Capital Equipment News December 2017

EDITOR'S COMMENT

IS AFRICA STILL RISING?

O n the back of a ferociously volatile global economy, the ‘Africa rising’ sto- ry has been under severe pressure for the past two years. As the growth outlook in developed markets remains pedestrian, the majority of emerging markets are also expe- riencing the full brunt of the slowdown. Africa’s growth momentum has slackened, and according to Deloitte’s Construction Trends Report , growth in sub-Saharan Africa fell to 3,5% in 2015, before going down to 1,4% in a difficult 2016, the first time the region’s growth has been lower than the global average since 2000, and significantly far off the 5-7% average experienced by the region over the past decade. The Deloitte report further notes that, of sub-Saharan Africa’s major four economies

– South Africa, Nigeria, Angola and Kenya – one is rapidly contracting (Nigeria) while two are static (Angola and South Africa). It is only Kenya that is somehow bucking the downward trend and growing at a decent emerging market rate of close to 6%. It is, however, worrying to note that many of these powerhouse economies in Africa are at a tipping point in which politics have begun to firmly trump economics, especially in South Africa, the biggest economy on the continent, as well as Kenya, regarded as the shining armour of East Africa. For example, some political decisions in South Africa in 2017 overshadowed the big recent price gains in bulk commodities such as iron ore, metallurgical coal, manganese and chrome ore. Kenya’s election debacle is still threatening to reverse all the economic gains amassed in the previous few years. Nonetheless, it is encouraging to see that the World Bank notes that growth in sub-Saharan Africa is recovering, supported by modestly rising commodity prices, strengthening external demand and ending drought conditions in a number of countries. Growth in the region is forecast to pick up to 2,6% in 2017 and to 3,2% in 2018, centred on moderately rising commodity prices and reforms to tackle macroeconomic imbalances in some countries. Growth in non-resource intensive countries is predicted to remain solid, buttressed by infrastructure investment, resilient services sectors and the recovery of agricultural production. For example, Ethiopia is forecast to expand by 8,3% in 2017, Tanzania by 7,2%, Ivory Coast by 6,8% and Senegal by 6,7%, all reinforced by public investment. The supply chain is always a good measure of the health of the recipient sectors. Unlike in 2016, most equipment suppliers report improving business activity across Africa, despite the slow growth in a number of economies. Recent investments in footprint expansion and capacity building projects by several international OEMs and their local dealers are also a key indicator of their confidence in the future of Africa, especially

considering that the continent is home to 30% of all global mining activities and a lot of infrastructure development still has to happen. For example, Komatsu has invested in a new facility in Gauteng, South Africa that consolidates its head office operations, warehouse and distribution centres as well as workshops and remanufacturing facilities into one centralised property. The development of the campus signals the company’s unwavering commitment to doing business in the region. Elsewhere, another landmark investment this year was Caterpillar’s new parts distribution facility in Kempton Park, near Johannesburg, South Africa. This was later followed by the launch of its Equity Equivalent Investment Programme (EEIP) with the South African Department of Trade and Industry, representing one of the OEM’s largest investments in Africa to date. Caterpillar’s EEIP commitment is to localise a cumulative R1,3 billion (about US$90 million) of component content over the next 10 years, representing the largest ever EEIP in South Africa. Both these investments are part of the previously announced plan of Caterpillar, its independent dealers and the Caterpillar Foundation to invest more than $1 billion in countries throughout Africa over five years. Meanwhile, Cummins Southern Africa’s massive US$100 million plus investments into growth and support projects in Africa in the past seven years also herald its long- term confidence in the continent. Although current stable macro-economic factors are very important in any company’s investment decisions, it is encouraging to see that these capital investments are based on a long-term view. I believe it is worthwhile to identify potential, not just for today, but also for well into the future. I am of the view that the strongest medium to long-term growth will have to be garnered in Africa. The continent is deemed a new frontier which presents a wealth of opportunity, and there has to be plans for a any serious OEM to establish some sort of footprint on the continent. b

Munesu Shoko – Editor

capnews@crown.co.za

@CapEquipNews

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