Capital Equipment News

There are unique challenges in the African used equipment market. The continent is vast and it requires local knowledge to gauge the variable demand. The situation on the ground is economically fluid and politically uneven. The perceived imbalance between risk and reward inhibits buyers. However, there is a general consensus in the industry that Africa offers great opportunities for buyers and sellers alike. The key challenge is defining just where and when? By Paul Williamson, sales director for Africa at IronPlanet

Leading online auction company IronPlanet is currently engaged in replicating its highly-trusted and globally successful model for the African continent. As such, it offers hard-won insight on avoiding the pitfalls of dealing in used heavy construction machinery.

Ironplanet highlighting African used equipment opportunitiesIronPlanet anticipates a very strong future for the Africa, with phenomenal opportunities available in the used equipment marketplace.

No more so than in mitigating the problems that are perennially associated with doing business in Africa, such as corruption, fragile economies, varying levels of red tape and inadequate infrastructure.

Africa’s big questions

There are big questions over doing business in Africa. Taking a broad view, the biggest hindrance confronting participants is the negative influence of despot governments; while the biggest hurdle remains corruption. However, corruption is not solely a problem in Africa.

The instability of the region reveals itself in “one-trick” economies – in particular, those countries in West Africa – almost totally dependent on single commodities to fund large and ambitious construction projects. The global collapse in oil prices, and the current situation where oil commands prices of about $50 a barrel, is in stark contrast to government construction budgets based on receiving a price of $100 plus.

Subsequently, many big infrastructure projects have ground to a halt. As a result there is a huge amount of construction equipment currently available on the African market.

Changing the model

Historically, African buyers have sourced their machine requirements from the broker network in Europe, Middle East and the US. These transactions have therefore exhibited an over-reliance on the whims of a handful of individuals. Consequently, Africa – in common with South America – has been traditionally viewed as a high-priced market, where buyers are constricted by a lack of knowledge and transparency. IronPlanet’s expansion reflects its ambition to radically shift away from the existing model.

The company’s success is built on its wide reach and international scale. This significantly liberates customers. You can buy in the global shop window of an online auction at attractive prices without the heavy fees historically involved – you don’t need to be fleeced. A seller is able to achieve more profitable sales through the low transaction costs and better prices that are realised because of this global audience.

The need for trust and transparency

Institutional obstructions and hesitancy on the part of the customer still intervene. Sometimes you do all that you can, and are supposed to do, in regard to the legal framework in a particular country, but then you just can’t get deals over the line. Some customers change their minds in the last minute. Addressing these issues of trust is key for the success of any proposed solution in the region.

IronPlanet has strategies in place to bypass the issue. In a lot of countries the company’s transparency knocks down these barriers. For sure, it has found one or two particularly difficult situations, but by being the more transparent option – and with social media helping to drive the trust that is needed – IronPlanet is beginning to see it develop from both sides. This contributes to the company’s contention that the situation will get easier as time goes on.

Embracing the emerging economies and markets in Africa is essential going forward. There is no doubt that there are “huge opportunities”, which are even more attractive given the contrast to a post-financial crisis Europe, where growth is very hard to come by. Any strategy to exploit these opportunities has to be carried out in an intelligent, responsive and planned fashion.

The online advantage

Visiting sites to view used machinery in Africa is inevitably a tough ask. The lack of infrastructure makes visits and buying trips awkward and time-consuming. A website is not enough on its own. The next steps of building a network and finding more equipment buyers has to be realised quickly through necessity. Human connections are crucial in Africa to build the business.

Despite buyers embracing what is on offer, it is no overnight fix. Getting known and building a profile is equally tough, involving a long and difficult process. However, IronPlanet views the online model as the perfect fit. The Iron Planet model works perfectly in Africa given its geographical expanse; the logistics of moving big equipment is very difficult. In Europe, a physical auction works fine, but in Africa the company has to parachute its inspectors into the jungle to view the equipment. Once this is done, it can attract all the buyers worldwide, who can then buy through the platform with complete confidence.

Guaranteed inspection reports

One of the main differentiators in the IronPlanet business model is the guarantee provided to its customers based on the veracity and quality of the advertised equipment’s condition. This only strengthens the trust necessary for a successful business relationship.

Detailed inspection reports for each piece of equipment in the auctions can be viewed by potential purchasers online. These include a visual inspection of key systems and components, along with ratings and notes. Images of the equipment, wear-related measurements and oil/fluid samples, when appropriate, are also available for inspection.

Since buyers know the true condition of the equipment, confidence in the bid isn’t an issue. This confidence is reflected on each side of the transaction. Guaranteed inspection reports also deliver the dual benefit of raising and defining the ongoing industry standards.

African brand awareness

Having identified the massive choice of used heavy construction equipment available for sale in Africa, which manufacturer’s products have the greatest appeal? In IronPlanet’s experience, it is Caterpillar. “The yellow is known wherever you go. Always Cat. Why?

Because locals know how to fix the machines. And they know where to get spare parts. This preference is reinforced by a good dealer network, although Komatsu is also well-regarded. In contrast, parts from Chinese manufacturers are currently difficult to obtain despite their efforts to build up dealerships.

Essential sales tips

There are a number of tips to bear in mind to ensure a successful transaction. The equipment has to be suitable for the African environment. Computer systems and advanced electronics are classed as unacceptable. With newer equipment models there simply isn’t the expertise on the ground to keep them working.

If a project is undertaken in the middle of the jungle and the machine breaks down the purchaser has got to be able to fix it. The dealer might be able to help eventually but the need for an immediate response is what is fuelling demand in older models. Emission levels also vary considerably from the strict compliance observed in markets such as the United States.

The desire to buy older technology is a fundamental characteristic of the African market. For those selling older equipment this is a great opportunity, as it is likely to keep prices solid for many years to come.

Stability and opportunity

IronPlanet anticipates a very strong future for the region, with “phenomenal opportunities” available in the used equipment marketplace. The optimism is based on a broad range of factors. With the population expected to double from 1,2 billion to 2,4 billion by 2050 – and a continent currently containing 650 million mobile phones – there are enough “raw materials” for developing IronPlanet’s success. Less tangible, but equally persuasive, is the identification of the spirit found from many visits. There is an energy about these guys in Africa – they get on with life; there is great drive and they want to get on.

Where there is stable government, used equipment markets will grow, thrive and flourish. Mozambique, Botswana, Namibia and Kenya are prime examples. Ethiopia, Tanzania and Uganda are also stable and investing countries where the outlook for purchasing equipment is strong. Nigeria has great potential if circumstances align, whereas the countries of French West Africa are viewed as better for finding equipment.

In East Africa and certain parts of southern Africa, economies are more diversified. Those countries that add value will be in the best economic shape: those that go away from just shipping raw materials and convert these into products. And once the oil price goes up again, requirement for plant will be strong going forward.

Kenya and Tanzania have a lot of construction projects coming up. There are major rail projects on stream in Mozambique and with the Djibouti to Addis Ababa rail link to the sea. Chinese investment is responsible for many of the infrastructure projects and the country’s influence in Africa is considerable. It is an influence that is driving opportunities but also shifting ways of doing business; often leaving European companies, with their adherence to strict compliance, less competitive.

Contact Capital Equipment News

Title: Editor
Name: Munesu Shoko
Email: capnews@crown.co.za
Phone: +27 11 622-4770
Fax: +27 11 615-6108

Title: Advertising Manager
Name: Elmarie Stonell
Email: elmaries@crown.co.za
Phone: +27 11 622-4770
Fax: +27 11 615-6108

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