Despite the current constrained state of the local mining and construction industries, industry body the Construction and Mining Equipment Suppliers Association (Conmesa) expects an increase in business in 2016, underpinned by a financial year-end boost in sales.

These sentiments reaffirm the association’s first-quarter prediction that current market conditions will “remain low or even decline further, only starting to pick up again at the beginning of 2016”, says Conmesa chairperson Stefan Otto.

However, he acknowledges that Conmesa statistics have shown that there has been a steady decline in sales figures related to equipment, particularly in the mining industry, with “regular troubling reports about the mining sector further emphasising this”.

Conmesa secretary Dr Jim Rankin noted in his 2015 market report on the mining and construction industries that overall construction and mining equipment sales for South Africa in the first quarter of 2014 were about 1 820 units, compared with 1 671 units for the first quarter in 2015. He highlighted these findings at the BAUMA CONEXPO AFRICA 2015 construction and mining trade fair, held at the Johannesburg Expo Centre last month. Estimated figures of yearly equipment sales of mining equipment in South Africa had decreased from more than R14-billion in 2010 to less than R13-billion in 2013, he added.

Rankin also stressed that the economic upswing that started in the third quarter of 2009 remained one of the weakest on record in South Africa, prompting him to suggest that the major international industry constraints included the legacy of the international financial crisis in 2008, while local policy and political uncertainty remained a substantial constraint for local investment.

He also attributed the lack of a solid, positive industry outlook in the first quarter of this year to depressed worldwide commodity prices, low investor confidence and workforce instability that included further strike action.

However, Otto believes that, although there are a lack of megaprojects coming to fruition, some projects still require mining and construction equipment.

“Our current outlook is positive, as there are signs that indicate an increase in business for small, medium-sized and microenterprises . . . With Operation Phakisa being officially launched recently, we also expect government to provide opportunities from next year.”

Operation Phakisa is a government initiative aimed at fast-tracking the implementation of solutions on critical development issues highlighted in the 15-year horizon National Development Plan.

Conmesa’s positive outlook also follows its sentiments expressed earlier this year in its 2015 first-quarter commentary, when association members said that, should union issues be resolved ahead of strike action and government’s construction infrastructure development programme be accelerated, there could be a potential surge in business in the mining and construction sectors.

Navigating the Downturn
In the first-quarter commentary, released in August, Otto noted the growing rent-to-buy trend among suppliers, instead of their buying new equipment, as a result of credit becoming increasingly difficult to obtain and financial institutions offering limited finance options.

“There has been a clear shift by customers to exercise rent-to-buy options, including a steady increase in sales in the plant hire industry – this means end-users aren’t buying as readily as they used to,” he acknowledges, further stating that buying good-quality, used assets on auction was also becoming increasingly prevalent.

Otto suggested that these trends made “good business sense” and were “enhanced by end-users commissioning original-equipment manufacturers to maintain equipment through formal service and maintenance contracts”.

Conmesa further notes several business benefits of these trends, which include “zero excessive purchase costs, extended machine service lives, reduced maintenance requirements and reduced downtime”.

Meanwhile, other trends include the local market showing increased demand for compact, multipurpose equipment. More contractors are opting to buy compact wheel loaders and mini excavators, rather than a standard backhoe loader, for example, Otto reiterates.

“. . . 2014 was the first time during which overall sales were dominated by compact and smaller equipment, constituting 51% of overall sales, compared with 49% for larger equipment,” Otto highlights.

He believes that the increase in overall compact machinery sales indicates that end- users are focusing more on skilled labour and upliftment than on using unskilled cheap labour, consequently providing more opportunities in the long term and seemingly inching closer to the goal of industrialisation.