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‘The Chinese might build SA’s future infrastructure’

Is the construction industry disappearing in front of us?

Government has misunderstood how fragile the construction industry is, has overdone its sanctions following the tender collusion and placed an unbearable compliance burden on contractors.

This is the opinion of Bob Hindle, construction expert of ProjCore: Construction Business Development Consultants.

Hindle fears that the industry is being destroyed and won’t have the necessary skills to execute infrastructure projects when government resumes spending on such projects.

That could result in foreign companies building South Africa’s future infrastructure. As part of the Brics formation the Chinese would be the front runners in this regard, he says.

Other sources in the construction industry Moneyweb has spoken to share this concern.

Hindle responded to the news that the Liviero Group has gone into voluntary business rescue, shortly after listed Basil Read Holdings placed its construction business in business rescue.

Read: Another construction giant in business rescue

‘Basil Read can be rescued’

Murray & Roberts has sold its local construction business and Aveng, Group Five and Basil Read hope to do the same.

In February the NMC Group, with 1 200 employees and similar to Liviero in that it is majority black-owned, went into provisional liquidation.

Hindle says South Africa had a construction sector to be proud of. It builds massive infrastructure at home and in other countries, but the country is at risk of losing the skills at all levels as the industry is being destroyed.

Following tender collusion, the industry was collectively fined R1.46 billion in 2013.

The reputational damage led to a drastic drop in tender awards to the big construction companies. In an effort to mend relations and unlock tender awards, the seven big listed groups committed to accelerate transformation and collectively pay R1.25 billion over 12 years into a fund for socio-economic development.

Hindle says government failed to understand how fragile the industry is. Margins are very slim and one project gone wrong can destabilise a company.

Add to that lack of payment from especially government clients, and it is no surprise that contractors are buckling under the burden, Hindle says.

“It used to be about time, cost and quality,” he says. Now contractors have to do training, enterprise development and many other things in order to comply. He says that even those who survive are burnt out because of the demanding environment.

Non-payment by government clients was cited by Liviero and the NMC Group as among the main reasons for being in financial distress.

According to Consulting Engineers SA (CESA’s) Economic and Capacity Survey for June to December 2017, the industry was owed R6.6 billion by clients. These are payments outstanding for longer than 90 days.

Dr Johan Snyman, construction economist at Medium-Term Forecasting Associates, says it is very difficult to get skills back once they have left an industry.

He forecasts the annual percentage changes in the different market segments as follows:

 

2018

2019

2020

2021

2022

Residential

3

5

8

5

3

Non-residential

-8

-3

5

7

5

Construction Works

-8

-11

-7

4

8

Andries van Heerden, CEO of listed mining and construction material group Afrimat, agrees that penalties imposed on the construction industry and transformation requirements did not take into account how fragile the industry was.

He however points out that the listed groups in trouble also made mistakes in project execution that cost them dearly. “When times are tough, there is nowhere to hide,” he says.

He adds that the industry is too dependent on government, partly due to the lack of business confidence in the private sector, which is reflected in the absence of proper investments.

Read: Business confidence index falls again in June

Van Heerden says the construction industry won’t disappear. “Some companies will survive the winter and will be much leaner afterwards.”

He adds that the excess capacity developed during the previous boom is still in the system and will be cleared now.

When spending on infrastructure resumes, contractors will find skills wherever they are available outside South Africa, but Van Heerden warns that this could be expensive.

Dr Llewellyn B. Lewis, principal consultant at BMI-BRSCU, has a more optimistic view of the future for building and construction in South Africa.

He says the industry has “reached the bottom of the cycle and is now climbing slowly out of the so-called “valley of death”. “It is a slow and laborious process, two steps forward and one step back up a slippery slope. The strategy is firstly survival and then growth.”

Lewis says the industry “is large at some R497 billion annually, has critical mass and momentum”.

He forecasts 0.23% year-on-year growth in 2018, 2.72% in 2019 and 3.22% in 2020.

“Our vision is that building is an engine for growth and wealth creation and property is a preferred investment.

“This is the narrative that we promote to the entire industry. If the industry doesn’t promote and show confidence in its future, then nobody will and the future may be captured by competing companies and industries,” Lewis says.

Aveng

Group Five

Afrimat

Murray & Roberts

*Shares in Basil Read have been suspended from trading on the JSE. 

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COMMENTS   53

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So now it’s government’s faulty the price fixers are having it tough? Let the Chinese build our future infrastructure at a fraction of the costs.

The local construction industry should be allowed to die if it refuses to reform and change its evil pricing practices.

