Construction at standstill with government ’implementation paralysis’
CAPE TOWN - LONG-promised big infrastructure projects are not yet under way and there are concerns that the thin pipeline of new work is insufficient to prevent the slight improvement in construction and engineering activity seen since last year from derailing.
Last month the FNB/BER Civil Confidence Index gained five points in the first three months of 2021, the third consecutive increase in the index, but nearly 80 percent of the survey respondents remain dissatisfied with business conditions.
Other construction and engineering industry sources said the government faces “implementation paralysis” and a “shortage of cash” for the infrastructure projects that it has claimed will play such a big part in bringing South Africa back on the road to economic recovery.
FNB senior economist Siphamandla Mkhwanazi said there had been reports of increased tender activity in the roads, mining and renewable energy sectors, but this was limited to only a “few big companies” and the rest of the industry was under pressure, profitability had deteriorated and the pipeline of new work was thin.
Industry Insight economist David Metelerkamp said their data showed civil engineering activity up 11 percent in real terms last year, strong growth compared with previous years, but most of the work was on roads and in the water sector, and none of it related to any of the major infrastructure projects being promoted by the government.
He believed construction would bounce back this year, especially as it was not able to work for two months during lockdown last year, but concerns about fiscal capacity, low private sector confidence and questions around the government’s ability to implement public infrastructure projects meant the longer-term outlook was not good.
Consulting Engineers South Africa chief executive Chris Campbell said capacity utilisation among its members firms was 74 percent, after falling from 80 percent pre-Covid-19.
He said the firms were cutting costs and of concern was the early retirement of higher paid, highly skilled engineers.
In addition, with many countries now also relying on infrastructure to boost their economies out of the pandemic crisis, the emigration of skilled engineers from South Africa was likely to continue, due to the lack of available work locally, he said.
State-owned enterprises were traditionally big developers of infrastructure, often using their own funds, but most of these now faced liquidity constraints, which was likely to take some years to rectify, said Campbell.
Private sector companies, who usually did not use their own funds to develop infrastructure, were suffering from a lack of confidence to invest in infrastructure, which was understandable in the environment of “mixed messages” on government policy, said Campbell.
During 2020, spending on construction works was down 18.7 percent year-on-year, this after the pandemic snuffed out signs of the industry starting to turn around after about a decade of under spending by the government and private sector on infrastructure and other construction.
Many construction groups have had to diversify or close because of this. “Promisingly, we are now in a similar position as a year ago, with activity, cautiously and off a very low base, starting to improve,” said Mkhwanazi.
Dr Kgosientso Ramokgopa, the head of the Investment and Infrastructure Office in the Presidency claimed last July that South Africa was on a path to unlock more than R1 trillion in infrastructure investment over the next four years, and President Cyril Ramaphosa made infrastructure development a cornerstone of the Economic Recovery and Reconstruction Plan because of its multiplier effect on restoring economic growth, creating new jobs and protecting livelihoods.
In the National Budget last month, Finance Minister Tito Mboweni committed R791.2 billion over the medium-term towards infrastructure investment.
But industry commentators have long warned that the government steadfastly commits to infrastructure investment every year in the Budget, but little takes place when it gets to implementation.
Ramokgopa claimed last year commitments had been received from funders for 50 strategic integrated projects and 12 special projects totalling R340bn. The projects had been gazetted to fast track implementation.
The projects included 15 transport projects valued at R47bn, 11 water and sanitation projects valued at R106bn and 18 human settlements developments valued at R138bn that would apparently produce more than 190 000 housing units.
There were two agricultural and agro-processing projects valued at R7bn, three energy projects at R58bn, a digital infrastructure initiative of R4bn and 15 transport projects valued at R47bn.
Andries van Heerden, the chief executive of construction materials mining group Afrimat said they had seen a “very sharp” improvement in the demand for building materials from the end of the third quarter last year and activity appeared to be at similar levels, with demand healthy in the Western Cape, KwaZulu-Natal and Mpumalanga, but the off-take was slow in the Free State, and also Gauteng, which he said was surprising.
He said he lived “in hope” that the large infrastructure development projects would begin to be built, but in the meantime road construction and maintenance tenders, particularly in KwaZulu-Natal and Western Cape, at a provincial, national and district level, were keeping many contractors active, while there were also some civil engineering projects under way in the Western Cape, such as a large bridge being built outside Ashton.
Van Heerden said demand for building materials in the retail space was also surprisingly strong, the full reasons for which he did not yet fully understand, but he had heard that many people had started improvements on their homes through the lockdowns of last year.