The South African construction industry landscape

The construction sector experienced a decline circa 2016 and has since shown very little recovery, which has contributed to the folding of several JSE-listed companies. The sector recognises that the anticipated recovery cannot be achieved through a project-by-project approach. Instead, it requires a long-term pipeline of infrastructure development.

The sector employs between 1.1 and 1.2 million people and has already bled 100 000 jobs since 2019.

In his budget speech on 18 April 2023, MEC for Economic Development, Tourism and Environmental Affairs, KwaZulu-Natal stated: “The Department fully recognises the role of infrastructure in driving economic development. Consequently, a lot of infrastructural projects have received substantial budget allocations for implementation in 2023.”

At a media briefing on 20 August 2023, Sihle Zikalala, Minister of Public Works and Infrastructure stated: “As part of accelerating the sector contribution to the country’s Economic Reconstruction and Recovery Plan, the MinMec meeting has endorsed the transformative Construction Industry Recovery Plan (CIRP) which provides a focused approach for the inclusive development of the construction industry.” The CIRP is a construction industry-wide plan which enables a focus on the entire infrastructure delivery and maintenance value chain. Public sector capacity, failure of businesses and availability of credit are also highlighted in the Construction Industry Recovery Plan as a challenge.

Windapo and Cattell (2013) looked at public sector capacity, the mismatch between available skills and required skills, access to affordable mortgage/credit and interest rates, high enterprise failure/delivery capacity and performance, increases in the costs of building materials, etc. as challenges facing the South African Construction Industry.

The Minister of Public Works and Infrastructure recently said that poor project preparation is undermining government’s efforts to use infrastructure development to grow the struggling economy. He stated that an additional R1.6 trillion is required in public sector infrastructure investments by 2030.

In line with his statement acknowledging the role of his department, MEC Siboniso Duma announced projects for implementation, viz. The Ndumo Retail Centre, Durban Waterfront and KwaZulu-Natal Regional Airport amongst others.

He announced that work on the Ndumo Retail Centre in the Umkhanyakude Municipality would begin in August 2023 after a long delay. The project, valued at R 150 million, would receive funding of R 18 million.

With the view of stimulating tourism in KwaZulu-Natal, the Department of Economic Development, Tourism and Environmental Affairs was entering into a four-way memorandum of Agreement with eThekweni Municipality, Transnet and The International Development Finance Club (IDFC) to formulate, design and implement the Durban Waterfront Precinct.

The 2023/24 fiscal year would also see R7 million allocated towards the enhancement, operationalization, and efficiency improvement of KwaZulu-Natal’s regional airports in Pietermaritzburg, Margate, Ulundi and Mkhuze. It recognised that these airports cannot be viewed in isolation and that their economic impact extends beyond the airport’s boundary because they act as an enabler for business and tourism to be conducted.

In its Construction Industry Indicators Summary Results, the CIDB notes issues of concern with regard to tender documents and specifications and the management of change orders as a reflection of the procurement capability of clients and their agents. Public sector capacity or lack thereof, their cumbersome processes and backlogs could be seen as a key constraint to infrastructure delivery and sustainable growth. It is indeed an anti-climax each year when unspent funds allocated for much-needed development are returned to the fiscus as a consequence of poor planning and execution.

 The dearth of skills has been continuously highlighted for decades. This is notwithstanding the fact that hundreds of millions are spent annually on skills development. This leaves us with two quandaries. The first is the high number of job seekers who have little or no education. Secondly, we have those who have received an education but have not been adequately prepared to enter the job market or they possess qualifications that are not in demand.

Developers and purchasers have for over a decade now, decried the stringent criteria set by lending institutions. High interest rates have also made borrowing unaffordable in many instances. These hindrances to funding have also stymied much-needed development.

The high rate of enterprise failure is also of concern. This phenomenon affects the full spectrum of business from the SMMEs to JSE-listed companies. The consequences of these failures range from job losses to incomplete projects.

Companies tendering for projects have also lamented the ever-increasing costs of construction materials. Close attention is paid to the Construction Material Price Indices. Of concern is that these increases have consistently been above the inflation rate. These increases have had a negative impact on the cost of construction, increased the complexity of tender processes and have made it less affordable to deliver projects.

Government has indicated that it is committed to using infrastructure projects to boost the economy. However, more collaboration among stakeholders is required to overcome serious challenges such as skills shortages, increasing construction material costs and insufficient access to credit.

Victor Smith

Membership Manager

Sources:

Construction Industry Recovery Plan (CIRP) - 31 July 2023

FNB/BER Index - 7 September 2023

2023/24 Budget policy speech delivered to the KZN Legislature by MEC for EDTEA, Mr Sibonoso Duma on 18 April 2023

Journal of Construction in Developing Countries. The South African Construction Industry: Perceptions of key challenges facing its performance, development and growth. Windapo and Cattel (2013)