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
[email protected]
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