Market report: Energy crisis dominates South African industry but long-term outlook is positive

Nicola Jenny reports for PPCJ from Durban on how South Africa’s paint and coatings sector is facing tough energy supply problems, but the long term outlook is positive 

South Africa’s paints and coatings market is expected to generate US$2.1bn by 2026 after growing at an estimated 5.6% compound annual growth rate (CAGR) between 2021 and 2026. This is according to India-based market research and data analytics provider IndustryARC [1]. The projected growth is predicated on the current rise in the country’s building and construction sector, which UK-based market researcher GlobalData says turned over US$25.5bn in 2022 and will grow by 3% on average annually from 2024 to 2027 [2]. That includes a proactive expansion of urban housing by both the government and private sector. In February (2023), the government unveiled a revised government-funded housing subsidy programme for middle-income earners with eligible beneficiaries earning between South African Rand ZAR3,501 (US$184) and ZAR22,000 (US$1,160) monthly incomes. Depending on the monthly household income, the government will fund a beneficiary up to ZAR130,000 (US$6,850) under a ‘First Home Finance’ scheme. 

An example of this policy in action is the Ekurhuleni-based Sky City Housing Development east of Johannesburg, where Human Settlements Minister Mmamoloko Kubayi had originally made the announcement. The associated increased spend on transport and energy infrastructure and ongoing repair and maintenance will also boost paint and coatings sales, IndustryARC stated. 

Decorative and architectural paints dominate the market as a result, owing to their wide applications in roofs, floors, walls, facades, wood trims and doors. 

In the StatsSA ‘Manufacturing industry: Production 2021’ report [3] released in July 2023, said sales of South Africa-made paints, fillers and other surface treatments in 2021 amounted to ZAR17.9bn (US$944M); with automotive paints and metal decorating finishes (solvent-based) sales being ZAR1.03bn (US$54M); and enamel paints (solvent-based) ZAR1.49bn (US$78M). 

Problems on the ground

But this benign statistical outlook masks some real challenges that the South African paint and coatings industry has and will be facing going forward. 

South Africa has been slow to recover from the COVID-19 pandemic, said the South African Paint Manufacturing Association (SAPMA) Executive Director Tara Benn, whose organisation represents companies making 90% of paint manufactured in South Africa and raw material and service suppliers, retailers and contractors. She noted that this year sales from South African do-it-yourself (DIY) stores have yet to reach pre-pandemic sales levels, which were decimated by tough government policies during the height of COVID-19 that told DIY and home improvement stores to close.  

Research conducted by California, USA-based AI-driven market intelligence platform IndexBox [2] in an August (2023) report said as a result, after six years of growth, the country’s paint and varnish market decreased 4.2% in 2021.  

SAPMA Retail Committee Chair Gary van der Merwe told PPCJ that the recovery has been rocky, with Q1 2023 sales for hardware, paint and glass retailers falling 7.7% yr-on-yr, and 5.1% down compared to Q4 2022.  

But the rest of this year has been better, with new paint orders and revenues either flat or slightly ahead of the curve, with paint companies benefitting from new stores and retail expansion. 

Some of this has occurred through rebuilding following the July 2022 riots sparked by former President Jacob Zuma’s prison sentence for contempt of court that caused an estimated US$1.7 bn worth of property damage. About 200 shopping malls were targeted; around 300 shops looted and 200 banks and post offices were vandalised during the 10 days of rioting.  

In the meantime, Van der Merwe said margins remain under pressure and paint and coating companies are “generally unhappy” with the performance of established retail outlets in densely populated areas.  

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Equally debilitating on every South African business has been the government’s introduction of ‘load shedding’, with power supplies to sections of the national electricity grid turned off as the state-owned energy company Eskom Holdings fails to meet demand. The mechanism has been implemented regularly since September 2022, with scheduled power cuts on 204 days that year and 173 days from January to June this year (2023).  

Benn said the strategy has “severely affected” the sector, with companies losing millions of South African rand by being forced to work around power outages in production. This is particularly relevant to energy-intensive chemical reaction paint products that require continuous manufacturing process during the dispersion phase.  

“In addition to planned load shedding, sudden outages or related substation failures are major problems. If a production batch is spoilt by sudden loss of electricity, the results are catastrophic and there are increasing cases of end-products (being) dumped or regarded as sub-standard,” she said.  

