Construction firm WBHO has entered into an agreement with three black-owned contractors – an empowerment deal that arguably seeks to smooth fractured relationship with the government.
The contractors are Motheo Construction Group, Fikile Construction and Edwin Construction, which will collectively execute 25% of WBHO’s annual turnover over the next seven years.
This is equivalent to R4 billion/year as WBHO’s South African building and civil engineering division pulls in a turnover of R11 billion/year. The companies will be the contracted suppliers and manufacturers on WBHO’s projects.
WBHO’s announcement on Tuesday comes three years after the Competition Commission fined 15 construction firms –including WBHO, Aveng, Basil Read, Murray & Roberts, Stefanutti Stocks and others – to the tune of R1.5 billion for allegedly colluding on bids for projects in the run up to the 2010 Soccer World Cup.
Municipalities and government entities including the South African National Roads Agency planned to seek civil damages from the construction firms. Since then, the relationship between construction firms and the government have been strained – with some industry bodies calling for the firms to be blacklisted from being awarded government contracts.
To mend relations, the government in October proposed that construction firms should seek to enhance the inclusivity of black contractors in the industry by ensuring that 25% of their annual turnover is executed by black-owned contractors within seven years or allocate more than 40% of their business to black shareholders.
While WBHO has announced its deal with the three contractors, Murray & Roberts and Avenge have opted for a black shareholding and Basil Read is yet to announce its deal.
In addition, six construction firms (WBHO, Aveng, Group Five, Basil Read, Raubex and Stefanutti Stocks) have agreed to pay R1.2 billion over the next 12 years into a fund for skills development and the delivery of infrastructure.
WBHO chairman Mike Wylie says its deal with the contractors has been three-years in the making and the industry collusion conundrum “made us realise that the industry needed to be more inclusive.” “If we fought the collusion matter, we would spend years in court and the industry would be polarised. I think the government is pleased that we took this positive role (the empowerment deal) rather than fight,” says Wylie.
Although there aren’t concrete figures on the scale of black-owned construction companies, secretary general of the Black Business Council for the Built Environment (BBCBE) Gregory Mofokeng says about 80% of big companies control the entire value chain of construction. These companies, in their supply and manufacturing divisions, are usually not transformed in their shareholding structure.
“Not much has been done in terms of transformation. All the previous initiatives have failed to transform the industry. With WBHO, we are starting a new programme to see if it’s going to work,” Mofokeng tells Moneyweb.
WBHO’s targets will be reviewed by the BBCBE every year up until 2023.
On the reason behind slow transformation, he says: “transformation will not happen at the pace of capital owners.” Another reason is the capital-intensive nature of the industry which makes it difficult for new entrants.
This is despite there being a transformation charter in the industry, gazetted in 2007 by the Department of Trade and Industry, to fast-track the participation of black-owned companies. Mofokeng adds that construction conglomerates that fail to transform might be barred from doing business with the government.
The empowerment deal has been structured to not only benefit Motheo Construction, Fikile Construction and Edwin Construction but also companies in their value-chain.
Motheo Construction was founded in 1997 by Dr Thandi Ndlovu and provides social housing in SA. Ndlovu tells Moneyweb: “It [the deal with WBHO] sets the blueprint for transformational processes in the sector that will touch a lot of black-owned companies. Over many years, we have been stifled and growth has been hampered by our inability to access mega projects.” Motheo Construction employs over 1 000 people.
Fikile Construction is led by Hlami Ndlovu and is one of the largest black woman-owned construction firm, with projects in the commercial sector. And Edwin Construction has been operating since 1997 and is led by Eddie Mashishi, supplying road and highway, dams, bridges and interchanges construction projects.
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