Quarry Southern Africa November 2018 - Page 3

COMMENT TOO EARLY FOR A www.quarryonline.co.za  a listed building materials retailer, the company makes the point that the ratio of bricks sold to cement sold should typically be in alignment as the two go together. However, the company notes that the ratio of cement sold was (instead) out of synch with that of bricks sold, and the reason had to do with blending. This points to manufacturers of cement selling to cheaper blenders even at below cost, just to get rid of their stock. This gets into the market as competition to the big manufacturers. However, as soon as the economy picks up again, those cheaper blenders will not compete as they will no longer be able to source cheap material from the manufacturers. It is evident, therefore, that there is a virtuous cycle which comes into play when infrastructure projects are announced, jobs created and underutilised capacity dries up. Optimism depends on many factors, not least of which is the stimulus package announced by President Cyril Ramaphosa. However, while Quarry Southern Africa concurs that a focus on infrastructure is correct and sorely needed, we are of the opinion that National Treasury does not have the fiscal headroom to finance many of these proposed projects. Nor does it appear that many analysts are confident that there is real substance to the stimulus package. FNB, for example, says it remains downbeat on the prospects for the construction sector; civils in particular. It sees few concrete Eamonn Ryan, editor eamonn@interactmedia.co.za plans and timelines outlined in the stimulus package. The idea is that the R50-billion allocation will be budget neutral, taking from under- performing departments but the scale of investment required to revive the domestic civil sector is far beyond what has been proposed. The country still needs to hear more about the R400-billion infrastructure fund and will hopefully get more clarity on it from the Medium Term Budget Policy statement that will come out after this issue of QSA is published. It would be nice to end the year on an optimistic note, but we need to know much more. An economic growth catalyst is sorely needed to sustainably grow the construction sector and provide much needed infrastructure. Even with the proposed stimulus, it appears the economy will continue to muddle along during 2019, as it typically does in an election year; and until there is greater policy certainty; and until the country’s finances recover sufficiently to begin investing in growth enhancing and job creating infrastructure. And that’s a few ‘ands’ too many…  udit and consulting firm PwC presented the 10th edition of its annual SA Mine, a publication which highlights trends in the South African mining industry. In the report, published on 2 October, Andries Rossouw, PwC partner, notes that building materials had ‘dropped off this year’. “It is not a fancy commodity to mine, but there’s a lot of value to mining building materials and it is a good indication of the economic growth we experience in the country. On a cumulative, effective basis building material has grown [annually] less than 2% in the past 10 to 15 years. That’s not a good sign, and the fact that it decreased this year reflects the weak economy that we are faced with.” He notes that production and sales of building materials as an indicator of underlying economic growth, was supported by other indicators such as the ailing condition of the construction industry and the decline in GDP as demonstrated by a state of recession. As soon as the economy sees a pick-up in construction activity, we will simultaneously see traction in the broader economy. The implementation of large infrastructure projects is the most immediate way to create jobs where they are most needed. The requirement that 30% of contract value is spent within local communities means the benefit of such contracts is immediately diffused around the country. The performance of quarries, too, is indicative of what is happening in the economy, much more so than other forms of mining. Deep level mining of precious and base metals is not something that can be readily switched on and off – it is an international industry and production can occur irrespective of what is happening in the local economy. But quarrying is an activity that takes place in close alignment to what is occurring in the local economy: a quarry will produce often on order, and it can be closed down and re-opened at short notice. In the recent results presentation of OPTIMISM Luyanda Mngadi, PwC Director, and Michal Kotze, PwC Director: Africa Energy, Utilities and Mining Industry Leader. QUARRY SA | NOVEMBER/DECEMBER 2018_3