Introduction

The construction industry is diverse and is involved in projects ranging from the development of civil infrastructure, such as roads, bridges and ports, to residential and nonresidential buildings, as well as small private projects.

The last decade, and 2020 in particular, has been tough for the industry. Already in deep trouble before the Covid-19 pandemic, the construction industry contracted by 20.30% in 2020, marking the sector’s fourth consecutive year of economic decline (Stats SA, 2021a). Despite some improvement in 2021, construction remains severely affected by the Covid-19 pandemic and weak investor sentiment (Reserve Bank, 2021).

The industry is a key employer, especially for low- and medium-skilled workers, providing jobs to about 1.22-million people. Between March 2020 and March 2021, the industry shed 264 000 jobs (Stats SA, 2021b). Due in the main to a post-Covidlockdown rebound the sector increased employment in the second quarter of 2021, with gain of 143 000 jobs (Stats SA, 2021c).

Government spending has a material impact on the health of the construction industry as it accounts for more than two-thirds of civil revenue and about 40% of nonresidential construction revenue. As a result of weakening project flow and spending by the public sector in recent years, many civil construction companies have turned to foreign contracts to survive, and an unprecedented number of big contractors have gone into business rescue or liquidation. This is largely attributed to a lack of big government contracts, late payment and the shouldering of lossmaking contracts (DPWI, 2021).

The National Infrastructure Plan 2050, a draft of which was released, for comment in August 2021, can act as an economic stimulus for the industry, provided that a credible pipeline of projects is put forward. It is estimated that the cost of delivering infrastructure to meet the country’s infrastructure development needs will be more than R6-trillion between 2016 and 2040. It is estimated that the finance gap that needs to be closed is about R2.15-trillion (DPWI, 2021). The private infrastructure investment sector will be called upon to help fund infrastructure, with public–private partnerships (PPPs) expected fill a finance gap of about one-third of the amount that needs to be invested by 2050.

Amendments to Regulation 28 of the Pension Funds Act will assist to mobilise resources for infrastructure. The changes will seek to mobilise a higher proportion of retirement savings for infrastructure investment, as South Africa is currently behind other countries on this indicator (Business Times, 2021).

“Government spending has a material impact on the health of the construction industry . . .”

Introduction

This Inclusive Society Institute (ISI) report is a summary of themes that emerged from virtual discussions, held on October 19 and November 7, 2021, with construction industry participants to gather their views on what the country must do to place it on a path of higher, sustainable, and inclusive growth. The report identifies constraints to economic growth and development, from the construction industry’s perspective, and puts forward suggestions to improve the status quo.

The report is one in a series of dialogues that the ISI has held with different sectors of the economy and forms part of the institute’s economic research project to develop a blueprint for rejuvenating the South African economy.