There is good news and bad news for South Africa’s beleaguered construction industry in the current data on civil contract awards and the value and number of projects put out to tender.
A report by Industry Insight, which analyzes the construction market, said the nominal value of civil contracts awarded increased by 36% in June, after the same strong growth in May, and was 25% higher in the first half of 2022.
The firm said this followed an improvement in tender activity for most of 2021, but stressed that the industry was recovering from a very low base.
“In view of the rapid dispersal in [prices of] of construction materials in the current year, the real value of concluded civil contracts increased by 12% in the first half of the year,” the report says.
Industry Insight also reported that the total settlement value of rand tenders published in June 2022 was down 11% compared to June 2021, following a reduction of more than 30% reported in May 2022.
“The total value of tenders fell by 25-30% in the first six months of 2022, while the number of civil projects put out to tender also fell by 40%,” it said.
“This puts more competitive pressure on tender prices and profitability as job opportunities in the sector shrink.”
It also negatively affects the future prospects of the construction industry.
Activity is still uncertain
Consulting Engineers South Africa (Cesa) CEO Chris Campbell said on Monday that many construction companies, particularly large firms, are busy enough.
But he said the job outlook is uncertain in the short term, especially because it depends on the availability of funds for the projects.
Campbell said it’s also important to be aware that the consultant’s work is in the design phase and sometimes it takes several years before those projects move into the construction phase.
Dr Herbert Joynt, program manager at the South African Center for Infrastructure Excellence, told a National Council of Provinces Select Committee last week that it was clear from the GDP figures for the first quarter of 2022 that the construction industry was not performing well.
Joynt said this is the result of negative economic growth and insufficient construction of housing and construction.
Read: SA to face $4.8 trillion infrastructure investment shortfall by 2030
Fewer delays
Industry Insight reported an improvement in the rate of project delays in the civil industry based on the number of tenders announced.
It says that by mid-2021 the number of delayed projects has fallen to below 6% from more than 16% in 2009/2010.
However, the rate of deferrals has gradually increased to more than 8% over the past three months “as weak economic growth slows the government’s infrastructure agenda.”
“Projects are put on hold for a variety of reasons, but financial constraints are often to blame.
“Community interference is another key factor delaying projects,” it said.
Encouraging signs
Industry Insight highlighted some interesting developments in July.
These include:
-
Home Affairs Minister Aaron Motsoaledi’s announcement of a 6 billion rand overhaul plan for South Africa’s six border posts.
-
Creation of a new National Water Resources Infrastructure Agency to plan and implement a number of major projects to increase the national water resources infrastructure.
-
Transnet’s announcement that it is investing R44 billion in ports over the next five years, including a major upgrade of the Port of Durban to more than triple container capacity.
-
Treasury announcements that pension funds will be allowed to invest 45% of their capital in infrastructure projects from 2023 following the publication of final amendments to Regulation 28 of the Pension Funds Act.
-
President Cyril Ramaphosa’s Renewable Energy Plan, which includes important new ground-breaking initiatives.
Regarding the creation of the National Water Infrastructure Agency, it said aging infrastructure is starting to cripple areas as the effects of lack of maintenance are felt, citing an area in Sandton where residents have recorded more than 20 major pipe bursts since October 2021. .
Industry Insight said amendments to the Pension Funds Act “will be an interesting development going forward”, but warned that pension fund administrators may not be fully qualified to work on infrastructure projects.
Commenting on Ramaphosa’s renewable energy plan, he described the inclusion of the private sector to restore some sort of balance to the current energy supply chain as a “major milestone”.
Read:
However, he warned that many projects in Bid Window 5 Renewable Energy Independent. Power producers’ procurement program may have to be revised based on available grid capacity.
Industry Insight said the Northern Cape proved to be a popular location as it has the highest levels of solar radiation in the country, but warned that the province currently has zero grid capacity available, making any new project installed somewhat impractical.
Campbell said the backlog of infrastructure projects is “like a tsunami” of potential work.
He said many government organizations are now looking at how they are going to catch up and close the backlog.
Campbell said Rand Water, for example, has multiple projects and a backlog of more than five years, while the same can be said for Eskom, which, along with the need to bring private generators on stream, must simultaneously address transmission capacity. bottleneck.
He said Sanral (South African National Roads Agency) also has a huge backlog and problems and now it is inheriting all the provincial roads in the North West Province.
“Transnet Rail is several years behind schedule and we have missed another commodity boom. Iron [Passenger Rail Agency of South Africa] now it is in such a state that it will not be possible to restore it.
“A lot needs to be done. If we can come together and implement all these things, it will be a step towards our economic growth,” he said.
Campbell believes that with so much work to be done, the open tender process needs to be re-examined.
