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Building the post-Covid SA calls for greater vigour

Construction sector braces itself for a prolonged downturn despite government’s massive infrastructure investment programme.
There is pessim about government’s ability to quickly roll out large economy-boosting job-creating infrastructure projects. Image: Shutterstock

South Africa’s construction sector is facing a prolonged downturn despite the government’s planned massive infrastructure expenditure programme that aims to stimulate the economy post Covid-19.

David Metelerkamp, senior economist at construction market intelligence firm Industry Insight, says the outlook for the construction sector remains dim although there is some hope for a marginal improvement in civil investment in the medium term.

The SA Forum of Civil Engineering Contractors (Safcec) is “cautiously optimistic” about the industry’s prospects and Master Builders South Africa (MBSA) is “optimistic” despite both organisations highlighting several problematic issues.

Metelerkamp is not optimistic about the government’s massive infrastructure expenditure programme. “As private sector sentiment continues to deteriorate and at record low levels, any recovery relies solely on the successful implementation of the government’s infrastructure programme,” he said.

Being realistic

“Realistically such implementation is unlikely to materialise in the short term, underlying our view that the local construction sector will continue to be hampered by negative growth in the medium term and as economic growth deteriorates so will the downturn in the industry simply be prolonged,” he added.

Metelerkamp is more positive about the announcement by the SA National Roads Agency (Sanral) that it is ready to implement construction projects valued at about R30 billion sometime in the current financial year.

He said the 50 projects identified and gazetted by the government as the next step in the implementation of South Africa’s infrastructure investment plan are already in the system of several local and provincial departments of government and municipality.

Metelerkamp said these projects are apparently ready for implementation, adding that the terms “shovel ready” or “bankable” do get the hopes up of industry stakeholders but believes this “is unwarranted”.

Dr Kgosientso Ramokgopa, Head of the Investment and Infrastructure Office in the Presidency, said at the unveiling of 50 strategic infrastructure projects in July that these “are projects that are shovel ready, so in the next three months we will be able to go into the ground … and ensure that we are able to stop the haemorrhaging of jobs in the economy”.

Wishful thinking …

Safcec CEO Webster Mfebe described these comments as “wishful thinking”, adding the project specifics still have to be released in the call for bids, which is when contractors will decide if it is palatable for them to submit bids.

“It’s a process and it can take 12 to 24 months,” he said.

Mfebe is “cautiously optimistic” about the construction sector’s future prospects but stressed the biggest problem facing the industry is the implementation of infrastructure plans and programmes.

He said projects are delayed and hampered by the permitting and licencing system, particularly in regard to water use licences and energy.

However, he said there appears to be a greater commitment by the government to address concerns raised about the technical capacity of the state to oversee projects because of a lack of engineering and technical staff, particularly at the municipal and provincial level.

Red tape bottleneck

MBSA executive director Roy Mnisi agreed with these sentiments, stressing that it seemed there was a huge challenge in awarding public infrastructure projects.

He attributed this to “the red tape environment of supply chain management in government”, which has created a bottleneck.

Mnisi said the MBSA is not aware of any of the “shovel ready” projects announced by the government that “has actually started”.

“The projects that we see are projects that were awarded before or shortly after the lockdown was announced.

“The problem with the government is that a month may be anything between six months to even a year,” he said.

Mfebe also said there are inexplicable delays in the tender adjudication process.

Projects abandoned

“We know one of the reasons that projects are abandoned and there are no awards after they have been advertised and contractors have spent millions in preparing these bids.

“In some cases, those sitting on the bid [adjudication committee] are proxies for other interests outside. When the nominated winner does not make it, they make sure they abort the whole process,” he said.

Mfebe said if the government can deal with these issues, it will build confidence that things are moving forward to ensure that infrastructure does get delivered.

The 50 projects that have been fast-tracked and gazetted form part of the government’s larger R2.3 trillion infrastructure drive over the next decade.

Metelerkamp said the government is also seeking financial support from development finance institutions, multilateral institutions and highly controversially from private pension funds.

Detail necessary

However, Metelerkamp said the announcement of these projects has been criticised as it lacks critical details and any meaningful background to encourage private sector support.

Metelerkamp said the document merely lists the name and provincial location of the project with no further information pertaining to estimated construction value, nor does it give any indication on financial aspects related to the funding of these projects.

“This casts serious doubt on the practicalities surrounding implementation of these so-called ‘bankable’ projects.

“This does not mean that funding models are not in place, but it does raise some concerns and valid questions on exactly when and how these projects will be implemented – if, unfortunately, at all.

“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,” he said.

Burning concern

Metelerkamp said although there has been an improvement in the value of civil projects awarded in recent months, the lack of tenders remains a burning concern because this directly impacts on pipeline activity, competition in tendering and subsequent tender prices.

