The construction industry has received a sign of possible better times ahead, with the nominal estimated value of civil construction projects out to tender increasing by 42% in the second quarter of this year compared to the previous quarter.
David Metelerkamp, senior economist at construction market intelligence firm Industry Insight, said the nominal estimated value of civil construction projects out to tender was up by “an encouraging” 38.6% on a year-on-year basis in the second quarter.
“Following some improvement in the estimated tender values during the last two quarters, the annual rate of decline measured over the last 12 months has turned positive and increased by 0.5% year-on-year.”
He added that the more robust quarter-on-quarter increase in the second quarter followed an improved, although moderate, performance in the first quarter of this year when estimated values increased by 1.8%.
Increase in R130m-plus projects
He said an increase in the number of Construction Industry Development Board (CIDB) Grade 9 projects, with a construction value exceeding R130 million, out to tender in the second quarter supported this growth.
The number of projects exceeding this value that were put out to tender increased to 22 in the second quarter from 15 in the previous quarter and 10 in the fourth quarter of last year, he said.
Metelerkamp said the majority of Grade 9 projects out to tender were in roads, which contributed 40% of the tenders, followed by water at 27%.
He said the value of road tenders increased by 1% and water projects by 6%.
“Water projects have offered some opportunities over the last year, as this sector has gained some priorities considering the lack of infrastructure investment, particularly on maintenance, and the negative impact of the recent drought in the country.
“This is however the first positive growth in the value of road projects since 2017, and although the growth is marginal at just 1% nominal, it does provide some reprieve and the hope of a more stable outlook for the civil industry,” he said.
However, Metelerkamp said none of the larger road projects put out to tender in the second quarter of this year emanated from the South African National Road Agency (Sanral) but were rather from various provincial departments and Transnet.
Sanral last week gave the construction industry a boost when it announced it would issue major road construction tenders to the value of more than R40 billion to the sector over the next two to three years.
The expenditure commitment by Sanral was welcomed by various organisations and analysts.
This followed the results of the second quarter small and medium enterprise conditions survey conducted by the CIDB released last month revealing that building and construction industry conditions had gone “from bad to worse”, once again confirming the woeful state of the South African building and construction industry.
Industry Insight said in its latest Construction Pulse that Sanral announced last month that despite the e-toll controversy it would spend R25 billion on national roads in its 2019/20 financial year, of which R13 billion had been set aside exclusively for road maintenance across the country.
It added that Sanral stated that it had earmarked “large” projects in the Eastern Cape, Limpopo and KwaZulu-Natal, including the N3 between Msunduzi and eThekwini in Durban, the N2 Wild Coast in the Eastern Cape and the Moloto Road in Limpopo, together with social infrastructure in the Eastern Cape, KwaZulu-Natal, Mpumalanga and North West.
The firm added that while significant growth could be expected in water infrastructure because of the current backlog caused by a growing population and rapid urbanisation rate, there was also a serious backlog in maintenance of ageing infrastructure.
It said that while it had noted some improvement in water project tenders and awards, there is still much work to be done.
Metelerkamp said only a handful of higher value water projects were awarded in the second quarter while some were also cancelled or postponed.
“The rise in tender activity in this sector is encouraging provided projects filter through to execution,” he said.
Metelerkamp said current capital investment on water and sanitation of about R55 billion a year fell seriously short of the estimated at least R90 billion a year required over the next 10 years.