P
rior to his appointment at Doosan,
Watson was employed as MD of Case
Construction Equipment for many
years. After five years as MD at Doosan,
Watson retired, but he recently returned to
the company on a temporary basis to help
get it back in the position it was before he
left. Having come up through the financial
line and into marketing, his perspective on
the state of South Africa’s construction
industry is a valuable one, particularly given
the current recessionary climate.
Robyn Grimsley (RG): How much of
an effect would you say the new BEE
regulations and the Mining Charter are
having on the mining and construction
industries?
Rod Watson (RW): They are having a huge
effect on everyone. The mining industry
in South Africa is in a very precarious
state due to the Mining Charter. I don't
know how far it’s going to go because it is
definitely going to be challenged in court,
without a doubt, and it is having a negative
effect on investment in the country in its
current format. This also affects jobs, as
we’ve seen with lay-offs recently. Similarly,
in the construction industry, until we get
some positive leadership and direction
away from state capture, the construction
indust ry is going nowhere.
RG: What is your opinion on the state
of infrastructure development in
South Africa?
RW: From an economic point of view,
the people in charge of policymaking have
got to stimulate the economy. And you
do this by operating on sound business
principles and by encouraging investment
and foreign investment, which would
stimulate the country to the point where
we need a huge amount of infrastructure
upgrades and development. And this
will create more employment at all levels,
including for entry-level people who are
the worst affected by the lack of available
jobs. Currently, we also have a lot of people
still leaving the country, and we need to
encourage them to stay.
South Africa has the potential, I've
always said, to be the breadbasket of Africa,
and infrastructure development in the
construction industry is a brilliant starting
point; it’s a barometer. If you encourage
investment and infrastructure development,
particularly in the rural areas, you create
employment for the people living in the
rural areas so they don't keep flocking to the
city and put additional pressure on existing
infrastructure. I mean, look at where the mines
are situated: they are not located in the cities —
they are in the remote areas, so if we build that
infrastructure to make it sustainable, there are
measurable long-term benefits.
RG: The current economy has resulted in a
notable uptick in two areas: second-hand
equipment, and maintenance and refurbishing.
What is your experience with this?
RW: When your economic cycle is down,
people try and lengthen the lifespan of the
machine, which results in a purported lower
demand for new equipment. And when
that goes down, generally your demand for
parts and service — maintenance — will
increase, because they are trying to prolong
the life of that equipment. And for new
contracts, or plant hire, the end-user cannot
afford the rate of a new machine relative
to the inflationary cost, which increases the
demand for used equipment. Because there's
a lower capital input cost, the theory is that
the machines can be hired out at a lower rate.
But although your capital cost is lower, your
maintenance cost is higher, so it’s a little bit
of a catch-22 situation.
RG: How much of an impact has this had on
your business?
A Doosan DLA wheel loader hard at work in a quarry. Doosan’s earthmoving equipment
includes wheel loaders, excavators, articulated dump trucks, and various attachments.
RW: Well, our new equipment business is
always far greater than the used equipment.
We do deal with trade-ins, but they are often
a function of new sales or a tool to get new
sales by encouraging people trading in to
buy new machines, because they can afford
it with their contracts. The trade-ins are then
recycled back into the market on a lower-
cost or lower-productivity contract, because
the new equipment has to be in the higher
productivity range. We also have a spectrum
of contracts when we sell used equipment;
the upper end of the spectrum would have
warranty, maintenance, and so on included,
and the lower end of the spectrum is more of
a 'voetstoots'-type contract.
And it’s not only the direct effect of the
recessionary economy that is a restriction on
new sales. The ability to get finance is also a
major challenge for a lot of companies in this
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