The civil construction sector was in recession and needed to go into “survival mode”, says David Metelerkamp, senior economist at Industry Insight. File Image.
JOHANNESBURG - The civil construction sector was in recession and needed to go into “survival mode”, says David Metelerkamp, the senior economist at Industry Insight.

The overall construction sector had slumped consistently over the past two to three years and shown consistent negative growth of between 1.1percent and 1.4percent in terms of gross domestic product, Metelerkamp told a breakfast hosted by cement producer AfriSam.

Metelerkamp said the civil construction sector was more public sector driven, with the government being the client for about 80percent to 85percent of projects, while from 75 to 80percent of the building sector was private-sector driven.

“We would expect the civil sector to be faring worse than the building sector because of the big cuts to government's Budget and all the changes at state-owned entities (SOEs).

“There has been somewhat of a halt to projects coming out of SOEs. We suspect it is because of investigations into corruption-related activities,” he said.

Infrastructure spending in the Budget was cut from R947.2billion in the three-year period from 2017/18 to R854.1bn at the beginning of this year for the following three-year period.

Metelerkamp said there had also been a 26.6percent decrease in the nominal total value of civil tenders awarded over the past year, compared to the previous year, and an about 80percent increase in postponements of civil projects.

“It’s going to be tough this year. This year is probably going to be the worst year for the civil sector, and we expect it to improve next year and the following year.

"This year is just survival mode,” he said.

Metelerkamp said there had been a change in dynamics in the overall construction sector, because of all the collusion around the construction of the 2010 World Cup stadiums and loss of trust by government and transformation of the industry not happening at the rate the government would have liked.

“We saw quite a big increase in smaller and medium-sized contractors taking up the work the bigger contractors once were taking, because the government was breaking up those big projects into smaller pieces.

“The big construction companies lost about 15percent market share in total from a 60percent contribution in 2012 to an about 45percent contribution now.

“There has been a big increase in small contractors from (a market share of) 16 to 17percent to just under 40percent over four to five years, which is quite significant,” he said.

Metelerkamp questioned whether there were possibly too many listed construction companies in South Africa, adding that South Africa had nine listed construction companies compared to only three in China, two in Brazil, five in Turkey and four in Australia.

Metelerkamp said the building sector was looking better than the civil sector.

Despite a 7.2percent decline in the square metres of residential completions in the past year, there had been a 1.5percent increase in plans passed by municipalities in terms of square metres.

Metelerkamp said there had been a 20.2percent decrease in the value of non residential projects awarded in the past year, but 12.4percent more projects were coming out for tender.

- BUSINESS REPORT