Civil tender values down 58%, postponement rate up

Figures show impact of the pandemic on the construction sector in Q2.
Government needs R1.5trn in infrastructure investment over the next decade. Image: Shutterstock

Despite the government’s commitment to an infrastructure-led post-Covid-19 economic recovery, estimated civil tender values slumped by 58% in the second quarter of 2020 compared to the same quarter in 2019.

Construction market intelligence firm Industry Insight said the average national postponement rate also increased to 27.1%, with Gauteng reporting the highest rate of postponement at 169%.

Elsie Snyman, the chief executive of Industry Insight, said this clearly shows the full impact of Covid-19 on the construction sector in the second quarter.

Snyman said this slump in civil tender values follows five previous consecutive quarters of positive growth, including double-digit growth in the past four quarters, as the civil industry finally started gearing for a more positive outlook in 2020.

“These seemingly improved fortunes were quickly reversed as lockdown restrictions from the end of March continue to impact rather harshly on the economy and the civil sector,” she said.

State’s strategy

President Cyril Ramaphosa said in an address to the nation on April 21 that central to the economic recovery strategy to address the impact of Covid-19 will be the measures the government will embark on to stimulate demand and supply. This would be done through interventions such as a substantial infrastructure build programme, the speedy implementation of economic reforms, the transformation of the economy, and embarking on all other steps that will ignite inclusive economic growth.

Speaking at the inaugural Sustainable Infrastructure Development Symposium of South Africa (Sidssa) in June, Ramaphosa reiterated and stressed that the severe damage caused by the pandemic, and the damage it continues to cause, has not diminished the government’s determination to drive an ambitious and sustainable infrastructure development programme.

“To the contrary, the coronavirus pandemic has made infrastructure investment even more compelling, even more important and even more urgent.

“That is why we have placed infrastructure at the centre of the stimulus our economy needs to achieve a sustainable recovery,” said Ramaphosa.

Dr Kgosientsho Ramokgopa, head of investment and infrastructure in the Office of The Presidency, told the same symposium that finance institutions have made firm commitments running into “tens of billions of rand” for a host of planned infrastructure projects in South Africa.

Read: Finance institutions commit ‘tens of billions’ to infrastructure

Ramokgopa said this is money that will be coming into the country “so we are not relying on the fiscus to ensure we are able to get these projects going”.

No further announcements from government

However, the government has not made any further announcements about these investments and the projects to which the funding is committed.

Prior to the symposium, the Presidency said the Sidssa projects will be gazetted after the symposium and have been selected from an initial 177 projects that underwent a rigorous due diligence process.

Construction industry bodies are unaware to date of any Sidssa projects being gazetted.

Snyman said the government is actively seeking funding for what it proclaims will be a “decade-long building boom”.

Read: South Africa looks to green infrastructure bond to spur growth

She said government needs R1.5 trillion of infrastructure investment over the next decade to finance projects ranging from water and sanitation to energy and digital infrastructure.

Private sector ‘ready to invest’

Snyman quoted Futuregrowth Asset Management portfolio manager Jason Lightfoot as stating that the private sector is ready to invest provided projects are well structured and managed.

Industry Insight also revealed that the value of Construction Industry Development Board (CIDB) Grade 9 civil projects out to tender fell by 25% year on year in the first two quarters of 2020 as fewer higher value projects were put out to tender.

Snyman said several higher value projects were still awarded during the first and second quarters of the year, but the future of these projects may be uncertain given the current financial constraints on the fiscus and limited scope for further borrowing following the country’s potentially imminent debt crisis.

Gauteng bearing the brunt

She said the value of tenders issued in Gauteng slumped significantly in the second quarter of and was almost 60% lower year on year in the first two quarters.

Snyman said no CIDB Grade 8 or Grade 9 projects were put out to tender in the second quarter to continue the downward trajectory of the first quarter.

However, Snyman said the value of projects awarded improved by 103% in the second quarter – but with a 47% decline in the value of tenders issued, the outlook has turned more negative for the province.

“Of further concern is the sharp rise in the postponement rate to 169% in the current quarter [from 23% the previous quarter].

“This is well above the national average of 27.1% and the highest postponement rate across the country,” she said. “This suggests a notable increase in the number of projects [already put out to tender] that have been postponed during the second quarter.”

Industry Insight also revealed that the value of road projects put out to tender decreased by 67% in the second quarter of 2020 while the value of water projects fell by 53%.

Construction firms ‘hardly coping’

SA Forum of Civil Engineering Contractors CEO Webster Mfebe said on Tuesday the forum’s members are “hardly coping” and that the statistics reflect the true sentiment in the civil engineering industry, which is “going south”.

Mfebe is puzzled at what is causing the delay in the announcement of Sidssa projects.

“Your guess is as good as mine. We have been eating hope all the time. What this economy needs is not only the intention to invest in infrastructure but infrastructure implementation, which is lagging behind.

“For the symposium and all other forums that have dealt with these matters to have value, we have to see results on the ground,” he said.

Mfebe said one of the biggest fears currently is that thousands of workers employed in the construction sector will become part of the unemployment statistics.

“That does not bode well for the country in terms of social stability because these people have to survive. Some end up in crime syndicates to survive and some end up disrupting [construction] sites to demand participation,” he said.

Mfebe added that he has been warning about the decimation of the capacity and capability of the South African construction industry and that it could result in a situation where foreign rather than local companies become beneficiaries of the infrastructure build programme.

“That will be a game changer in terms of aggravating tensions that already exist over concerns that foreign companies are favoured over local companies.”

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Based on average investment required for a job R500,000 South Africa employed 220,000 people Jan 2017 market value R110Bil.

Right now Jan 2020 we are seeing numbers of R100Bil which a means over 20,000 have been lost, that is an average of 834 jobs which is being lost a month and counting

In other words the government is under investing by R416mil per month.

In 2010 with the average job costing 295,000 and the value of the market of 90Bil the industry employed over 305,001 (including me).

The linear average job loss per month is around 202 people.

The head of the snake might have changed but it is still a snake “Inyoka”.

Only the private sector can create sustainable jobs. The government creates unsustainable opportunities because government projects do not generate revenue, and they compete with the private sector for resources. The government is unproductive, incompetent, lack motivation and a sense of urgency, looking only for opportunities to loot.

We need less government action and more projects from the private sector. Entrepreneurs are crowded out by the socialist government. All these socialist laws and socialist spending on Centrally Planned projects make it impossible for entrepreneurs to plan. The solution is a smaller government with fewer government projects to enable a boom in private sector expenditure.

Politicians cannot build an economy. Entrepreneurs will build the economy if the politicians step out of the way. Respect property rights, scrap BEE codes, burn the mining charter and investors will find money to invest in projects. The ANC is a proven recipe for the financial destruction of an economy.

Being in the industry I can confirm that we are in trouble.
Even if funding is secured now (which must still be found) it will take 12-18 months to get a contractor appointed due to procurement and design requirements, if done properly.
The construction sector is not something that can be switched off and on quickly, it does not work like that.

You can however appoint a Chinese contractor (or Cuban doctor) under emergency conditions at a much shorter time.

I agree with you,
In our industry Knowledge, experienced and skills are transferred from father to son, skilled employee to motivated blue operative. The most successful companies tend to have the most multi skilled employees, unlike factories were its 1 person per task day in and day out.

The havoc which the politicians have caused has ensure that this age old industry with all its skills are quite literally destroyed.

It remains one of the few industries in the world where an unskilled person gets paid well above market rate and gains new skills in the process.

End of comments.

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