Sona: Ramaphosa urged to focus on unlocking R900bn infrastructure investment project pipeline

Construction industry was again the worst-performing sector in the economy in 2021 – Cesa.
‘The people, the shovels and the hard hats are waiting, itching and ready to be called to action’ – MBSA president Vic Naidoo. Image: Shutterstock

President Cyril Ramaphosa has been urged by the consulting engineering sector to focus in his State of the Nation (Sona) address later this week on government efforts to unlock the much-publicised almost R900 billion project pipeline “into shovel-ready projects”.

“We believe the state can achieve this by leveraging as much of the technical and built environment capacity in the private sector as is needed to fill the gaps that exist in the public sector as a matter of urgency,” said Consulting Engineers South Africa’s (Cesa’s) newly-appointed president Olu Soluade on Thursday (February 3).

Soluade’s plea follows reported delays in the implementation of the government’s massive infrastructure investment programme that was aimed at kick-starting the economy post the Covid-19 pandemic lockdowns.

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He said the construction industry was again the worst-performing sector in the economy in 2021.

Soluade added that with infrastructure development having been hailed as one of the key elements for South Africa’s economic recovery, the public sector trends are most interesting.

“While tender activity has improved, there is still little evidence that these tenders are being awarded at any sort of reasonable pace.

“It also raises questions about the claim that any of the gazetted strategic infrastructure projects from 2020 were indeed ‘shovel ready’ or being fast-tracked on any sort of broad base.

“There has however been some progress, with a few high profile projects being awarded,” he said.

Projects

This is a reference to the 50 strategic integrated projects (SIPs) and 12 special projects involving an investment of R340 billion that were unveiled by the government in July 2020 as the first tranche of the Sustainable Infrastructure Development Symposium South Africa (Sidssa) project pipeline.

These projects were supposedly “shovel-ready” and were anticipated to commence within three months as part of Ramaphosa’s infrastructure investment drive to stimulate the economy.

Head of Infrastructure and Investment in the Presidency Dr Kgosientsho Ramokgopa said when these projects were unveiled that funding from the debt capital market accounted for R340 billion of the total investment in these projects and they would not draw any money from the fiscus.

The government in October 2021 unveiled the second tranche of the Sidssa project pipeline comprising 55 new catalytic infrastructure projects from various sectors valued at about R595 billion that is anticipated to create an estimated 538 500 employment opportunities.

Read: Government unveils R595bn pipeline of new infrastructure projects

However, Minister of Public Works and Infrastructure Patricia de Lille admitted when the second tranche of Sidssa projects were unveiled that there is a funding gap of about R441 billion for the 55 new projects being presented to the market.

Various organisations – including the SA Forum of Civil Engineering Contractors (Safcec), Master Builders South Africa (MBSA) and construction market intelligence firm Industry Insight – have previously cast doubt about how ‘shovel-ready’ the projects in the pipeline are for implementation.

MBSA president Vic Naidoo again addressed this issue this month, stressing that recovery of the industry is the MBSA’s key goal for the year ahead and the importance for contractors to be on sites to get the wheels of the economy moving again.

“The people, the shovels and the hard hats are waiting, itching and ready to be called to action,” he said in a message in the February 2022 issue of SA Builder, the official publication of MBSA.

However, Naidoo emphasised that recovery of the construction sector is directly linked to and dependent on the roll-out of pledged public infrastructure projects.

“There is no question that major plans have been drafted and announcements made about government’s intention to catalyse economic growth through public infrastructure spending.

“What is missing is follow-through for announced projects to go to tender and be awarded,” he said.

Naidoo said a concerted effort is therefore needed to bridge the existing gap between public-private sector collaboration on the pipeline of projects announced in South Africa’s Economic Reconstruction and Recovery Plan.

“This divide must be replaced with a collaborative partnership. It is the only way through which the pipeline of projects can be unclogged and much-needed work opportunities can be realised,” he said.

Targets missed

Industry Insight CEO Elsie Snyman said late last year that government targets related to the National Development Plan (NDP) are “still dismally missed, gross fixed capital formation (investment) to GDP is at 14% against a target of 30%”.

Snyman added that according to Sidssa, 54% of the potential projects are either in pre-feasibility or feasibility stage, with less than 10% under construction.

Cesa’s Soluade also picked up on this theme in his presidential address, highlighting that the association’s Bi-Annual Economic and Capacity Survey (BECS) report has shown a decrease in public sector clients, especially state-owned enterprise (SOEs), with 50% of projects now coming from private sector clients.

Soluade said this is higher than 2020 and 2019, adding that the public sector is generally regarded as the most important client to the industry.

“The role of the public sector remains critical to the engineering profession,” he said.

Soluade said the BECS report also uncovered an alarming number of project cancellations, a poor ability for companies to break even and a decrease in fee earnings year on year. Competition among bidders has thus increased to a fierce level, he said.

Soluade said on a more positive note, firms have indicated a greater need for engineers and technologists, signifying great opportunities for Cesa graduates.

“Firms are also expecting profitability to increase – although margins remain low.

“Overall, the consulting engineering confidence index improved significantly, coming off the back of fallout from the Covid-19 pandemic and the subsequent lockdowns.

“While we face many challenges, it is encouraging to know that our industry remains positive and resilient,” he said.

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