrastructure programmes has delayed the award of tenders and halted potential work. New regulations have increased the costs of doing business and have further inhibited investment in South Africa. Not to mention the weakening Rand.

“This is without the impact of excessive wage demands that result in lower employment and Eskom’s constraints on power which translates into lost production. Added to this, we cannot count on the recovery of commodity prices any time soon, given the financial bubble in China. The costs of getting commodities out from beneath the South Africa ground, are simply too high.

“We predict conditions to remain low or even decline further, only starting to pick up again at the beginning of 2016.”

But it’s not all doom and gloom around the CONMESA table.

Members believe if union issues can be resolved ahead of pending strike action, South Africa we will see an upturn in the mining sector and if the Government’s construction infrastructure development programme is accelerated, there should be a surge in this sector.

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And for those who can’t see the wood for the trees, the forestry industry has shown a heartening upturn in business, with positive rewards for machinery manufacturers and distributors.

But not everyone is out of the woods.

With banks now offering limited finance options, there is a growing trend to turn away from the purchase of new equipment. What’s increasingly popular is the purchase on auction of good quality used assets and more ‘rental with option to purchase’ type of deals. And of course this makes good business sense.

This move is enhanced by end users commissioning OEM’s to maintain equipment through formal service and maintenance contracts. Obvious benefits include no excessive purchase costs, extended service life of every machine, reduced maintenance requirements and minimal downtime.

The local market also shows a steady increase in demand for compact equipment, with more contractors opting to purchase compact wheel loaders and mini excavators, rather than a standard backhoe loader. This has been in vogue globally for many years – South Africa is only now in sync.

What’s also interesting is companies are focusing on efficient technologies by implementing mechanised tasks, rather than an outdated labour intensive site. This could of course be linked to ongoing strike action permeating the struggling economy.

So, in a nut shell, CONMESA members conclude that construction and mining sectors, together with Government’s contribution, stimulation and support, certainly need to continue to dig deep to turn things around to be profitable and sustainable in this country. Before we cast our eyes across borders into Africa.

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For further information

Mr Stefan Otto, Chairman, CONMESA

Email        stefan_otto@global.co.za 

or 

Dr Jim Rankin, Secretary, CONMESA

Telephone (011) 453 7249

Email        jim.rankin@agfacts.co.za

Web          www.conmesa.co.za

 

Released on behalf of CONMESA by Lindy Morton, Festivitas 083 268 6666 festivitas@dbnmail.co.za

 

 

on September 1 | by