Some segments of SA construction industry recovering well

‘Tender activity levels are at a level I have not seen in my 30 years in the industry’ – Raubex CEO.
The question now is whether the sector has enough capacity to execute all the work. Image: Shutterstock

New life is being breathed into some segments of South Africa’s financially distressed construction industry by robust tender activity driven by the public and mining sectors.

The industry has been brought to its knees in the past few years by a dearth of major tenders, particularly from the public sector.

However, Raubex CEO Rudolf Fourie said last week that tender activity is now at a higher level than in the period leading up to the 2010 Fifa World Cup.

“Tender activity levels are at a level that I have not seen in my 30 years in the industry. It’s also the first time in my career that we [Raubex] have got an order book beyond three years.

“For the next three to five years the construction industry should be healthy,” he said.

“But this brings into question whether there is enough capacity to execute all this work. That is our biggest challenge.”

Diverse contract awards

Fourie said there is a wide spectrum of work coming out to tender, including solar, water and housing projects, not just road projects.

Raubex has been awarded three Strategic Integrated Projects (SIPs) in KwaZulu-Natal that were gazetted last year by government and grew its secured order book by almost 69% to a record R17.1 billion in the year to end-February 2021 from R10.14 billion in the previous year.

Five of the six major contracts Raubex was awarded in the six months to end-February, with a total value of R7.67 billion, were awarded by the SA National Roads Agency (Sanral) after it awarded virtually no tenders for about two years up to 2020.

Fourie said last week there is about R10 billion of Sanral work that is still outstanding and has not been awarded.

Peregrine Capital executive chair David Fraser said the higher tender activity levels were “nice to see” but doubts they are higher than the period leading up to the World Cup because the supply side is so constrained now.

“Bear in mind that there are not that many people [companies] who are around to tender anymore,” he said.

Other analysts and stakeholders also doubt that the overall construction industry is experiencing quite the same upturn in activity levels as Raubex.


Fraser’s reference to supply side constraints is a reference to several major construction groups going into business rescue or disposing of their South African construction businesses due to a lack of work and as part of a restructuring process to try and return these companies to financial health.

This has arguably left Wilson Bayly Holmes-Ovcon (WBHO) and Raubex as the only remaining companies in the heavy construction sector with the ability to undertake major infrastructure projects.

Group Five and Esor both delisted from the JSE in 2020 and are both in business rescue.

Basil Read, another former JSE construction sector heavyweight, went into business rescue in June 2018, and its future is still uncertain despite CEO Khathutshelo ‘K2’ Mapasa remaining optimistic the group will come out of business rescue and confirming in April that it has resumed submitting bids with joint venture partners for contracts.

In addition:

  • Stefanutti Stocks has been experiencing financial difficulties and reported a reduction in its after-tax loss from continuing operations to R169 million for the six months to August 2020 from the restated R909 million loss in August 2019.

  • JSE-listed Consolidated Infrastructure Group and subsidiary Consolidated Power Projects Group South Africa (Conco Group), a specialist construction company focused on large scale renewable energy and electrification projects, both went into business rescue in November 2020.

  • JSE-listed property and memorial park developer Calgro M3 decided in 2020 to close its construction division.

  • Murray & Roberts (M&R) sold its southern African infrastructure and building business to the wholly black-owned Southern Palace Group in 2016.

  • JSE-listed Aveng sold its Southern African construction and engineering business Grinaker-LTA to the black-owned Laula Consortium late in 2019.

  • Large privately black-owned multi-disciplinary construction group Liviero went into business rescue in 2018.

  • NMC Construction, the Cape-based group, went into liquidation in 2018.

Fourie maintains the higher levels of tender activity are not unique to Raubex’s businesses but are unique to the construction industry.

“The only difference between the World Cup and now is that with the World Cup the industry was coming off quite a decent base, which saw the margins increase.

“We are now coming off a zero base so the margins are still not yet where they need to be,” he said.

Marc Ter Mors, global head equity research at SBG Securities, said Raubex is not that exposed to general construction works and therefore not highly exposed to commercial building activity, such as retail and shopping centres, which is probably still quite “a low burner at the moment”.

“I do get a sense the government is getting to grips with faster and more efficient adjudication of projects than what we saw before and then you have the private sector, particularly on the mining side, and quite a bit of activity on low-cost housing as well.

“It feels like quite a lot of cylinders in the construction engine are firing up again,” said Ter Mors.

It’s very early days and the past six months is the first indication we have that conditions are turning.

“We need to see how sustainable it can be given the high debt-to-GDP levels of government. They must be tapping into borrowings and also probably reducing their underspending percentage because the SOEs [state-owned enterprises], apart from Sanral, are not spending more because they have weak balance sheets,” he said.

Ter Mors said Sanral delayed its spending and had about R18 billion in grants awarded in the year to March 2020, which it did not spend.

“We expect them to get another grant of about R18 billion so there is quite a bit of extra delayed work coming from Sanral,” he said.

Mining will be “another cylinder in the engine” that will start pumping, particularly as the mining sector globally underinvested during the last five to seven years, he said.

Growth in bigger projects

David Metelerkamp, senior economist at construction market intelligence firm Industry Insight, said they have noticed a relatively robust increase in the number of CIDB Grade 9 projects, the bigger projects, coming out to tender but “less so awarded”.

“There has been a serious lack of that in the last three or four years,” he said.

However, Metelerkamp said “building is still in absolute disarray” while companies more involved in civils, such as Raubex, are benefitting from increased tender activity in the transport and logistics infrastructure space.

With commodity prices going through the roof, this is helping some of the material suppliers exposed to the mining industry, he said.

Despite the increased tender activity, Metelerkamp believes the health of the construction industry is “still a net negative” and Raubex is definitely not representative of the overall construction sector.

Metelerkamp said Raubex is the company most likely to benefit from the projects that have been put out to tender because it is probably the most skilled contractor in that segment.

He admitted concern about the long-term sustainability of the increased infrastructure activity if the government does not start cutting its expenditure, particularly the public sector wage bill.

Master Builders South Africa (MBSA) executive director Roy Mnisi said “construction is struggling” and was one of the economic sectors most negatively impacted by the Covid-19 lockdown.

Mnisi said MBSA members report waiting for the award of the government’s SIP projects.

“These projects are being awarded very slowly and the number that have been awarded to date are insufficient to keep the construction sector alive,” he said.

Mnisi said Raubex is “lucky” to be seeing some improvement and gains in tender activity and awards but stressed the construction sector as a whole is still struggling, particularly small, medium and micro enterprises (SMMEs) and emerging contractors.

“The majority of them are complaining that they are not getting work,” he said.



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This is not even an argument. Raubex CEO Rudolf Fourie is the lone wolf here and is not seeing the correct picture, because they are exposed to the type of work that has been awarded. A lot of other sectors are not even there yet and way off from it.

Aveng a good buy at 4c?

First construction stock purchase was back in 1988 when M&R made a revenge pissed-off aggressive move on the G5 for having broken away from M&R. On the 4c Aveng price question, not yet, it needs at least one set of solid results to start decent up swing. Besides unlike, M&R who can’t stop with the good news, where is any news from Aveng, (Laat a man dink nê)

Observation, the inclusion of Basil Read on the 3x highlighted other construction stocks is a detail train smash ! Under correction, in 101 similar articles inclusive of other various writers, I might stress, over the last 10 years not once as Stefstocks ever been listed as one of the other listed companies. Makes one wonder what Gino Stefanutti did to piss the media off ?!

End of comments.




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