"The Crisis in the Building Sector"

Keynote address by the President of Master Builders South Africa at the Building Industry Crisis Summit held on Kempton Park on 9 February 2011.

Crisis Summit – Opening Address

I would like to endorse the warm welcome extended   to all delegates, by our CEO, Pierre Fourie.

The objective of today’s summit is to engage with all building industry stakeholders to discuss; the impact of the current economic situation in the building industry, to ascertain the exact state of affairs within the parameters of influence pertaining to the various stakeholders and to explore measures that can be adopted to mitigate their detrimental influences  on our industry.

MBSA represents an exceptionally broad base of mainstream and specialist building contractors and sub -contractors throughout South Africa, as well as a large number of suppliers to the building industry.  Our membership comprises of nine Master Builders Associations as well as 3 affiliated industry Associations, in turn representing in the region of 4000 contractors.  These members range from virtually all of the large national corporations through to a large number of small, medium and micro enterprises.

The Master Builders Associations are in contact with their members on a daily basis, assisting and advising them on the bulk of the industry related dynamics and issues that affect them in the running of their businesses.

There is no other body in the building industry that can claim to represent such a large, diverse and influential grouping of players in the building sector. 

Through a range of both formal and informal interactive forums, as well as through individual consultation, Master Builders is able to have a finger on the pulse of the building industry in a manner and to a degree that is unique.

As a result, we maintain a living agenda that focuses on, among other things, the major challenges facing our collective membership, as we grapple with these on a daily basis in order to keep the playing fields level and assist members with the efficient running of their businesses.

 We can say with certainty that a number of issues have been identified that  are clearly the predominant causes of difficulties that   our members are experiencing, and acting together and with other factors, have played a significant role in creating the situation  we now find ourselves, which we believe has reached a crisis point. 

Some of these factors are very directly linked to the economic meltdown which we have been living with for the past two and a half years, and some have been around for a lot longer, but the effects are now being exacerbated by  extremely lean times..

Availability of Work – Access to Credit

 With the global economic meltdown affecting all aspects of economic activity, the demand for building work, whether it be for a new development or for work on existing building stock, has dropped dramatically.  We are of the opinion that, although the appetite on the parts of potential clients  have waned significantly in these times, those who are and would be willing to procure construction services are hampered due to the lack of available credit from financial and lending institutions. The general risk aversion by the financial sector in light of the fallout from risky lending practices, predominantly overseas, has further tightened the availability of credit to both commercial developers and individual residential consumers. As a general observation, the National Credit Act was the initial factor curbing lending practices.

We have identified two key areas of engagement in this regard, and    need to point out that it has been difficult to secure meaningful discussion with the relevant role players.  Firstly, we wish to engage more thoroughly with the formal banking sector as well as Treasury, with a view to gaining insight into the overall strategies with regard to lending.  The correct information would allow us to appropriately inform and advise members, assisting them with their tendering and negotiation strategies with developers. 

The second aspect is the  lack of clarity around the supposed R1 billion State Guarantee Fund which was aimed at providing security for the affordable housing segment of the residential market.

Access to this critical information could  go a long way to reducing sudden and drastic job losses and assist in  avoiding the risk of insolvency due to cash flow pressures.

Public Sector Procurement – Uncertainty as to the available budget

Over the past four years or so we have noted the often repeated statements that Government has earmarked in the order of R800 billion for infrastructure development.  Once again we have found it exceedingly difficult to obtain any definitive explanation of the claims.  In our summation, and this is backed up by similar views from other credible role players, this is a global figure that would include infrastructure spending across a range of Government Departments at all three tiers of Government.  If there is a holistic understanding of these plans, which includes construction procurement, it is  once again  essential for this information to be filtered through to the industry for strategic short, mid and long term planning.

