New costs and market values of productive plant, machinery and equipment are continually spiralling in our volatile market due to economic instability in South Africa. This affects all projects, be it planning for a new capital project, or modifications and upgrades to existing plant and machinery.

Whether for insurance or financial statement purposes, a considerable amount of research must be undertaken, in order to achieve a sufficient understanding of the asset, as well as the current markets and values.

Rand Instability can throw a spanner in the works when it comes to plant and machinery costs

The South African Rand reached an all-time low of R11.32 to the US dollar recently, hitting its lowest point in 5 years. Economists are of the view that the rand could stay around its current level for a while, settling at around R11.50 by the end of the year. The general opinion for this is the widening trade deficit and of course the strong US Dollar being mainly responsible.

This problem will likely continue, as South Africa’s imports far outweigh its exports. Reuters reported that economists had expected an R8 billion gap, but the number is volatile and therefore hard to forecast. Furthermore, the continuous industrial strikes and political antics do little to increase international confidence.

The South African Government is offering a range of incentives in order to maximise the value on business investments. Dube Trade Port and Coega springs immediately to mind, multi-million rand investments that need to expand. However, until the labour laws are addressed in order maintain stability and confidence, investors will continue look at other options for safer investment.

Getting more Value for your Rand

According to economists, there is no easy fix for the current situation. Changes in policy, leadership and productivity need to be addressed for the rand to recover. On a good note, this is an excellent opportunity for South Africa to increase productivity and exports.

India, China and the Middle East offer discounted rates for a diverse range of capital equipment and products. However, it’s important to be selective to ensure that quality is bought at the correct price.

South African producers in general, are not upgrading their plant and machinery facilities, which has a negative and domino effect on production costs. Such needs to be modernised in order to increase productivity and maintain productive costs effectively.

Consulting Asset and Technical Valuations (“CATVAL”), our partner, is a company specialising in the consultancy and valuation of plant and machinery. They are in a position to assess and identify a wide spectrum of productive assets pertaining to mergers, acquisitions, finance bridging, company relocation, disposals and all asset related queries. Their services also include asset register compilation, asset identification, barcoding, valuations and due diligence studies.

Carlos dos Santos, managing member of Catval, has over thirty years’ experience in valuation and consultancy of specialised plant, machinery and productive assets. He is internationally accredited, as a member of the Royal Institute of Chartered Surveyors (RICS), and has carried out valuations in Southern Africa and Europe. His fluency in the Portuguese language, enables him to carry out valuations in Angola and Mozambique, as he has done in the past.