The latest quarterly financial data from Statistics South Africa has laid bare the challenges facing small construction companies, whose turnover has plunged in the past four years.
The statistics agency said the influence of small businesses on turnover weakened in business services, community, social and personal services, construction and mining in the first quarter of the year.
“The shift in the construction industry is quite notable: from 40 percent in the first quarter of 2015 to 26 percent in the first quarter of 2019,” StatsSA said.
The data further showed that the entire formal business sector generated R2.39 trillion in turnover in the first three months of this year. Of this amount, large businesses contributed 62 percent, followed by small businesses with 29 percent, and medium-sized businesses at 10 percent.
Since the first quarter of 2015, small businesses have expanded their contribution to total turnover in the trade, transport, manufacturing and utility industries.
“The contribution of small businesses to turnover has fluctuated over time, increasing from 24 percent in the first quarter of 2009 to 32 percent in the third quarter of 2017. Since the third quarter of 2017, the contribution has edged slightly lower to 29 percent in the first quarter of 2019.”
The construction industry shed 142 000 jobs in the first quarter of the year.
The challenges faced by small construction companies mirror those of their bigger counterparts who have run into troubled times in recent years.
Construction companies have been on their knees since the 2010 infrastructure projects fizzled out. Group Five, once an investor darling, this year filed for bankruptcy. Basil Read, Esor Construction and Liviero Group applied for business rescue last year.
Rob Newberry, who works with Master Builders Association North on initiatives designed to nurture small and medium-sized enterprises (SMEs), said, despite current challenges, there were plenty of opportunities for dynamic young people in the construction industry.
“While it’s unfortunate that the bigger players are falling by the wayside, their ill fortune is definitely creating huge opportunities for SMEs in both the public and private sectors,” Newberry said.
“Make no mistake, it’s a tough industry, but, with hard work, it’s still possible to make excellent returns.”
Newberry said many entrepreneurs misunderstand the financial realities of construction. “For example, a R3 million job would typically require 10 percent capital (R300 000) and could be expected to yield a profit of around 5 percent (R150 000).”