Government’s credibility issues are affecting the civil construction sector

Reservations about the state’s ability to follow through on its massive infrastructure development programme blamed for low confidence levels.
Confidence levels remain at near record lows despite the lifting of Covid-19 lockdown restrictions. Image: Shutterstock

A serious credibility problem with the government’s so-called “shovel ready” and bankable major infrastructure projects has been blamed for confidence in the civil construction industry remaining at near record low levels in the third quarter of this year.

Read: State’s infrastructure programme criticised for lacking details

The latest FNB/Bureau for Economic Research (BER) Civil Confidence Index released on Tuesday revealed that confidence rose to 11 on a 100-point scale in the third quarter from the record low of five index points in the previous quarter.

The current index level means that almost 90% of respondents are dissatisfied with prevailing business conditions.

FNB/BER said downbeat prospects for work over the next few quarters also kept confidence low.

In the third quarter of 2020, a slightly higher percentage of respondents than the already elevated level in the previous quarter stated that the demand for new work, a proxy for company order books, was insufficient given normal business requirements while tendering competition intensified, FNB/BER said.

The fieldwork for the third quarter survey was conducted between August 12 and 31 this year.

All talk?

David Metelerkamp, senior economist at construction market intelligence firm Industry Insight, was brutal in his assessment of the latest confidence levels in the sector.

“I think it’s a very good indicator that all the ‘shovel ready’ project talk is a load of nonsense.

“We have been tracking these projects and to the best of our knowledge not one of these projects has yet to be awarded,” he said.

“So it’s unsurprising that it [confidence] hasn’t recovered more.”

Metelerkamp said despite the improvement in the index in the third quarter, it was impossible for it to go lower “and it goes without saying that 11 is still really, really, really bad”.

But Metelerkamp said only Grade 9 contractors, the largest contractors, are surveyed for the FNB/BER civil confidence index and it is therefore not very indicative of the overall construction landscape.

State of government finances

Metelerkamp is also concerned about the state of government finances in the medium term and the impact this could have on the infrastructure expenditure programme despite the government’s reliance on private sector funding for these projects.

FNB property economist Siphamandla Mkhwanazi said it is disappointing that confidence remains this low in the third quarter with the Covid-19 lockdown restrictions on construction sector activity now lifted.

Mkhwanazi said although lockdown restrictions eased, such that construction firms could operate more normally, activity levels remained ultra-depressed with only a marginal improvement from the second quarter of this year.

He added that essentially all the confidence gains of the 12 months prior to the second quarter of this year “have been wiped out”.

Mechanism to boost economic growth

Mkhwanazi said there has been an increased focus on and talk about infrastructure development as a mechanism to boost economic growth post the pandemic.

“These results suggest that this has not yet translated into tangible opportunities for civil contractors,” he said.

“One can only hope that this will change and that work will pick up over the next few months or quarters because without it this sector will remain on the back foot.”

President Cyril Ramaphosa confirmed at the Sustainable Infrastructure Development Symposium (Sidssa) in June that the government has placed infrastructure at the centre of the stimulus South Africa’s economy needs to achieve a sustainable recovery.

This was followed by the government in July this year unveiling 50 Strategic Infrastructure Projects (SIP) and 12 special projects involving a total investment of R340 billion as the first tranche of a massive infrastructure expenditure programme to drive the post Covid-19 economic recovery effort.

These initial SIP projects are expected to create an estimated 275 700 jobs in six sectors.

Dr Kgosientso Ramokgopa, Head of the Investment and Infrastructure Office in the Presidency, said in July when the initial projects were unveiled 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”.

Economist Roelof Botha told Moneyweb earlier this month that the government’s infrastructure investment drive is arguably the most important tangible driver of recovery in construction.

Mkhwanazi added that the low confidence levels in the third quarter of this year were underpinned by continued pressure on activity.

Although activity levels improved compared to the second quarter of 2020, it is likely they are well below the level recorded in the third quarter of 2019.

According to Statistics South Africa, the real value of construction works declined by 30.9% year-on-year in the second quarter of 2020 after a more muted contraction of 1.9% year-on-year in the first quarter of 2020.

“While this quarter’s survey results suggest a further fall in activity in [the third quarter], it is unlikely that it is as dire as registered in [the second quarter]. That said, a mild decline such as registered in [the first quarter] is again way too optimistic,” Mkhwanazi said.

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Government’s credibility is zero, it affects all economical issues.
Negatively.

I guess the “lack of confidence in the sector” is not sector related but ANC related.

It is impossibly to take Roelof Pollyanna Botha’s sunshine “economics” seriously.

The ANC government has proven beyond a shadow of a doubt that it is not to be trusted on any matter. One does not know what outweighs what : Incompetence or corruption. Together a lethal mixture.

My equation remains, “construction sector quality in any environment = political quality”
Look around at the leading construction sectors on the globe and compare their political equivalent
Forget all the sales pitches, regardless of which political or religious corners they come from , the day PPC returns to a healthy business swing then be rest assured the entire country is bathed in potential prosperity. Until then it’s all cartoon material.

All the projects that focus on loot and plunder are shovel ready and implemented without delay. They are highly efficient when it comes to plundering and destroying the common resources, but very slow when they have to build it.

It is totally against the nature of the collectivist to invest in, and to improve and protect the shared resource. In the collectivist system, all the incentives and rewards are aligned to motivate the most unscrupulous individuals in the group, to plunder the shared resource at the fastest rate, before his comrade gets to it.

The individuals who rise in the ranks of the socialist system are those who control the patronage network. This person gets elected into more powerful positions because his supporters depend on their share of the loot. Everybody on the system is incentivised to plunder, and they elect the leaders who are the most efficient plunderers. Senior party members are not elected for their ability to add value to society or to build the economy. They are elected because they have proven their ability to distribute the loot among their supporters. The entire system is rigged for the destruction of infrastructure and service delivery. The evidence comes out of the sewerage pipes and runs down the streets in every township.

@Sensei,
When can we expect your book?

Really enjoy your comments and appreciate the simple yet powerful message.

@PurgeCoin, Thank you. I appreciate your comment and I value your contributions to this community.

Hey hey easy on there people. My neighbour is tiling & has been for 2 days already while the guy down the road has 3 Zimbabweans painting his entire house inside & out a person in the know tells me.
Green shoots are all around…!!!!

The actions of the anc have proved destructive for an industry which not only gives on site training and development for uneducated people but also pays well above minimum wage.

Any good project generally has 1 core skilled labour for every 2 unskilled labour, foreman are generational skilled workers with father and sons passing on the knowledge.

This has now been totally wiped out and any hope of a major project being successful is all but lost.

Instead the collectivism of the locals have created a mafia who see any project in their location as an Entitlement. They drag their feet, sucking the hours out the project and finding any excuse not to work.

I’ve seen it all, from people hitting their own fingers with hammers just so that they can get 6 weeks of paid injury wages to operatives hiding from their foreman. Every issue bring the project management team to a standstill and thereby slowing the project progress.

Eskoms power stations are proof of this, completion dates are 5 to 7 years from now. That means the project has taken 20 years to build, something which should have been done in 7 years max.

Socialists only produce chaos, incompetence and scarcity.

End of comments.

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