AfriSam expects ‘tough 2019’ amid continuing political, policy uncertainty

21st February 2019 By: Simone Liedtke - Writer

AfriSam expects ‘tough 2019’ amid continuing political, policy uncertainty

Construction materials company AfriSam CEO Rob Wessels expects “a tough 2019”, especially amid ongoing political and policy uncertainty.

Wessels was, on Thursday, joined by political analyst Aubrey Matshiqi and AfriSam sales and marketing executive Richard Tomes at a briefing post Finance Minister Tito Mboweni’s delivery of his 2019 Budget speech on Wednesday.

Matshiqi called on South Africa to “maintain a ray of hope”, even though he expected the uncertainty would likely continue for the next five years.

With political and policy uncertainty acting as constraints, Tomes told Engineering News Online that, should this continue, the construction sector would be adversely affected, especially considering that the sector relied heavily on policy and political certainty, which could impact on infrastructure investment in the long term.

However, looking ahead, he believed the resolution of certain issues or concerns could see the market turn again, with a growing confidence in the private sector with regard to investments in the industry.

In particular, he briefly referred to the Mining Charter, more certainty around land expropriation, and concerns around the upcoming national elections, which will be held on May 8.

Econometrix chief economist Dr Azar Jammine, however, told delegates that even though negativity and underperformance remain rife, the South African economy is not on the brink of collapsing.

Referring to Mboweni’s Budget speech, Jammine highlighted that the strong infrastructural investment drive, the will shown to improve the quality of education, as well as the improved governance and management of State-owned entities (SoEs) were “steps in the right direction” towards achieving gross domestic product growth and job creation targets.

However, relative to previous budgets, Tomes told Engineering News Online that “there isn’t much to suggest that we’re going to see a quick upturn in terms of real spend”.

Some of the Budget announcements have been made in the past, he added, noting that the challenge has always been on provincial and municipal governments’ ability to spend their allocated budgets.

The National Treasury had, on Wednesday, announced that it would be reprioritising resources towards President Cyril Ramaphosa’s infrastructure fund, and that it would be injecting R100-billion into the fund over the next decade.

Despite this being a positive initiative, Tomes noted that the construction industry was not “much more encouraged than a year ago”. Considering the low confidence levels in the sector, he believes it will still be a while before the industry starts to see the results of this investment.

Currently, there is not enough confidence in the sector to encourage capital investment, Jammine added.

Tomes, however, remains confident that the industry “has bottomed out”. He anticipates that, moving forward, companies will become more competitive in striving to remain afloat.

However, the tough times are not completely gone yet, he warned, especially since no major infrastructure projects have replaced the Kusile and Medupi power station projects yet in South Africa.

“Until we start to see some big civil projects coming through . . . companies will be under strain for a while still.”

In light of the industry’s challenges over the last few years, Tomes told Engineering News Online that AfriSam had started seeing the benefits of its cost-cutting initiatives over the last three years.

Of these initiatives, he highlighted AfriSam’s business restructuring, the removal of inefficient capacity, as well as the removal of some fixed costs.

“We’re able to be a lot more competitive in the market, but overall, we still have a situation where there is way too much capacity and oversupply of cement,” he said, adding that imports were exacerbating the problem.

AfriSam is looking to approach the Department of Trade and Industry and the International Trade Administration Commission for assistance in reducing the volumes of cement imports.

Industry Insight senior economist David Metelerkamp, meanwhile, said that despite a stagnant South African economy, the government’s planned infrastructure spend for 2019 was a “sign of stabilisation”.

However, he warned that SoEs still posed a major risk and that these were key to unlocking growth in the construction industry.