Economically empowered rural areas offer good growth prospects.
The
building industry is cashing in on increasing development
opportunities in semi-urban and rural areas, prompting companies to
broaden their geographical footprint.
The construction of
residential developments, schools, shopping malls and roads in outlying
areas has increased, to serve a more economically empowered
population. Part of this empowerment comes from social grants, says
Cashbuild CEO Werner de Jager.
“Driving through rural towns, you find that everyone is doing something to improve their homes,” he says.
JSE-listed
Cashbuild, which sells building materials directly to cash-paying
customers, has 51 stores in rural areas, out of a total of 191 stores
around the country.
Comparing its figures for the six months to
December 2011 with the six months to December 2006 reveals that its
rural business revenue has outstripped its urban store revenue . The
average revenue per rural store increased by 80%, compared with the
company’s average of 60% .
Cashbuild’s rural stores attract home
owners who want to make their own improvements to their homes.
Whereas in urban areas, Cashbuild stores generally serve bakkie
builders (builders who work out of the back of a bakkie) who do small
building jobs for home owners .
Cashbuild’s urban customers
frequently buy from stores in cities like Cape Town, but arrange for
their purchases to be collected at a rural store, in Butterworth, in
the Eastern Cape, for example.
This form of remittance — or
sending money home — is common, says De Jager. It supports the opinion
that building activity, often the DIY-type, is on the increase.
PPC
CEO Paul Stuiver echoes this sentiment. “Rural areas are feeling the
effect of social grants. A portion of grant money is spent on home
building and improvements, which has caused a general increase in
demand outside the cities.”
He has noticed other pockets of
investment. Construction in the Western Cape has slumped, affecting
most companies that operate in that province, including PPC. But
Stuiver says medium-sized contractors are busy. “I see the activity on
secondary roads and small projects, like perlemoen farms.”
Data
from Statistics SA reveals that building activity levels in Gauteng,
the Western Cape and KwaZulu Natal are still the highest. But the
percentage change of activity in the Northern Cape, Free State,
Limpopo and North West has increased between the two comparable
quarters, far in excess of any of the other provinces.
In the
Northern Cape, for example, building activity rose by 86,1%, when
comparing the first quarter of 2012 with that of 2011. However, its
contribution to the total value of building plans passed in the
country was just 1%.
The same report shows that building activity
dropped in the first quarter of this year . The value of recorded
building plans was 4,5% lower, at R15,4bn, compared with the first
quarter of 2011. Non residential building activity decreased by 22,8%,
while residential building rose by 4,2%, to R6,89bn.
The Bureau
of Economic Research’s building confidence index rose from 29 to 34
over the quarter, after building contractors, manufacturers of building
materials and quantity surveyors reported a better outlook for the
sector.
Nevertheless, six out of 10 respondents still rate prevailing business conditions as unsatisfactory.
Government’s
infrastructure plan supports growth in rural areas, which might boost
building activity there . It has targeted investment in provinces such
as North West, Limpopo and Mpumalanga, which should benefit rural
economies and communities.
For example, with the promulgation of
the Special Economic Zones Bill , government intends to develop
multiple and geographically scattered pockets of industrial
development. Small contractors report that rural activity is picking
up.
Anele Madlanga, owner of Ola Paint, a Soweto-based company,
says the limited availability of land in township areas has affected
construction levels. But in outlying areas — rural and semi-urban —
opportunities are on the increase.
Madlanga builds houses for
low-cost housing developers in Fleurhof and Lufhereng, southwest of
Johannesburg. He also does work in Orange Farm and expects to work on a
housing project in Carletonville .
But he relies on
subcontracted work and his profits are usually low. Smaller
contractors believe tender requirements are preventing small and
medium-sized enterprises (SMEs) from benefiting from infrastructure
development.
Doctor Mfobela, owner of Doc’s Construction, says
operating as a small contractor before 2000 was easy. He worked
successfully in Queenstown in the Eastern Cape.
But that changed
when contractors were graded according to Construction Industry
Development Board guidelines. Such grading limits contractors to
tendering for only those projects for which they are graded .
The
system was designed to prevent capacity concerns that have been a
problem in the past, where small operators take on projects that are
too big for them. Mfobela says it has inadvertently cut out the small
contractors.
He says government will have to resolve this
shortcoming if its intention is to spread the benefits of large
infrastructure projects to SMEs, particularly those in rural areas.
Large companies already appear to be cashing in.
Stuiver says
PPC has put systems in place to better serve rural areas. Contrary to
popular opinion, cash-paying rural customers are extremely
sophisticated . “They are more quality conscious than urban-based
customers . They want to know exactly how many bricks they can make
from a bag of cement. And they test quality by walking on the bricks
two days after they have set, to see whether they will crack.”
He
adds that rural customers are prepared to pay for higher-quality
products, which they get more out of . “They do the calculations,” he
says.
Building materials supplier Afrimat says contract values
are diminishing . Three years ago, it was common to tender for
contracts valued at between R800m and R1,5bn. Today, contracts are
more commonly valued at about R100m, says CEO Andries van Heerden.
But he suggests that smaller contracts create more jobs, which fits in
with government’s intention to use infrastructure as a means of job
creation. Van Heerden also says the projects are more geographically
dispersed. Smaller firms like Afrimat are more flexible, allowing them
to respond more quickly than their larger rivals to work opportunities
in different locations.
To date, however, government’s largest
initiative to direct money where it is most needed, the Expanded
Public Works Project, has not achieved what it set out to. Only a
small amount of funding has reached the intended beneficiaries. Wages
have been low and much of the work is short term.
Source : http://www.fm.co.za/Article.aspx?id=173859