Your comment is wrong on so many levels, but believe what you want. The construction industry was the one sector where the uneducated and unskilled could find employment in the formal economy. That is now gone, and it is not coming back. This is just a single chapter in the unfolding story of the full and final de-industrialisation of South Africa. Soon we will find ourselves in that socialist utopia envisioned by those towering communist intellectuals in charge. Those of the right hue will all have office jobs in government and in SOE’s. SA will simply import everything it needs. Exports? GDP? Balance of payments? Value of the currency? Those are colonial capitalist concepts that can be safely ignored. Until the famine arrives.

Take a hard look at Australia – motor vehicle manufacturing GONE! Manufacturing is in the decline in AUS and could eventually disappear as more goods are imported from China
China will strip this country of its resources faster than the Gupta’s and the ANC corrupt cadres have done.

New York, you are uninformed and obviously no knowledge of the construction industry. These “evil practices” are common in the world wide construction industry. It happens in the US, Egypt, UAE, Ireland, Saudi, North Africa, SADEC. It’s presence kept the industry on a level base, work was being divided amongst all the players, jobs were being retained, it was ticking over. The chinese construction companies don’t hire locals, they bring in their own people, equipment and only support the local industry on a low level. Yet another industry that the government is killing.

You did not think this through, did you? I wonder if you think these are whites going under so it can’t be that bad – same as with this land issue.

Construction is THE industry with potential to employ millions of South Africans. Appart from that, infrastructure spending grows the economy – vs grants where money is literally eaten and then there’s nothing to show for it.

What an immature and naive comment – who do think built the infrastructure you use each day – you are just the sort who will ruin this once proud and competent nation.

When they do well it’s thanks to the genius of white managers and they get rewarded in millions, when they fail blame black government. Much like European teams who hail immigrants as Germans, French or Belgian when they win but immigrants when they lose.

I don’t understand this comment? Liviero are majority black owned and bankrupt?

He’s just another fool with a laptop and no logics with nothing else better to do.

Will they be accused of being colonialists someday?

Sweetpea they will certainly be accused of being colonialists just as soon as they start measuring performance from the local population and they do not give in to “we demand this and we demand that”.

China have already silently colonised half of africa, the african governments and unionists are too dumb to realise it. When they do, it will be far too late to do anything about it.

Very interesting posit. Watch this space.

In Costa Rica the Chinese built a sports stadium. All the workers were Chinese and wore orange jump suits?? Could that have been prisoner labour??

Who cares. As long as it gets built. I’m all for making prisoners work. Why should I, as a law-abiding taxpayer, pay for the reprobates to get free food and lodging.

You certainly SHOULD care!

The Chinese policy is to use prison labour. And not just because it’s cheap. But also to get rid of them from the Chinese mainland.

When the contract is finished these prisoners don’t go back to China. They remain in their new “adopted” country. And their families are then encouraged to join them. China doesn’t want these bad citizens or the bad families that raised them.

So China solves it’s social problems by exporting it’s bad eggs. And the recipient countries think they’re getting a bargain with a cheap project. Not!

And that isn’t the end of the story either. The Chinese are playing the long game (100 years and more). The loyalty of these “exported” Chinese is not to their new country. It is ALWAYS back to mainland China.

One day in the distant future that loyalty will be used to irreversibly cement China’s imperial ambitions.

I hear you, but honestly, I don’t care anymore. My ancestors also arrived here over 300 years ago and never left.

If all goes well I should be leaving Africa for good before the elections next year. I’ve had enough.

My advice, if you’re going to stay, is to make sure your kids learn Mandarin.

@ Jonnoxx your are indeed correct, spot on with your comment. They are using the Australian model ( English convicts being exported to Aus) – worked well there just look at Aus today.

In 100 years Africans will be what the Aborigines are today.

in recent times, China has been aware of the perceptions around this and in most cases this is fake news.
A recent research done proved otherwise. Chinese companies were hiring mainly local African labourers.

https://www.mckinsey.com/featured-insights/middle-east-and-africa/the-closest-look-yet-at-chinese-economic-engagement-in-africa

I personally know an engineer in Pretoria who developed a coal mine in northern Mozambique. The rail link to the coast was awarded to a Chinese company. They exclusively used Chinese prison labour who were given two choices`: work on the line and you can stay in Moz or go back to prison. This is first hand, not a rumour or fake news. There are now more Chinese in Namibia than whites. Not that it matters to me but the fact is they get the contracts because labour is almost free. Its actually a very clever scheme if you stand back and ignore the long term ramifications for Africa.

