The revival of South Africa’s construction industry is being hobbled by the slow rollout of infrastructure projects, despite the government’s drive to use the industry to stimulate the economy post the Covid-19 pandemic.
Construction market intelligence firm Industry Insight highlights that the current level of infrastructure investment “is nowhere near” the 10% target in the National Development Plan (NDP).
It said the Covid-19 pandemic has dented progress even further, with the current level of investment only at 7.1% in the fourth quarter of 2020 after being at almost 8.5% before the pandemic.
“The ratio has declined consistently since around 2014, where the 10% target was being approached,” it said in its latest South African Construction Industry Forecast Report.
Industry Insight said major risks to the economy and the construction industry, apart from the risks posed by the Covid-19 pandemic, include the failing state-owned entities (SOEs), an imminent debt crisis/fiscal cliff and the failure of the public sector to get things done, including various reform measures and investing in infrastructure “as the government remains in a state of implementation paralysis”.
It said the outlook for the construction sector is quite mixed, with the broader building industry expected to bear most of the brunt going forward.
It said the non-residential/commercial industry is expected to remain particularly hard hit, with very limited recovery potential over the next year or so and demand for office space, retail and industrial buildings severely dampened.
“The data all points in the same direction, with very low levels of building approvals – indicators that suggest all commercial buildings are massively over supplied. [With] vacancy rates approaching record highs, the outlook is poor and will be for the next few years, with the office space segment expected to be the hardest hit, with a huge shift to working from home.
“The housing market is expected to recover somewhat in 2021, but the longer term outlook is also poor as the economy is expected to recover so slowly,” it said.
Industry Insight said the civil sector is definitely a lot more positive but the outlook is mixed, with several opposing forces pushing the industry in different directions.
It said on the upside, there are several indicators to suggest that there has been and is going to be a much better level of civil construction sector activity.
It referred in this regard to tenders advertised and awarded and sentiment indicators from the latest SA Forum of Consulting Engineering Contractors (Safcec) survey.
However, Industry Insight said the government has yet again cut infrastructure spending “after all the rhetoric about how they are focusing on the construction industry”.
The 2021 Budget Review stated that the budget boosted infrastructure spending when the actual figures provided showed a 7.2% decline in infrastructure spending over the medium-term expenditure framework (MTEF) period from R815 billion in the 2020 Budget to R791.2 billion over the next three years.
Industry Insight said this infrastructure spending cut is extremely disappointing and does not bode well for the outlook for the industry in the medium- to longer term.
“Much of the construction sector’s recovery is going to depend on the ability of the state to implement their recovery plans, such as using the Infrastructure Fund, and fast-tracking infrastructure projects, which we are yet to see any real evidence of, with the majority of the so-called ‘shovel ready’ strategic infrastructure projects still in feasibility phase,” it said.
The Presidency in July 2020 announced the first 50 out of 276 strategic integrated projects (SIPs), involving an investment of about R340 billion.
It indicated that these projects are “shovel ready” and would commence in the next three months.
However, Safcec’s Webster Mfebe said: “The slow roll-out of the promised infrastructure as articulated by the president and his office has been conspicuous by its absence save for the very positive developments [awards] by Sanral.”
Mfebe added that despite speaking to contractors, he did not have “any idea at the moment” of how many of the SIP projects announced in July 2020 are ready to be implemented because “I have yet to see any major projects that have been awarded except for road projects”.
He said the decline of the construction sector is clear to see from the data released by Statistics South Africa, adding the industry has been severely impacted by the Covid-19 pandemic and a worrisome lack of both private and public sector investment.
Mfebe said he is aware from the Public-Private Growth Initiative (PPGI), a sector-based collaboration between government and business, that some of the SIP projects require licences or permits, such as water licences, before they can commence.
But Mfebe said these bureaucratic delays are happening despite assurances given by President Cyril Ramaphosa on the sidelines of the Business Unity South Africa Economic Indaba in Midrand in January 2019 that all the inhibitors to economic projects will be addressed and the projects expedited.
No consequences management
“The lack of consequences management is at the heart of what is hobbling the awakening of the South African economy to be the giant it is supposed to be.
“That is what is causing South Africa to be a sub-investment grade country with all the resources that we have, with all the skills that we have. We are lacking in terms of implementation…[because of] the lack of consequent management,” he said.
The Minister of Public Service and Administration Senzo Mchunu revealed in a recent written response to a Parliamentary question that 35% or 3 301 of the 9 477 senior managers listed on the Personal and Salary System do not have the required qualifications and 1 987 of these 3 301 officials are employed in national departments.
Mfebe said political appointments are not unique to South Africa, but the unique part that separates South Africa from other countries is that other countries appoint individuals who are competent and loyal to the state, not to their political leaders.