He added that more than 60% of the projects included by the government in the strategic infrastructure project programme relates to the civil sector, which could give a major boost to the sector although the majority of these projects are not new and have been challenged by several issues, which have ultimately delayed the implementation of these projects for years.

Read: Government’s credibility issues are affecting the civil construction sector

Securing adequate finance has been the major stumbling block of these projects and remains a critical constraint to the successful implementation of them, he said.

More and more projects on hold

Metelerkamp said the postponement rate in the civil sector, similar to the building sector, continues to rise as more and more projects are placed on hold in relation to the number of projects that are coming out to tender.

It rose to 11.2% in July 2020 from less than 1% in March 2016 and is at the highest level in almost a decade.

“This adds further challenges to an already constrained sector, as projects previously put out to tender are being pulled back,” he said.

“The majority of projects postponed during July related to road projects, of which four are Sanral projects, and several water projects.”

Metelerkamp said the outlook for private sector building investment has weakened considerably because an already weak environment was aggravated by Covid-19 and subsequent ramifications.

Read: Covid-19 impact on construction sector will be ‘catastrophic’

“As private sector sentiment continues to deteriorate and at record low levels, any recovery relies solely on the successful implementation of the government’s infrastructure programme,” he said.

Metelerkamp said that with just over 11 million square metres approved over the last 12 months as at June 2020, levels are currently at record lows and at the lowest level since 1994.

Uptick in smaller dwelling approvals

However, Metelerkamp said there is some growth in terms of approvals for smaller dwellings, typically social housing units, where approvals increased by 21% year-on-year during the last 12 months.

But Metelerkamp said private sector confidence remains in the doldrums.

“Postponement of building projects are accelerating as conditions continue to worsen and become increasingly unviable for investment.

“The postponement rate in private housing has exceeded 100% in March 2020 and is at 177.8% as at July 2020.

“This suggests that for every tender issued, close to two projects are currently being postponed,” he said.

“Overall the postponement rate in the building industry has increased to the highest level since 2011 and seems very likely to continue to increase in the short to medium term. This adds to the growing uncertainty in the sector and along with that a costly tendering process that may never lead to any awards.”

Mnisi said MBSA members are optimistic because there is work in some areas although it was not at the level they would like and the industry is still under pressure in terms of getting work.

He said some MBSA members are quite busy, especially in the low-cost housing market, but not much is happening in terms of bigger infrastructure developments, such as public infrastructure.

Mnisi said the revival in building sector activity is not sustainable because of the decline in the value of building plans approved, adding the sector will not survive on these types of projects and also needs a variety of infrastructure development projects.

Mnisi said private sector investment has declined and attributed this to challenges private investors have with municipalities in getting property rezoning and plans approved quickly.

“There are a lot of problems but they are not insurmountable as far as we are concerned,” he said.

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Yip I know several businesses waiting for the R30bn Sanral tender.

Not a good space and without the removal of infrastructure bottlenecks we are in serious trouble as a country.

No construction jobs,fewer folk that can buy goods and services, water shortages, road deterioration and so on.

Are there any good news stories int the sector – definitely solar PV side and perhaps round 4 REIPP but that’s coming to an end now

Don’t we all. How many more jobs and secondary opportunities come from a construction project as against throwing R10bn into the black hole of an unproductive, loss making SAA? Crazy priorities indicate kickbacks for the ANC elites running the process I reckon.

Well, there must exist some sort of mechanism by which a voter changes his environment to reflect his mindset. The right to vote puts the voter in control of complex engineering projects. The voter uses the construction sector as a tool to change the environment to reflect his mindset.

This is why the sector is thriving in free-market first world countries and falling apart in socialist third world countries. This is why first world countries have growing economies and low unemployment, while socialist countries have shrinking economies, rising unemployment, loadshedding and sewage in the streets.

The engineering mechanisms of any construction sector south of the equator on the continent is simply too complicated for any governing party to grasp. Main challenge is the time factor most projects from business idea or need to final completion takes years or from one to another political team. The ordering of say, locomotives for a failing infrastructure or arms deals offer much quicker turn around “commissions” and payment processes are much more fluid for those in the engineering of corruption. Take Egypt construction sector in comparison since the Arab-spring change over, call it what ever season, but its exactly what is required for SA. Rather all these great commentators realign theirs skills to an African autumn and chock the ANC with a religious event sooner than they predicted.

Somehow it feels the capacity of the ANC government is similar to the one of Adolf H in his bunker in April 1945. Adolf was also phantasysing of throwing non existent troops against the Soviet army that was already in Berlin. I wish the ANC would have the ” decency ” of Adolf to just commit suicide and give the country a chance to recover from the nightmare it created.

End of comments.

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