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Unblocking infrastructure bottlenecks to assist the country’s economic revival

Although there is still uncertainty around delivery and timing of the majority of the projects, AfriSam believes opportunities still exist in the construction industry, but not in the medium term. Photo: Simphiwe Mbokazi, ANA.

Although there is still uncertainty around delivery and timing of the majority of the projects, AfriSam believes opportunities still exist in the construction industry, but not in the medium term. Photo: Simphiwe Mbokazi, ANA.

Published Dec 10, 2021

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Richard Tomes

SOUTH Africa has identified more than 50 strategic integrated projects (SIPS) with huge potential to create jobs on a large scale, attract investment and lay a foundation for sustainable economic expansion.

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The SIPS have the potential to create 300 000 job opportunities in the next few years through projects in human settlements, water and sanitation, agro-processing, agriculture, and digital and energy. The government’s commitment to spend R791.2 billion in the next three years, coupled with private sector commitments, is important to push initiatives that will jump-start this economy back to life.

However, in order for gains from this project to be realised, the government will need to unblock a number of infrastructure bottlenecks, tackle technical skills shortages and a funding crunch that continues to undermine infrastructure delivery.

A bumpy road

Infrastructure development has been on the government’s plate for several years, with allocation of funding set aside but showing little to no progress.

As a country it is becoming more important to deal with the slow rate of implementation and the mismanagement of funds that have derailed progress towards achieving a higher ratio of fixed investment to GDP.

Another challenge has been underspending in infrastructure development with a direct impact on various sectors, as well as the country’s gross domestic product. The arrival of Covid-19 worsened an already bleeding economy.

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Infrastructure spend, which peaked in the run-up to the Fifa 2010 World Cup and at the height of construction of Medupi power station, is now at the lowest it has ever been. Large numbers of construction companies are in business rescue due to the lack of infrastructure spend and stagnant economic growth. This is evident at the coalface of infrastructure delivery.

While there has definitely been somewhat of a surge in the number and the estimated value of civil projects coming out to tender during the first half of this year, the awarding of these contracts has been extremely slow, which has meant that activity levels have not been as good as projected.

Evidence of green shoots

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In 2018, President Cyril Ramaphosa announced the establishment of an Infrastructure Fund and investing in municipal social infrastructure improvement, as part of his economic stimulus and recovery plan. The fund, located at the Development Bank of Southern Africa with a provision of R100 billion over 10 years, recently submitted to Treasury projects worth R22bn for approval, with a further R85bn worth of projects set for submission next year. This momentum must be sustained.

The idea for the fund is to reduce the current fragmentation of infrastructure spend and ensure more efficient and effective use of resources. The fund works alongside the Sustainable Infrastructure Development Symposium, located in the Presidency. The head of Infrastructure and Investment Office in the Presidency, Dr Kgosientso Ramokgopa, seems to have brought a change of attitude and approach towards project preparation. Many infrastructure projects failed due to the lack of proper planning and preparation in the early stages. For a project to be bankable, there is a need to have detailed considerations on the technical, legal, and economic aspects of the project.

The slow pace of government in rolling out its infrastructure development plans is attributed to the government’s challenge to deal with the lack of skilled and experienced engineers, town planners, project and construction management expertise to manage the municipal infrastructure programmes. The president has admitted to the need to steadily rebuild technical skills within the government to prepare and manage large infrastructure projects.

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It is encouraging that Ramokgopa’s team has an advanced infrastructure pipeline of 276 catalytic projects that is ready to transform the landscape of our cities, towns, and rural areas. Already firm commitments have been received from funders for 12 special projects totalling R340bn.

Through the prioritisation of infrastructure development, the construction sector and its supporting industries are set to create more than 1.6 million employment opportunities in the long term.

The efficient and speedy implementation of these projects have the potential to be a game-changer for the local economy and it is critical that South Africa recultivates a culture of delivering projects within budget and on time.

The Construction Industry Development Board (CIBD) recently conducted a survey, looking at more than 825 contractors in all nine provinces. The respondents of the survey said increased government spending on infrastructure projects was needed to help the construction sector gain stability, and eventually recover from the impact of the Covid-19 pandemic.

The construction industry has a valuable role to play

Although there is still uncertainty around delivery and timing of the majority of the projects, AfriSam believes opportunities still exist in the construction industry, but not in the medium term.

Unfortunately, the government’s challenges have not only been underspending and scarcity of technical skills to get infrastructure projects up and going, but also the emergence of the Covid-19 pandemic has not made things easier for the government’s plans to roll out its infrastructure programme. The economic lockdown in 2020 has seriously impacted on jobs in the construction sector.

The president has admitted that the government cannot do this alone, and has called on the private sector to form public private partnerships in a bid to address the challenges the country is faced with.

For the public private partnerships to work, issues have to be addressed. These include policy uncertainty; problems in the energy sector; reduced tax revenue due to high levels of unemployment; and sluggish investment in infrastructure.

The government has to also address the growing trend of illegal invasions of construction sites, if the infrastructure spend is to achieve success.

We always knew that the road to recovery in the global economy would be a long and arduous one. In the case of South Africa and other developing economies, structural change and tough decisions are needed to get the construction industry to bounce back.

The recent announcement by the government to ban the use of imported cement on all government projects will also go a long way towards supporting the local cement industry and other parts of the construction value chain. The move is not blindly protectionist, as has been suggested. There is ample scope for competition in cement sales in private construction, which has continued to experience growth.

Richard Tomes is a sales and marketing executive, AfriSam

The boom in home improvements, as well as activity in the informal construction industry has shown no signs of abating. Hardware sales have continued to surge to record levels, according to Statistics SA, the real value of “hardware, paint and glass” was up by a robust 8.9 percent in the first half of 2021 compared to the same pre-Covid period in 2019. And it is up by a staggering 27.2 percent compared to the same period last year, although coming off a low base. The excellent performance of listed retailers is also testament to this phenomenon.

As we have always done for almost a century, AfriSam is ready to help the country rebuild its infrastructure and its economic stature.

Richard Tomes is a sales and marketing executive, AfriSam.

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