Public Sector Procurement - Uniformity and Transparency

There is very little uniformity in terms of requirements from different public sector clients with regard to tendering and the awarding of work.  The issue of BBBEE and preferential procurement is applied in different ways. The industry has spent an enormous amount of resources to support the Construction Charter and attain compliance with the objectives of the BBBEE Act and codes of good practice.  This mechanism is often being circumvented with preferential procurement being applied in what appears to be an uncoordinated and haphazard way – in fact tender awards often bear little resemblance to basic tendering good practice.

In this regard we must acknowledge the good work being done by the CIDB and look forward to soldiering on together in our efforts to level the playing fields. 
 
Security of Payment

This is another   ever-green issue, but again being exacerbated at an appalling rate, by the conditions in which we find ourselves.  We have initiated a process which we would like to see culminate in legislation ensuring security of payment, as is happening in Australia and other parts of the world.  The objective of such legislation is to aid any party that is battling to obtain payment for work executed, and for which payment is being unduly withheld.  This will require a concerted effort by all role players, and we look forward to engaging on this in due course. 

Sustainability and Availability of Resources for Development

Our industry was thrown into turmoil in 2007 when electricity suppliers embarked on their load shedding program due to the constraints and availability of electricity supply.  We know that the pressure on electricity supply has eased for a number of reasons, not least of which was the fact that economic activity has dropped dramatically since then.  We are led to believe that any significant increase in economic growth will bring us back to a situation of load shedding which will dramatically impact on activity in building sector.   The fact that, as far as we can see, there will be constraints on the provision of electricity supply to new developments is of grave concern.  The plans to augment the electricity supply will really only start showing  results in a few years time, and we desperately need to engage with electricity suppliers and local authorities again, to obtain sufficient information for our members and developers to plan accordingly and negotiate a way around these  crippling constraints. 

We are reliably informed that availability of water supplies is also an issue, and therefore we need to proactively engage with role players in the know, in order to avoid ending up in a situation where development is curbed suddenly and drastically due to pressure on the water supply system.  Other essential infrastructures are also being red flagged in this regard where sanitation and transportation pressures need to be understood and debated in order to ensure a smooth pipeline of work extending into the mid and long term. 

It is essential to emphasize that some of these areas, namely financial sustainability, electricity supply, municipal infrastructure, and public sector procurement issues exist as challenges, independently from the tough economic conditions as a result of global recession and slow recovery.  These issues are being highlighted and brought to the fore, and their impact even more critical, through   current economic conditions.  Economic recovery will not make these issues go away and they need to remain on the agenda of all role players.

It is not in the interest of clients, small or large, private or public, to have a building industry that is uncertain about its prospects for survival. Early casualties of such uncertainty are brought about by the dramatic job losses, which we have already seen, resulting in a loss of valuable skills at all levels of the workforce.  This in turn impacts on safety, productivity and workmanship.  The end result is that the economy is further strained and we end up with a built environment that will witness increasingly lower standards.  Such a situation will be a formidable embarrassment, given what we all know the industry is capable of; what we all know this country needs in terms of development and stability, and the core role the construction industry plays in the economy of our country!     

Our appeal here today, is for all to commit to being more forthcoming than they have been in the past.  Difficulty in obtaining holistic information is a challenge for all of us, and it is only through widespread and coordinated communication that we will find the solutions that we all need.  These issues impact on everybody.

We would like to propose establishing an Industry Forum to meet on a regular basis of three to four times a year to discuss and pursue industry issues of common concern, with the intention of effectively communicating with Government to achieve common and beneficial ground for all concerned, and particularly directed to development, employment and the economy. With your agreement we will extend an invitation to representatives nominated by the various sectors attending this Crisis Summit, and to any of those who were not able to be here, but would wish to participate in such Forum.

One of the prime objectives of today’s Summit is for role players to share with each other their understanding of some of these issues.  If we can walk away from today’s session with insight and information, from the point of view of different role players, then we will be on track to start engaging with each other with a view to finding solutions. 

Thank you.

Jean-Marie Talbot
President
MASTER BUILDERS SOUTH AFRICA
9 February 2011