Wishing you a better new year!

By Eamonn Ryan

In Q3 2018, the FNB/BER Building Confidence Index registered a rock-bottom level of 29 and revealed a particularly sharp drop in subcontractor confidence. Does this leave much hope for 2019? 

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Chris Campbell, CEO of CESA.
Image credit: Eamonn Ryan


Much has happened since that Q3 index rating, says Chris Campbell, CEO of CESA: “Our most recent survey of members suggests that in 2019, we may face a gradual upswing, following the announcement by President Cyril Ramaphosa of the establishment of a R400-billion infrastructure fund, which recognises the place of infrastructure to support that. What came out of the Presidential Jobs Summit, which CESA attended, was that there is clear agreement between government, business, and other social partners such as trade unions and communities within Nedlac. Much as it appeared ceremonial, there was a huge amount of substance behind that commitment, which supports the thinking that we can look forward to what next year may hold.”

Jobs do not happen in isolation, he points out, but on the back of actual economic activity, and there has been a commitment to a number of infrastructure projects. “One is to develop more agri-parks, the idea being to establish forestry plantations on disused mines, which has the dual advantage of dealing with the acid drainage problem of mines (as eucalyptus in particular is not discriminating in the quality of water it uses), as well as supporting the forestry industry; and the ECIC (Export Credit Insurance Corporation) is extending its underwriting of liquefied natural gas (LNG) projects to Mozambique to the tune of USD1.2-billion, with a requisite requirement to involve South African companies at least to the extent of USD600-million of the LNG work. This is work that is right up the alley of our member companies,” says Campbell.

Cause for hope, he notes, is a strong sentiment to improve municipal infrastructure, with businesses and the financial sector looking at how they can make sensible investments to improve capacity at municipal level. “That creates an opportunity for us to strengthen our partnership with our clients more directly through improving capacity among municipalities: assisting in the delivery process as well as upskilling for improved capacity among such technical practitioners that municipalities may have. We will be coordinating this with the Municipal Infrastructure Support Agency (MISA), which supports individual municipalities,” explains Campbell. Municipalities enjoy autonomy in terms of the responsibility borne by the three tiers of government.

“It is our hope that with the help of government and industry players, we can unlock the rest of the R128-billion worth of national road projects that are sitting at Sanral right now, not able to be rolled out because there’s a general anti-toll sentiment in the country.”

Campbell cites another project that may create jobs and infrastructure as the growth of the waste economy. “This all requires the development of infrastructure for commercial and bulk industrial recycling: products like ferro-chrome slag will require input from practitioners from our industry.”

Is this cause for optimism?

Campbell thinks so, but is tempered by the fact that we are in the lead up to the 2019 election, and there will be some indecision ahead of that. “But there’s a sense of hope now which didn’t previously exist a year ago [in October 2018].”

He gives an anonymous anecdote of how bad things have got: “There was recently a tender by one municipality to develop their own bus rapid transit (BRT) system. They had done no upfront work and didn’t even know what land would be appropriated. The response from the municipality to queries by interested contractors was ‘We want to transfer the risk to the service provider.’ We informed them they were not transferring the risk: all that would happen is they would get tenders on the one hand for R5-million with a list of qualifications, and on the other hand, tenders of well above R100-million — and they would not be able to make sense of these wildly disparate bids. We suggested they withdraw the tender in that form and rather commission a consulting engineer to scope the preliminary phases and feasibility. They were wanting to go straight from concept to committing the municipality to full design and come up with a construction budget — but it was completely open-ended,” says Campbell.

“Much depends upon when the election is held in 2019, and how long the period of uncertainty will continue. If dragged out, we might well lose all of the opportunity of 2019. On the R400-billion stimulus package, there is not sufficient clarity as to whether it is new money or repackaging of what’s been talked about previously, but at a minimum, it is an endorsement of the fact that infrastructure development is recognised as a top priority. I know there is huge appetite from the private sector and banking sector for infrastructure — and we need to stimulate our economy first before looking to foreign investment. That’s why it’s important to get the elections behind us, establish political certainty, and create a continuum of positive trajectory.

“My message to the engineering industry is: 2018 has been a frustrating year, but at least there’s hope whereas this time last year, there was a sense of hopelessness. For our membership, it’s been a mixed bag — some have done well, and others not. But most are looking cross border for new opportunities. The local market should pick up once the elections are behind us.”

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Jason Muscat, FNB senior industry analyst.
Image credit: Biznews


Jason Muscat, FNB senior industry analyst, adds: “We remain downbeat on the prospects for the construction sector, civil in particular, as there were few concrete plans and timelines outlined in the stimulus package. While we do think the focus on infrastructure is correct and sorely needed, Treasury does not have the fiscal headroom to finance many of these proposed projects.

“The R50-billion allocation will be budget neutral, taking from under-performing departments, but the scale of investment required to revive the domestic civil sector is far beyond what has been proposed. I am afraid until we know more, we have to work with the information at hand, which thus far is still not concrete. Fundamentally, we need an economic growth catalyst to sustainably grow the sector and provide much-needed infrastructure. Our assumption, even with the proposed stimulus, is that the economy will continue to muddle along until there is greater policy certainty, and until the country’s finances recover sufficiently to begin investing in growth-enhancing and job-creating infrastructure,” says Muscat.

The dearth of work in 2018 wreaked havoc on South Africa’s large construction companies: eight years ago, Aveng, Group 5, and Basil Read were worth R31-billion. Today, they are valued at around R350-million and Basil Read is in business rescue. Nonetheless, there are signs that the local construction industry is picking up, but we need to see many more real opportunities if the embattled sector is to survive 2019.

High hopes of Sanral

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Sanral’s CEO, Skhumbuzo Macozoma, speaking at the SAFCEC Annual National Conference in October 2018.
Image credit: Stop Over


Skhumbuzo Macozoma, CEO of Sanral, speaking at the SAFCEC Annual National Conference in October, provided an outline of the hold-ups in the project pipeline. “Supply chain reforms in government have sought to strengthen good governance in procurement of infrastructure projects. However, there are serious unintended consequences that must be addressed with National Treasury, including project delays and cancellations, and conflict with construction general conditions of contract. This is becoming a serious issue that is threatening to hamstring government from releasing tenders to the benefit of industry and the delivery of infrastructure.”

He noted that the impasse with National Treasury had led to 50 of Sanral’s contracts not proceeding in the previous financial year, and that this would affect the construction industry with an 18-month lag in contracts awarded, as most of these delayed contracts are still in a design phase as a result. Things should return to normal after that, Macozoma hopes, “unless of course what the President was saying holds true: that the capacity in the country will have been reduced by then, and the industry will not be able to absorb the projects and we’ll be looking outside.”

Macozoma shared that Sanral has awarded two mega projects on the N2 Wild Coast at a cost of R3-billion, with a further seven packages soon to be tendered for a budgeted amount of an additional R6-billion. “It is our hope that with the help of government and industry players, we can unlock the rest of the R128-billion worth of national road projects that are sitting at Sanral right now, not able to be rolled out because there’s a general anti-toll sentiment in the country.”

Nonetheless, the current Sanral 2018/19 non-toll budget allocation amounts to R54-billion, plus another R15-billion for the toll portfolio that will go towards traditional maintenance and priorities capex.

“We are the stimulus before the [Ramaphosa] stimulus package,” said Macozoma.

Other projects that appear to be progressing is the upgrade of the container terminal in the Durban harbour. There are also indications that the second phase of the Lesotho Highlands project is at last getting into gear.


 

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