Yes. In Mozambique in the Tete province the Chinese were granted thousands of hectares of land on which they grow rice. Not a single Mozambican is employed – only Chinese prison labour. Each year hundreds of thousands of tons of rice are transported, not exported, to China in exchange for the infrastructure built and financed by the Chinese in Moz.

Is that what you want for South Africa?

The large construction companies are necessary for a modern country. They won’t exist without loads of hard business drive, and it is idealistic to think there will never be excesses and undesireable practices. However, the silly and uninformed remarks e g about Chinese prisoner labour (which happens, ask Botswana why the Chinese construction companies were once kicked out of Botswana) and unsafe construction practices, disregard for human wellbeing and for construction quality – and then think again how the Chinese then do things so cheap? Construction companies in South Africa must compete while adhering to every bit of conceivable red tape, labour legislation that makes labour costly and difficult to manage, human rights and laws enforcing safety standards, and meanwhile there are engineering and quality standards to be achieved.

Go and ask the Botswana government about Morupule Power Station and the Sir Seretse Khama Airport engineering and construction disasters, and then we’ll talk about Chinese involvement in engineering and construction again.

Ah yes!

That brings back the memories.

My son worked on that very airport as a sub-contractor, and came back with eye-popping stories of the Chinese prison labour used there.

As an engineer who works in many countries in sub-Saharan Africa, I have personally seen much of this sort of practice. It is real, it is true. Eye-popping indeed.

Leading men in history of war and peace never destroyed own potential
to build. Weak and the stupid will do just that in hope of to be recognized as great and brave. Explaining to the latter they sit on the wrong chair is undemocratic. This Titanic to must run his course.

They’re not necessarily weak or stupid. They can be very devious, wily and conniving. It’s all about bribery, most of which honest people are not clever enough to detect. That’s the way of Africa.

We just stay the best in everything that is wrong..high unemployment..high crime..high level of violance..high rate of overweight people..high rate of heart attacks..high levels of bad health..fantastic

Let’s look at it from another angle: we have a mining industry of more than century old with major technology achievements, we established a major national water system, we got all the things going that first-world countries need, like railways, ports, electricity utility company, petroleum supply (Sasol), steel supply (Iscor), broadcaster (SABC), telecommunications (Telkom), postal services, and all the government functions such as statistical services, defence, police services, and we build universities, notable research institutions (e g CSIR), we had nuclear capability (Pelindaba)… we have a lot to be proud of. We HAD a lot to be proud of and were functioning well. A lot has changed since the government changed. Lots available to build on. Its still there, to be proud of and to resume – but we chose and choose by democratic majority to have the government we have. Not PC to talk about this though. We are struggling by choice.

Well said! ….definitely by choice. Self-inflicted.

Let’s face it… the Govt (ANC) are absolute masters at destroying jobs through witless legislation.

Will the Chinese employ South Africans? Why should they when their workers are not bound by SA labour legislation.

Proudly brought to you by the ANC, destroying our economy daily.

Chinese semi-skilled labour is less than half the price of SA unskilled labour. Check the figures. What would any constructor do?

Can we not have the Chinese build a decent SA government?
Give a man a fish ….

Maybe just outsource the management of the country….

I think our government failures are well documented. But some of these construction companies woes are self-inflicted. Can’t blame government for poor capital allocation. How did Aveng for example, use cash generated during boom times (knowing the cyclical nature of their industry)? Did they run away from South Africa and pay top dollar for companies in Aus, UK, like many SA companies have done in the past (Woolies), and forgot about reinvesting in the market they understand the most, the one that got them to where they are?

I have no pity for companies or individuals (Mr Wiese) who made blunders because they were running away from S.A, or trying to move their wealth to other currencies. The construction companies decisions in allocating the capital must also be scrutinised, instead of blaming government all the time for poor management decisions.

The Chinese also pretty much took over the Kenyan construction industry. You often read of building collapses in Nairobi.
They refuse to use local workers, they use substandard materials and they cut corners to increase profits.
Good luck with this.

Ja – Another industry has in fact already died.

If these guys were to build another major hydro electric dam and infrastructure it will probably have to use external skills already!!!

In my opinion, BEE policies have undermined the Construction Industry and many other sectors in SA. The Chinese are not interested in supporting an economy, otherwise they would be forming JV in the Construction industry here…they are only interested in owning it. They’ve learnt from their experiences in Africa that BEE is too long a route when you can just bribe government officials and get 100% return on investment.

So true. Our mining is going the same way. A Chinese consortium bought out Palabora Mining Company after Rio Tinto founf it untenable to continue with it. Cleverly they got the IDC involved as a minority shareholder and to finance expansion of the mine, a R9.3 billion loan, that is only some four years behind schedule.