Consequently, the industry carries diesel, inverter and back-up system costs that cannot be transferred to consumers in an economy that has been seriously harmed by load shedding. The International Monetary Fund (IMF) said the power problems were partly responsible for South Africa facing anaemic 0.1% growth this year, with inflation at 4.7% (in July). 

Benn added that manufacturers have placed staff on shorter shifts, with nightshifts now becoming more common in companies previously working only days. Further down the supply chain, hardware stores struggle with late deliveries and stock shortages as traffic is slowed by a lack of streetlights and traffic lights.  

Environmental legislation and innovations

In the meantime, the industry has had to improve production methods to comply with new environmental and health legislation. This includes recent efforts to reduce the lead content in paint.  

In October (2021), South Africa’s national department of health announced draft legislation that, if executed, will cut the legal threshold for lead in new paint to 0.009% or less than one-sixth of the original limit and bring South Africa’s regulations into line with international guidelines.  

The new regulations would apply to all paints including those used in industrial settings when it is implemented, with the proposal still pending as of September (2023). 

IndustryARC researchers have reported the country’s waterborne paint is growing, as market demand also pushes sustainability within the industry segment. Sales already outstrip oil-based paints and are expected to grow at a 6.6% CAGR between 2021 and 2026. 

Manufacturers are also enhancing their formulations with innovative and more sustainable solutions. A Plascon Paint South Africa [4] note said ongoing research and development into paint formulation and manufacturing has created a range of advancements including odourless paint, paint that helps combat algae and mould build-up and paint that facilitates safe rainwater harvesting. Plascon is a subsidiary of Japan-based Kansai Paints, which has plants throughout Africa. 

Meanwhile, Johannesburg-based Chemgrit South Africa [5] is developing conductive paint that can transform any wall into a smart device touch screen. Its paint contains a conductive nickel grid that creates electrodes on the wall that then acts as a touch screen and electromagnetic sensor, tracking your position, detecting objects and responding to gesture commands. 

With a large market such as South Africa, which is well connected to the international paint and coating sector, exports and imports also play a key role in the market. 

Indeed, IndustryARC [6] said multinational companies, including Netherlands-based AkzoNobel and Japan’s Kansai Paint (Kansai Plascon Africa); as well as domestic companies Gauteng, South Africa-based Ferro SA; Cape Town-based Dekro Paints; Cape Town-based Duram Smart Paints, constitute 80% of the country’s paint market, with the balance, according to Statistics South Africa (StatsSA), being more than 700 small businesses, typically family-owned.    

Exports are important. UN trade data said that in 2022, South African exports of non-aqueous polymer-based paints yielded US$50M in revenue; and those sold in an aqueous medium generated US$53M in sales. 

US-based market researcher IndexBox [7] said Mozambique, Namibia and Botswana accounted for 51% of South Africa’s paint and varnish exports in the past year, while Lesotho, Eswatini (formerly Swaziland), Nigeria, Zimbabwe, Zambia, Ghana, Germany, Malawi, the USA and Madagascar accounted for another 44%.  

Meanwhile, a ‘South Africa Paint Industry Outlook 2022-2026’ [3] by market intelligence platform ReportLinker expects the country’s paint imports to fall 7.9% year-on-year to 404.1Mkg by 2026. By comparison, the country imported 640.1Mkg in 2021 [8].  

However, it says since 2005, the demand for paint in South Africa has grown 260.4%. So, if the country can overcome its current political and economic problems, especially on electricity supply, the outlook for the South Africa paint and coating industry and market does look positive.  

References  
1 – https://www.linkedin.com/pulse/south-africa-paints-coatings-market-forecast2022-2027-sri-maithili/  

2 – https://www.globaldata.com/store/report/south-africa-construction-market-analysis/  

3 –https://www.statssa.gov.za/publications/Report-30-02-04/Report-30-02-042021.pdf 

4 – https://plascon.co.za 

5 – https://chemgritsa.co.za 

6 – https://www.industryarc.com/Report/18991/south-africa-paints-and-coatings-market  

7 – https://www.indexbox.io/store/south-africa-paints-and-varnishes-market-analysis-forecast-size-trends-and-insights/   

8 – https://www.reportlinker.com/clp/country/10379/726333