“A visit to several closed factories reveals a haunting sight”, read an Indian news report from January. “Dusty machinery, piles of unsold tiles and sheds repurposed or left abandoned.”
The report was describing scenes from one of more than 200 factories in Morbi in the state of Gujarat that were reeling from a persistent glut in the ceramic tiles market.
India is the second-largest exporter of ceramic tiles after China. A slowdown in the property sector in the broader Asian region, along with rapid capacity expansions over the past few decades, has produced a glut similar to that seen in almost everything else you need to renovate your home.
A few years ago, in response to this glut, Indonesia extended its safeguard measures (a World Trade Organisation instrument to deal with surges in the volume of imports) primarily in response to a deluge from India and Vietnam. A few weeks ago the Philippines launched a similar investigation into imported tiles.
This places into context the interim numbers from South African tile-maker Italtile, which told a similarly ominous tale last week. “Excess capacity and production in neighbouring countries continues to result in overstocking, depressed pricing and dumping,” the Italtile interim print stated.
Addressing the Durban Chamber of Commerce earlier this week, I highlighted the extent of the overproduction challenge in the building materials market and its complicating features, the first being that the ceramic tile market, alongside steel, cement and glass, faces intense import competition due to chronic overproduction.
This reflects anaemic demand conditions in the property and built environment sector, which arose primarily in Asia due to a demand slowdown, debt overhang and other challenges.
The situation is also a spillover of the characteristic form foreign investment within southern Africa has taken in recent years. It has focused on product markets linked to building materials — float glass, cement, steel and ceramics — while making use of the strategic proximity of mineral endowments of iron ore, coal, soda ash, sandstone and other materials in the region.
This, combined with the design of fiscal incentives in many countries in the region and their proximity to South Africa as a large consumer market, makes them a likely candidate for the “offshoring” of excess product.
Zambia is an interesting case. Nearly two thirds of the tiles made at the Lusaka special economic zone are exported. Imports from Zambia into South Africa grew more than six-fold in the past three years, with the Zambia Development Agency providing suspended corporate tax breaks to firms making ceramic products in these zones.
Third, weak domestic demand blunts the effectiveness of any trade protective measures. Sharply reduced construction activity in KwaZulu-Natal and Gauteng, as revealed in building plans passed by large municipalities in these two provinces and quarterly capital expenditure declines in metros, further complicates the story.
While trade regulator the International Trade Administration Commission (Itac) initiated an anti-dumping investigation into Indian, Mozambican, Zimbabwean and Zambian tiles in November after an application by the domestic industry, the investment signals in our neighbourhood indicate that this overcapacity will soon exhibit a regional flavour. With supply chains at risk of being choked by the smog of conflict in corridors in the Middle East and Asia, we may have to contend with threats closer to home.
Johnson Tiles ceased manufacturing in South Africa last August after more than a century, citing intense competition and overcapacity in the region. As Italtile sounded the alarm last week to the stock market, that experience loomed large.
It is another concerning episode in the fraught struggle to reindustrialise the South African economy. While antidumping and other trade measures may be part of the solution, we will have to dust off other tools in our arsenal to stave off the collective ruin of our building supplies sector.
Vulnerabilities in supply chains show us why it is so important to produce at home.
• Cawe is chief commissioner at Itac. He writes in his personal capacity.
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