是的,中国的商业方法更好。 我们欢迎中国。

This is another nail in the coffin of our economic activity. China already has gutted inter alia the clothing, shoe and plastics industries and now will be enticed to send subsidised labour into the country to take on the construction industry.
Our local economic activity is shrinking due to production being exporting largely to China, leaving the unemployed numbers to swell yet further.
This will also cause more demands from trade unions for higher wages, even though labour is less efficient here than elsewhere.
A compact has to be struck between labour and government where efficiency is improved to justify the wages that are already being paid to give suppliers of goods and services the opportunity to provide prices that are fair yet competitive.
We’ve seen what exporting job opportunities has done to the US economy, where labour is uncompetitive and the effect that has had on the creation of failed industrial areas and indeed cities.
Labour and industry need to get their acts together to expand productive output at competitive prices, otherwise cheap subsidised products from the east will turn us to the poorhouse.
We have lost so much economic capacity across the spectrum, engineering, manufacturing, food production and others and the skills that go with them as our training and education has deteriorated drastically, leaving us vulnerable to an economic takeover.

People who are a generation or two from living in a mud hut wouldn’t get the need for a vibrant, aggressive, cut-throat construction industry

The past few decades, the local clothing manufacturing industry has all but been decimated by efficient & cheap Chinese labour through imports (…also a global phenomenon).

For SA, this scenario is likely to happen in years to come:

If say the Chinese get involved in local construction projects (the bulk of work could come from Govt). A day will come when the poorly managed SA Govt will not be able to pay the Chinese Govt for completed construction projects.

And SA may need a economic bail-out also(?) at the same time.

Then SA Govt will be in a weak position to negotiate payment terms. S’Africans will then easier give in to Chinese trade demands, by dropping tariffs for Chinese goods & allowing cheap goods flood in (good for the consumer, but bad for local manuf/jobs). The next industry that will likely face longterm obliteration, is the SA motor-manuf industry (already heavily protected by tariffs). Govt will be given the choice of removing car import tariffs on all Chinese vehicles OR Govt would face financial cliff not able to pay running expenses. Our Govt will end up losing one of it’s favourite industries against cheaper Chinese imports (for which the quality is improving).

…and “copy/paste” to other locally protected industries like Sasol/refiner’ turn to face obliteration.

Huawei-regards!

This is such a basic industry, how can any government be so short sighted as to allow this work to be farmed out?
The article heading is misleading and sensationalist.
I don’t think the Chinese will be building infrastructure here as there is no money to pay for it and this government does not have the political will to balance its capital spend and salary spend.

they hope that we dont pay…that is how China gets more control of SA.

The collusion stories are fairly well documented. How much went on inside Eskom? Ingula budget was less than R10b and will probably end up costing R40b. Yes, Eskom project ownership is a tough nut, but one battles to comprehend that their incompetence is 400%

As to Chinese, be careful what you wish for. Five years later the road is complete but it will fall apart in two years and a few thousand construction workers never went back to their chinese prisons. Ask Zambia and a few other African countries.

Cheap project finance though

Let chinese come, is going to be a tug of war between them and construction mafia,this is mzansi

South African living in China here.

A few points..

SA construction companies going bankrupt due to payment issues from SA govmnt + compliance – no one held a gun to their heads to accept tenders. They should have made better risk assessments of size and number of tenders they accepted. Compliance I agree is a problem

Chinese government doesn’t force African states to accept their prison labour construction projects. Moz, Bots and Nam chose these options. They must deal with any social or economic consequences. Overall, they’ll probably be net net better off.

Chinese projects in Africa tend to benefit locals and Chinese alike. Mostly they are win win to both economies. Chinese in SA do employ locals, spend money locally etc that benefits SA. Even prison laborers who get a new start in a country are better off and are most likely reformed/minor criminals. When was the last time you heard of rampant Chinese murdering, raping, looting etc in Africa – it hardly exists.

If any African countries get super cheap infrastructure regardless of labor source should be grateful and on the whole better with it than without it. If quality of projects is a concern, negotiate with China government for local oversight to ensure best quality. Chinese are very open minded in this regard.

Maybe SA should learn a lesson and employ their own prison labourers. What they Chinese are basically saying to Africa is – “Hey you guys are crap at building an economy with all your low skills, regulation and corruption. We can help you do it better and will cut your economy a slice of the pie. There will be some kickbacks to the regime but you still get roads, schools, water, electricity etc that you wouldn’t have had. So choose if you want some pie or no pie.”

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