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South African cement firms hit by stalled spending and job cuts

By Xolisa Phillip, in Johannesburg
Posted on Thursday, 17 October 2019 11:37

For South Africans of modest means, renovations are on hold until the economy gets better. REUTERS/Siphiwe Sibeko

No improvement at home? A lack of renovations is contributing to declining domestic demand for South Africa’s cement.

South African consumers are increasingly hanging on to their hard-earned rands against the backdrop of sustained low economic growth and rising retrenchments.

  • South Africa has an official unemployment rate of almost 30%.
  • Its economic growth forecasts have been revised downwards by the International Monetary Fund and the South African Reserve Bank. Its economy is expected to growth less than 2% this year.

Southern Africa performance

This has contributed to a climate wherein consumers are choosing to save instead of spend, according to Njombo Lekula, PPC’s managing director for Southern Africa.

  • PPC is the largest cement producer on the continent, with an operational footprint in South Africa, Botswana, Zimbabwe, Rwanda, Ethiopia and the Democratic Republic of Congo.

In its operational update published at the end of August for the four months to 30 July 2019, PPC noted a 10%-15% drop in cement sales in Southern Africa compared to the corresponding period in the previous financial year, “in line with the estimated domestic decline”.

  • “Domestic cement demand remains constrained due to a subdued demand environment,” the company said.
  • This lack of demand is being felt in retail, says Njombo. “If you look at the results of Cashbuild and Built it, you can see retail is under pressure.”

Zimbabweans built against inflation

The irony is that when Zimbabwe was gripped by economic instability in the mid-2000s, which was characterised by hyperinflation and the adoption of the dollar, domestic demand there sustained the cement industry.

  • During the period between 2008 to about 2014, Zimbabweans still had dollars in their pockets. On the government side, there was no infrastructure development.
  • In that environment, demand was driven by Zimbabweans who had disposable income and wanted a sustainable way to save it to counter hyperinflation, says Lekula. “So, what did they do? They put their money into fixed assets such as houses and buildings, and drove demand. That actually sustained the cement industry,” he explains.

In contrast: “For quite some time in South Africa, we had been sustained by renovations. But now, people are losing jobs in large numbers,” Lekula says.

“People are faced with choices between renovating their homes or saving for a rainy day. They are not spending as much in terms of [home] expansions and renovations,” he says.

South Africans feeling the pinch

Look no further than Reconstruction and Development Programme (RDP) housing projects to see how this phenomenon is unfolding.

RDP houses are built by the South African government and distributed to poor families as part of efforts to eradicate informal settlements. The RDP housing programme formed part of the post-1994 social policy package designed to alleviate some of the country’s most pressing socio-economic problems.

If you go back to RDP housing developments that were built at least 10 years ago, “you will find the houses fenced, and some have been expanded and backrooms have been built,” according to Lekula.

That has stopped in the newer developments.

Last year, Cashbuild reported that renovations had sustained the group.

“Now, those renovations are no longer happening because people view […] them as a luxury,” Lekula said.

Environmental factors

In its final results for the year ended 30 June 2019, Cashbuild reported that:

  • PPC and Sephaku estimated that industry volumes were down 5%-12%;
  • Other non-listed cement suppliers had given similar indications;
  • Cashbuild Group volumes were down 3%;
  • However, Cashbuild had not lost market share.

Cashbuild is Southern Africa’s “largest retailer of building materials and associated products”. Most its customers pay cash, and the company operates in South Africa, Lesotho, Swaziland, Botswana, Malawi and Zambia.

Cashbuild also noted that the year in review was “one of the toughest”. It cited “continued consumer pressure and high unemployment, and a competitive market”.

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