Concerns about the capacity of South Africa’s depleted and financially-distressed construction industry to deliver the government’s massive infrastructure investment plan have been debunked by industry associations and analysts.
However, there are concerns about how long it will take for any of the Strategic Infrastructure Projects (SIPs) unveiled and gazetted by the government to be awarded, as well as corruption in the tender process.
The government in July 2020 unveiled the first tranche of 50 SIPs and 12 special projects that have been fast-tracked to stimulate the economy post Covid-19.
These projects form part of the government’s larger R2.3 trillion infrastructure drive over the next decade.
The capacity concerns have been prompted by the decimation of South Africa’s listed construction sector.
The listings of Group Five and Esor were removed from the JSE in June after both went into business rescue, while the future of Basil Read, another former JSE construction sector heavyweight, is also uncertain after its construction business went into business rescue in June 2018.
Gautrain Management Agency (GMA) CEO William Dachs said last week the construction industry needs a steady supply of infrastructure projects it can bank on and tremendous localisation and transformation to avoid the “boom and bust” cycle of the past.
Dachs said once the industry can bank on a consistent supply of projects, it will be hiring, training and skilling up people and companies will be able to build up their balance sheets again.
He said South Africa must not allow the infrastructure investment plan to become another boom cycle followed by a bust cycle. However, Dachs stressed he did not believe the Gautrain network extension “will be the silver bullet that will solve all the [industry’s] problems”.
“It could be one of many projects that the government puts out into the market that leads to the generation of a construction industry in South Africa, because we are going to need it,” he said.
“Otherwise we are going to pay in dollars … and all sorts of foreign currencies for people to come and build stuff for us. That will be a disaster.”
SA Forum of Civil Engineering Contractors (Safcec) CEO Webster Mfebe said the issue is not only the capacity of the state to deliver these SIP projects, but also the capacity of construction companies to undertake these projects, because there has been “a skills flight” out of the country of tried and tested engineers to other lucrative areas.
Mfebe said some companies had plant and equipment but were unable to retain these assets because they were idle and sold them to settle finance deals, or they were repossessed, while some companies have gone into business rescue or been liquidated.
Capacity could become a problem
He warned that if the SIP projects don’t come to the market soon, the issue of the capacity of the construction industry will be a problem.
“… to the extent that the Chinese, the French, the Russians, all those who are going all over Africa, will come and close that gap.”
Mfebe said the experience throughout Africa is that when this happens, these foreign companies partner “with politically-chosen acolytes” to build infrastructure in the name of transformation.
He said this will result in authentic and bona fide established and emerging South African construction companies being short-changed in favour of foreign companies.
Mfebe said the so-called partnerships with a local company under the guise of transformation was intended “to only feed the politically-connected acolytes”.
He stressed that South Africa cannot repeat what happened in the past when the white minority dominated the majority by “creating a minority black elite which is dominating everybody, both black and white” at the expense of competent established and emerging companies.
“We must say no to that. The delivery of infrastructure is amenable to manipulation, corruption, tender rigging and all manner of things.
“If there is no fine tooth comb and attention given in this area, this infrastructure will be delivered but it will be sub-standard and some of it will be abandoned.
“I’m saying this as a matter of fact. It has happened in the past and is happening now. There are competent black companies that are overlooked as we speak, but unknown companies are winning tenders left, right and centre. That cannot be right,” he said.
‘We’ve got this’
Master Builders South Africa executive director Roy Mnisi said the construction industry still has the capacity to deliver the government’s infrastructure investment plan projects, despite the loss of a lot of professionals, especially now because there is currently insufficient work for the industry.
“I cannot think of a project so big that we cannot take it on as South Africans,” said Mnisi.
“We still have big companies, like WBHO, that can build almost anything, both on the civil and the building side. The capacity is still there.”
However, Mnisi warned that other countries are also trying to rebuild their economies post Covid-19 and if the government takes too long to award the SIP projects, construction professionals will start leaving the country to pursue opportunities in other countries.
Mnisi stressed that it will be extremely difficult to get these professionals back to the country and, if they did return, “it will be at huge cost”.
“We need to do something at this point in time so the capacity that we have now remains in the country,” he said.
However, David Metelerkamp, senior economist at construction market intelligence firm Industry Insight, is pessimistic about any SIP contract awards being made soon and is not aware of any project awards yet.
“We know for a fact that most of these projects have been in the pipeline for years and may not be as ‘bankable’ and ready for implementation as government claims.”
But Metelerkamp is not concerned about the industry having insufficient capacity to deliver government projects.
“I think there is enough expertise going around but don’t think there is going to be a consistent flow of projects coming in, so I don’t think it’s really even going to matter,” he said.
Metelerkamp said the activity levels the industry is currently operating at compared with five years ago are much lower and the industry will be coming off an extremely low base.
“There will really need to be a huge surge in government spending and a huge pick-up in our economy for there to be any capacity issues.”
Government really just needs to facilitate
He added: “I really don’t think it’s an issue at the moment given how depressed the economy is and going to be for the next two to three years. With the fiscal situation, there is not going to be any pick-up in government spending over the next few years,” he said.
“Even with these bigger strategic infrastructure projects, they are relying on the private sector [for funding].”
Read: Ramaphosa speeds up funding for infrastructure (Feb 2020)
Metelerkamp added that in terms of the overall level of economic activity, Industry Insight only expects South Africa’s GDP to get back to 2019 levels in 2023.
He said there is possibly concern about engineers leaving for New Zealand and other countries and the retirement of engineers who have been in the industry for the past 40 to 50 years, particularly in regard to some of the bigger projects.