Publications
Partners
Johannesburg - Expanding into other African countries seems to be the latest theme for construction and building materials companies which aren't getting what they want from SA.
In November, the likes of Esorfranki, Stefanutti Stocks and PPC have all said they're looking at opportunities across the continent to make up for margins lost at home.
"The margins are wider in Africa as they're able to price in risk," said BoE construction analyst Leith Wimble. Another analyst, who declined to be named, said there are "a lot of opportunities in the private sector, and with a lot more risk comes a lot more reward".
The SA government's R780bn infrastructure programme was seen as a safe haven for construction firms as the global recession and a local property slump hit building contracts.
But funding concerns at major parastatals and municipalities as well as this year's elections and a cabinet reshuffle have cooled spending plans, shattering some hopes of construction companies.
"Thye're very much looking at Africa [as a result]," said Imara SP Reid's analyst Stephen Meintjes.
The unknown carries risks
Raubex is strong in Zambia and they were getting some "nice" contracts in Namibia, while Group Five is expanding in the Congo.
"Stefanutti Stocks said there's more opportunities available in Africa, and it's been there for years. Esorfranki used to be in Zimbabwe, they still have plant there and can easily get things going if they want to go back," said Meintjes.
He said a few have also stayed in the Gulf, just moving over from Dubai - whose economy collapsed following the recession - to Abu Dhabi, Saudi Arabia and Bahrain where governments still have strong spending plans.
However, moving across border means companies are stepping into unknown territories with areas exposed to their own laws, politics and competition. "There's also exchange rate risk," said Wimble.
SA construction firms normally price costs in rands, and receive revenue for contracts in foreign currency. If the rand strengthens, it has an impact on margins.
Some firms - like Group Five - have also paid "some heavy school fees", said Meintjes. The group lost a lot of money when contracts in Angola didn't go as planned.
"Language barriers are also a concern," said Wimble. He said road-builder Raubex will reportedly not expand in Angola because it doesn't have Portuguese language expertise.
- Fin24.com
