Struggling construction industry requires intervention, but can recover
The capital construction industry in South Africa is at a crossroads, with declining activity and productivity and a bleak future outlook.Efforts are need to turn the industry’s fortunes around, Construction Industry Institute-Africa (CII-Africa) director Dr Giel Bekker told Engineering News Online on the sidelines of CII-Africa’s Capital Projects in South Africa at a Crossroads – Mapping a Way Forward workshop, held in Pretoria, on Monday.The workshop discussed the challenges facing the capital projects industry.
Following the surge in projects before the 2010 FIFA World Cup, the South African capital project environment has witnessed a steady decline. This has been complicated further by some prominent construction companies offshoring their business or going into business rescue and even bankruptcy.
The departure of these companies will eventually impact on skills migration and depletion, resulting in the long-term shortage of capacity to deliver on capital project investments.There are various factors, including political uncertainty, investor caution, construction industry restructuring and market and legislative conditions that contribute to the difficult position the industry finds itself in.
Therefore, the workshop engaged project owners, funders, consultants and contractors from the private and public sectors on framing and mapping a way forward for the industry.Moreover, this will be taken forward to bigger workshops, to maintain and increase the capacity and productivity of the capital projects industry.
GLOBAL ECONOMIC FACTORSNorth West University School of Business and Governance Professor Raymond Parsons further outlined this, indicating that the capital projects industry faced unique challenges that often mirror national challenges. In 2017, there was synchronised economic growth in in the world – growth rose in every advanced economy bar Britain's, and in most emerging economies, bar South Africa’s. A year later, this changed to a world economic problem of uneven momentum. The US economy has surged to high growth, but the International Monetary Fund expects growth will slow in every advanced economy including China, as well as in emerging markets, he indicated.
This divergence between the US markets to the rest of the world means divergent interest rates, which impacts on emerging currencies. This contributes to trade tensions, which could result in trade wars. For example, the stand-off between China and the US, which is bad for the global economy. South Africa, as an emerging economy, benefits from multilaterism with reduced trade barriers; and, as with other emerging markets, stands to lose the most if this is compromised. "Those emerging markets that suffer the most from global headwinds are those that are the most vulnerable.”Therefore, industries in the country need to get [themselves] in order to [withstand those] headwinds, because the country cannot do much externally, but can reinforce internally, emphasised Parsons.
LOCAL PERSPECTIVE South Africa experienced negative economic growth in the first and second quarter of this year, a “technical recession”, noted Parsons. He indicated that the consensus for the country’s economic growth for this year is about 0.7%, based on existing factors only. However, he emphasised that South Africa should be capable of much more and that that growth rate was not enough for the country’s current needs. While he noted that recent years have seems some achievements for the country’s economy, its performance has been damaged by a number of factors, such as State capture and other forms of corruption; poor mismanagement of key policy areas; not implementing programmes such as the National Development Plan; “crony capitalism” owing to a weak moral compass, in public and private sectors; and the rise of business weakening the country’s global competitiveness. This has led to the rhetoric of a “lost decade” for South Africa.These, and other factors such as policy uncertainty, have eroded investor confidence in the country to investment in new projects.
CAPITAL PROJECT TRENDS Relative pessimism in the civil construction sector continues, following a decline in government contracts being approved, slow payments by government on already approved state contracts, and disruptive activities by so called ‘business forums’, according to industry representatives.
Parsons highlighted recent building blocks for recovery and reform in the South African economy, important for investment and growth, include the announcement of President Cyril Ramaphosa’s stimulus package; the Jobs summit held last month; the appointment of Tito Mboweni as Finance Minister; the Medium-term Budget Policy Statement; and the Investment conference held last month.
These factors present a more positive outlook and new outcomes; and indicate that the tide for the building and construction sector could be turning, said Parsons.For example, compelling value in the building and construction sector is attracting the attention of seasoned global peers.Also, government is shifting spending towards investment rather than consumption.There is also greater mobilisation of partnerships with the private sector.Further, there is potential to unblock infrastructure spending for various stakeholders, which Parsons noted required a genuine desire.
There are also efforts by government to pursue the creation of a South African infrastructure fund. While this will not necessarily be new money, it would provide a source for capital, said Parsons.Parsons also highlighted the ‘user pay’s principle in financing certain infrastructure projects, such as roads, which, if this government could get to be accepted or even partially accepted, could open up more capital infrastructure projects. The industry must reorganise itself not just to fend off uncertainty and global issues and the macro environment, but to capitalise on opportunities and play a more effective role, he concluded.
