Coronavirus Could Stall Key Paint Consuming Projects in South Africa

The outbreak of the novel coronavirus pandemic has put in jeopardy a housing construction program announced in February by South African President Cyril Ramaphosa hence dimming the hopes of many paint and coatings companies that may have tendered or been planning to bid for a share of some of the projects’ supply contracts.

President Ramaphosa has already declared the pandemic a national disaster and announced a raft of measures that would see paint and coatings companies among those suspending operations in South Africa until the current COVID-19 wave dissipates.

On March 23, South Africa’s National Coronavirus Command Council resolved to enforce a nationwide 21-day lockdown with effect from midnight on Thursday, March 26 with a warning the measures raise the “prospects of a very deep economic recession that will cause businesses to close and many people to lose their jobs.”

In the short term, the country’s Industrial Development Corporation has in partnership with Department of Trade, Industry and Competition crafted a package of nearly R3 billion ($168 million) for industrial funding “to address the situation of vulnerable firms and to fast-track financing for companies critical to our efforts to fight the virus and its economic impact.”

Like many firms in South Africa’s manufacturing sector, paint and coatings companies, many of them now on a slow operating mode or closed altogether, will have to incur the extra cost of paying non-productive staff who have been directed to say at home.

Just before the first COVID-19 case was ever announced in South Africa, President Ramaphosa had in his February 2020 State of the Nation Address emphasized on three major construction projects that had the potential to consume huge amounts of paints in the short term.

The projects included a social housing program, a student accommodation construction scheme and development of a smart-city at Lanseria that would help address the current housing shortages.

Ramaphosa said the multi-million dollar projects had been given priority in the country’s short and medium-term economic plan despite challenges associated with instability in electricity supply, high unemployment rates and inefficiency in key State-Owned Enterprises.

In what could appear more like a premonition of the devastating COVID-19 impact on South Africa, President Ramaphosa said: “Our country is facing a stark reality. Our economy has not grown at any meaningful rate for over a decade.”

Actually, South Africa’s real GDP growth was estimated at 0.7 percent in 2019, down from 0.8 percent in 2018, and is projected to rise to 1.1 percent in 2020 and 1.8 percent in 2021 amid domestic and global downside risks according to the African Development Bank.

The President said with the current performance of South Africa “even as jobs are being created, the rate of unemployment is deepening.”

Analysts estimate South Africa’s unemployment increased to 27.1 percent at the end of 2018 from 26.5 percent at the end of 2016 with youth unemployment surging to 54.7 percent at the end of 2018 from 51 percent at the end of 2016.

The situation is likely to be exacerbated further as the novel coronavirus nibbles into the economy.

As for the country’s surface coatings sector, the total recognized employment including manufacturing and application stands at less 10,000 or an equivalent of five percent of the employees in the total Chemical sector.

President Ramaphosa attributed the stalling of South Africa’s economic recovery to “persistent energy shortages that have disrupted businesses and people’s lives.”

In fact, South Africa Paint Manufacturing Association (SAPMA) has long lamented the “escalating electricity tariffs, the economic slump and other disruptive factors such as load shedding.”

Ramaphosa admitted in February: “Several state-owned enterprises (SOEs) are in distress, and our public finances are under severe pressure.”

According to an earlier report by the International Monetary Fund (IMF) South Africa’s State-owned enterprises (SOEs) face major difficulties in their operations.

“Inefficiencies in SOEs operating in network industries such as electricity and transport, translate into costly inputs for businesses, and repeatedly require financial support from the fiscus,” said IMF.

But at a time when South Africa’s paint and coatings market had concluded that it was not all doom and gloom for their business, the coronavirus has put into serious risk the implementation of the ambitious building plans that have the capacity to absorb huge quantities of surface coatings products.

The projects include the building of nine new Technical and Vocational Education and Training (TVET) Colleges across the country in 2020.

With some experts estimating the consumption of up to one gallon of paint for every 400 square feet, construction of the TVET colleges in South Africa could have been a major boost not only to the paint manufacturers but also pain service providers such as painters.

“We are making progress with the introduction of the three-stream curriculum model, heralding a fundamental shift in focus towards more vocational and technical education,” he said.

In addition, Ramaphosa said South Africa’s Infrastructure Fund implementation team “has finalized the list of shovel-ready projects and has begun work to expand private investment into public infrastructure sectors with revenue streams.”

“These include areas like student accommodation, social housing, independent water production, rail freight branch lines, embedded electricity generation, municipal bulk infrastructure, and broadband roll-out,” added Ramaphosa.

He said: “The team has a project pipeline with potential investments of over R700 billion ($39.5 billion) over the next 10 years, including both government and non-government contributions.”

In what would have been more of good news to the paint and coatings market, Ramaphosa had assured South Africans in February “the cranes and yellow equipment that we have longed to see across the landscape of our country will once again soon be an everyday sight.”

“We are going to spend R64 billion ($3.6 billion) over the next years in student accommodation and will leverage at least another R64 billion ($3.6 billion) in private investment. These building projects are ready to start,” assured the President.

As for the social housing plan, the South Africa government is implementing the construction of 37,000 rental apartments for low-income families that the government says could leverage as R9 billion ($507 million) of private investment.

Meanwhile, South Africa’s mixed-use residential development and business district project of Lanseria with the capacity to accommodate up to 500,000 people is taking shape

The new smart-city, a truly post-apartheid city according to government reports, will not only be “smart and 5G-ready but will be a leading benchmark for green infrastructure continental and internationally.”

With manufacturing plants closed, a lockdown imposed and government capital expenditure on infrastructure put on hold, South Africa’s paint and coatings market can only keep their fingers crossed that the coronavirus threat subsides and disappears as fast as it came calling.