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Economy challenges construction equipment industry

SALES ARE SLOW On-hand construction equipment is more likely to be put to use before buying new equipment

HEAD-ON CHALLENGES Lack of projects result in construction and mining equipment industry facing challenges

STAYING AFLOAT The industry needs a minimum growth factor of 3% a year

19th July 2019

By: Theresa Bhowan-Rajah

journalist

     

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The local construction and mining equipment industry is facing a number of challenges, owing to economic changes, a lack of projects and a downsizing of construction companies because of disinvestment, says industry body the Construction and Mining Equipment Suppliers’ Association (Conmesa).

“We’ve seen a decline in the market last year and this year, especially when comparing the statistics that have just been released by Statistics South Africa, which show a 3.2% drop in South Africa’s gross domestic product.

“Comparing the year-on-year figures from April last year to April this year, mining production shrank by 1.5%,” says Conmesa board member and JCB machine and parts distributor Kemach national sales manager Mark Senyard.

The local economic decline is a major factor in the industry, with the economy also susceptible to foreign exchange fluctuations and the slightest change in government, adds Conmesa board member and construction equipment supplier ELB Equipment sales administrator Lawrence Peters.

Since May, the industry is seeing a trickle-down effect of change, as there will not be any immediate results following the recent elections for industry, and in construction and mining capital equipment sales, he adds.

Conmesa secretary and agricultural machinery data reporting specialists Agfacts chief executive Dr Jim Rankin agrees, stating that the effects of the equipment sales slowdown in the construction and mining industry can directly be seen in the sales of construction equipment, which have decreased fairly steadily, from 1 723 units in the third quarter of last year to 1 400 units in the fourth quarter of last year.

Figures of the first quarter and second quarter this year have been the lowest since 2010, says newly elected Conmesa chairperson and mining and construction services provider Wirtgen Group business development manager Calvin Fennell.

However, the current state of construction in the mining industry, or the construction industry overall, cannot be assessed accurately in terms of overall numbers, as the multiple facets of the industry can dilute one another.

“When looking at mining and construction, each individual market has its own dynamic and they need to be looked at individually to obtain an accurate insight,” adds Senyard.

In terms of construction in mining, there is significant planning involved in terms of project development and it is difficult to see the immediate effects of projects awarded to suppliers, states Conmesa board member and Southern Africa dealer for CAT earthmoving equipment Barloworld Equipment business intelligence analyst Mpho Komako.

“There is always an element of risk that contractors take when waiting for a project to be awarded. It may take 18 months to plan for a construction project in the mining sector before construction even begins. This makes it difficult because you cannot avoid ordering and holding stock while waiting for a project to be awarded.”

Senyard adds that many clients have equipment that is not in use. Subsequently, when a contract is awarded to them, they will use the equipment they already have before buying new equipment, which, in turn, has a detrimental impact on new-equipment sales.

However, Conmesa remains positive. “I don’t think we’ve hit the bottom as yet, but when we do, hopefully it is a ‘dead cat bounce’ and we will land on our feet again,” Fennell says.

Peters underscores that, with mining being the backbone of the South African economy, a minimum growth factor of 3% a year is required in the industry, and anything less would be a stagnation or a depression. “This is an industry where diversification is very difficult. It is a niche sector, which means that the industry needs projects to survive,” he concludes.

Edited by Mia Breytenbach
Creamer Media Deputy Editor: Features

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