South Africa’s construction industry has undergone a sustained period of inactivity following the 2010 FIFA World Cup, throwing the industry into a ‘mini-recession’.
Marcel de Jager, client relations manager for Engineering at Lion of Africa Insurance, says during 2012 and 2013, the company saw a significant decrease in business stemming from the construction industry, as a result of fewer private and public sector construction projects in the country.
“Many construction companies have had no choice but to decrease their rates by as much as 30%, resulting in liquidation in some cases, as companies fail to compete with the low rates in the market.”
Labour issues deter investment
According to De Jager, labour issues in the mining sector such as the Lonmin tragedy and wildcat strikes in the agriculture, transport and even construction industry, have also played a major role in influencing foreign direct investment and have severely impacted investor’s confidence.
He makes reference to Finance Minister Pravin Gordhan’s speech during the National Treasury budget vote in Parliament. “Gordhan gave a severe warning to South Africa to sort out its chronic unemployment and labour relations problems and told parliament that investor confidence will deteriorate and the country will lose out if it does not sort out labour unrest.”
These events mean little or no business opportunities exist for construction companies, forcing many to store equipment as there is simply no use for them.
Projects don’t always progress as planned
De Jager adds that the ‘stop-start’ nature of some projects has also contributed to the inactivity in the sector. He refers to the e-tolls in Gauteng that were halted for over 12 months, as it went through several legal hurdles after its completion before implementation, which ultimately cost SANRAL millions of rands.
According to Transport Minister Ben Martins who recently spoke at the National Council of Provinces (NCOP), e-tolling is needed to pay for and maintain infrastructure critical to South Africa’s future economic growth.
The South African economy requires infrastructure to develop and grow, create jobs and to fight the scourge of unemployment and inequality prevalent in the country.
The sector needs e-tolling
“Despite public outcry over the implementation of e-tolls, the creation of the e-toll system will act as a funding model to upgrade the freeway and road system. This will ultimately provide some much-needed jobs for the construction industry.”
De Jager foresees positive growth in the near future. “South Africa’s increased role in the BRICS group of countries, as well as its unique position as a gateway to Africa, will strengthen its economic status over the long-term, which will also result in increased direct investment into the country.
“Another positive is the R827 billion injection into infrastructure developments that the government is planning over the next three years, set to stimulate activity in the construction sector.
“Furthermore, it is estimated that the infrastructure project pipeline is valued at approximately R4 trillion over the next 20 years, which indicates positive growth lies ahead.”
De Jager says infrastructure is the essence of economic development and is critical for the transformation of the country.