CONSTRUCTION SECTOR OVERVIEW

CONSTRUCTION SECTOR OVERVIEW

A key development objective, as set out by the National Development Plan, is that public infrastructure investment should be 10% of GDP by the year 2030. The road to achieving this is currently a rocky one.

Infrastructure development is one of the key sectors that contributes to the national GDP and was identified as a focus area for the National Development Plan. So what is happening? Why the slump?

Key challenges for the construction industry Include:

• Stagnant economy – exacerbated by the COVID-19

• South Africa’s sovereign credit rating

• Outstanding payments for construction work completed

• Intimidation by the construction mafia

Billions of rands have been lost in the construction industry due to extortion by so-called “business forums”. The South African investigative journalism television series that airs on M-Net during prime time viewing on Sunday nights, Carte Blanche, reported that large projects like the N2 Wild Coast Road (value R1.65-billion) and Saldanha Bay Oil Storage (value R2.4-billion) have had to be put on hold due to extortion and thuggery – what President Ramaphosa terms “radical economic robbery”.

The already beleaguered construction industry is being held to ransom by groups of organised members (read mafia) who arrive, belligerent and armed at construction sites and demand to be paid for not destroying the work done, or closing down the sites because they had not been employed. For public sector construction projects,

it is mandatory to employ 30% of the community, but the private sector has no such obligation. These distinctions clearly make no difference to the extortionists, and an already struggling industry, a key contributor to the economy, requires immediate intervention to rid itself of these opportunists.

After a contraction of 20.3% in 2020 and 4 consecutive years of decline in real terms, the South African construction industry is expected to grow by 6.2% in real terms in 2021 - although this must be seen as relative to previous years. The sector was particularly hard hit by the pandemic.

“To revive the economy from crisis, the government announced plans to provide ZAR791.2 billion (US$45.3 billion) of investment for infrastructure development in the 2021 Budget, which includes the repair and replacement of the existing dam, bridge and railway line, the development of the housing, energy, agriculture, transport, water and sanitation and digital infrastructure sectors.

“The industry is expected to register an annual average growth of 3.4% between 2022-2025, as government initiatives to ramp up capital spending on infrastructure and energy sector gather momentum. The government expects the country’s public debt to rise from 63.3% of GDP in 2020 to 81.8% by 2021, and further increase to 93.5% by 2026.” - Businesswire

AND WHAT IS BEING DONE ABOUT THE OVERALL DECLINE IN THE INDUSTRY?

The government is addressing the stagnant growth in the construction sector through a variety of measures which includes the Infrastructure Fund. During the same State of the Nation address, President Ramaphosa announced that the Fund has a project pipeline with potential investments of overR700-billion over the next 10 years.

The fund had been initiated by President Ramaphosa in 2019 and is managed by the Development Bank of Southern Africa. It has a list of ready to go projects and work has begun to expand private investment into public infrastructure programmes:

“These include areas like student accommodation (leveraging R64-billion in private investment), social housing(at an implementation stage and could leverage R9-billion of private investment in the construction of 37,000rental apartments) independent water production, rail freight branch lines, embedded electricity generation, municipal bulk infrastructure and broadband rollout.”

President Ramaphosaannounced that the government's investment drive would be enhanced with the establishment of an integrated investment and promotion facilitation capability coordinated from the presidency.

GOOD NEWS

“In the first two years of our ambitious investment drive we have raised a total of R664-billion in investment commitments which is more than half of our five-year target of R1,2-trillion...

“Already projects with an investment value of R9-billion have been completed and 27 projects worth just over R250-billion are in implementation phase with more coming on stream this year.”

CONSTRUCTION COVID-19 RESPONSE TEAM

A Covid-19 Construction Rapid Response Task Team has been established by the sector to look at the recovery of the industry once lockdown ends.

“Among the issues the task team wants to deal with include identifying opportunities where the construction and built environment can assist in the national disaster and relief efforts, both on a volunteer and professional basis and supporting emergency procurement for the next 12 months.” - Chairperson and spokesperson of the task team John Matthews

The task team wants to partner with the public and private sectors to ensure the“effective and integrated rollout of infrastructure projects”.

“We have realised that the current situation requires a collective approach, hence we would like to urgently engage all our key stakeholders - particularly the government and private sector - investing in infrastructure development,” said Matthews.

“The task team aims to collectively unblock relief measures for the industry to remain sustainable and to help the industry navigate its way through these uncharted territories.

“This is unprecedented and has placed the country in a very challenging position, requiring sacrifice by the population and businesses to comply with the lockdown, but at the same time requiring definitive action by the government to implement structural economic reforms and address poor economic growth while dealing with the pandemic,” said Matthews.

Sources

Businesswire State of the Nation Address 2020 Carte Blanche Money Web IOL Business Day

Treasury South Africa