Capital Equipment News January 2018

EDITOR'S COMMENT

DAWN OF A NEW ERA?

T he southern African capital equip- ment fraternity is still facing tough challenges, and only compelling strategies to remain resilient in such a volatile economic environment will keep businesses – both end users and suppliers – afloat. Currently, corporates, investors and business owners are holding onto their cash, rather than reinvesting in new assets. The approach is the same when it comes to their capital equipment fleets – which results in extending the periods in which they sweat the existing assets. While this may seem like a cost-cutting initiative in the short term, in the long

term, prolonged use of any business asset, especially vehicles and equipment, has a knock-on effect on maintenance and service-related costs. This often results in increased major component failures as fleets depreciate. For OEMs and their dealers, this is a golden age of services, and to survive and prosper, the capital equipment supply chain is transforming into a service-centric sector, moving away from just supplying products to offering end-to-end solutions. Although companies still push products, there is now a bigger focus on delivering the value that customers get out of using those products, with more focus being placed on soft offers such as periodic inspections, lubrication, parts, maintenance contracts and telematics. Capital equipment sales are always a good measure of the state of recipient markets such as construction, mining and transport. For example, if truck sales are anything to go by, 2017 was really a tough year for the industry. The South African truck market took a knock, declining by 2,65% on the previous year’s results to 25 042 units sold. What are the prospects for the year ahead? Forecasts are crucial for all economic and business activity. While rebounding commodity prices have offered some reprieve, policy and regulatory uncertainty have frozen new investment in many southern African countries, putting businesses under immense pressure. In recent times politics have firmly trumped economics. There is a strong relationship between economics and politics because the performance of the economy is one of the key political battlegrounds. Many economic issues are inherently political because they largely depend on policy frameworks and the political will. But, recent political developments in South Africa and Zimbabwe are encouraging. A great deal is expected from

Cyril Ramaphosa who was elected as the president of South Africa’s governing party, the African National Congress. His election has brought some confidence, as we have seen the country’s currency strengthen and the stock market showing above average activity for this time of the year. Even credit rating agencies are getting a little excited, which is positive for the country’s economy at large. Across the border, Zimbabwe could also be on a much stronger growth path following the ouster of Robert Mugabe late last year. Once the “breadbasket of Africa”, the country has suffered decades of economic decline and it is encouraging to see that the new leadership is seeking re-engagement with the international community, though significant risks remain. The new president, Emmerson Mnangagwa’s apparent support for pro- business reforms are cause for cautious optimism after decades of mismanagement under Mugabe. While these political developments are cause for some optimism, there are also elections scheduled for this year in Zimbabwe, and next year in South Africa. Generally, there is always a wait-and-see approach whenever an election is looming as the uncertainty creates a lot of risk for any large capital commitments. On the other hand, it is also common practice for existing governments to splash a bit of cash, especially into infrastructure development projects, during the run-up to elections. However, these are often not sustainable projects, but rather short-term developments aimed at gaining some public confidence than anything else. It, however, remains to be seen whether these so-called favourable political events will have any meaningful bearing on economics for possible improved business activity. However, it is always encouraging to kick-start a year with a bit of confidence. b

Munesu Shoko – Editor

capnews@crown.co.za

@CapEquipNews

CAPITAL EQUIPMENT NEWS JANUARY 2018 2