New trend

The growing contribution of the private sector in economic infrastructure is expected to have a positive impact on the construction industry in 2023. As existing infrastructure continues to collapse, says Snyman, government has finally realised that it cannot do it alone.

In its recent report, Industry Insight notes that the lack of involvement by the private sector in critical economic infrastructure development has been highlighted as a major constraint for investment and economic growth. Over the years, government has maintained its stronghold on the supply of energy, rail and water resources, despite failing dismally to maintain these assets. Until it no longer had a choice.

According to the South African Reserve Bank, the private sector invested close to R120-billion in construction works (typically economic infrastructure) over the three-year period 20192021, increasing its contribution to an average of 24% compared to a 20-year average of only 10%.

“For the first time we are seeing a more earnest approach by government to include the private sector in economic infrastructure development, and we hope that the renewable energy sector is just the beginning,” says Snyman. “There is still a long way to go, and we do not expect a quick turnaround in the construction sector, but at best we hope that the rate of decline will start to stabilise with some (albeit limited) growth prospects over the next three years.”

The estimated value of civil projects out to tender increased by 30% in 2022, and could support investment growth in 2023, coming off a low base, she says. Tender activity in terms of the number of projects out to tender, remains depressed (down 19% year-on-year in 2022) meaning there are fewer but higher value projects out to tender.

“This should offer some reprieve to the larger contractors, but as we have seen in recent times, these projects don’t always benefit local contractors. A case in point is SANRAL’s recent awarding of multibillion rand projects to Chinese contractors,” she says.

As of October 2022, the industry recorded about R251-billion worth of high-impact projects that were announced during the year. This includes the R75-billion green hydrogen project announced in January 2022. Projects announced during last year were by far dominated by the renewable energy sector, followed by mixed-use developments.

“There is some capex coming out of the mining sector – given the improved performance in that industry – that will benefit the construction industry. The challenge with these projects is the lengthy timelines associated with the multibillion-rand projects,” she says.

The gradual decline in investment by the general government and state-owned enterprises SOE’s have created a significant infrastructure deficit that has now reached a critical point.

The contribution by the private sector in typically public sector dominated infrastructure has already grown to more than 20% in the last three years.

Snyman adds that the bulk of the high value projects announced in 2021 was dominated by the industrial sector and some of the largescale developments have since come off stream. Industrial construction activity remains strong, and this is probably the only sector in the commercial sector that is showing any potential for growth.

Key priorities

Snyman notes that spending budgetary allocations remains a serious challenge, particularly within local government. It will therefore be critical to ensure that local governments, including Metropolitan areas, have the necessary capacity to plan and implement the necessary infrastructure programmes. The construction industry, she adds, has also had to endure a significant increase in risk over the past few years, while having to deal with near record low profitability levels. “This is simply not sustainable, and we hope that the sector will receive higher levels of government support to mitigate some of these risks, particularly when it comes to extortion by the so called ‘business forums’ that are doing nothing else but promoting criminal behaviour,” concludes Snyman. a