tough construction

South Africa’s construction industry is in a perilous state. A soft economy, rampant collusion and the flight of specialised skills have all negatively impacted an industry that was once a major contributor to the country’s GDP.

Over the past 12 months, the FTSE/JSE Africa Construction and Materials Index has lost 27 percent of its value. Key construction companies, like Basil Read and Group Five, have been forced into business rescue, and multi-million rand infrastructure projects have been left partially completed.

A rapidly declining construction industry means thousands of jobs are at risk. It also means the country’s capacity to build infrastructure is being compromised.

Poor economic performance

A 12 percent drop in government infrastructure spend, year-on-year, is one of the main reasons behind the industry’s precipitous decline.

In Engineering News, the South African Forum of Civil Engineering Contractors (Safcec) reports that the nominal value of contracts also plummeted by 15.3 percent in 2018.

Due to a stuttering local economy, government has been forced to tighten the purse strings. The knock-on effect on the construction industry has been significant.

Low business confidence

Business confidence in the construction industry is at an all-time low. Policy uncertainty and labour issues aren’t helping.

In a survey conducted by the Bureau of Economic Research in the first quarter of 2019, 90 percent of respondents indicated they were dissatisfied with current business conditions in the construction industry.

Collusion and bid-rigging

Collusion and anti-competitive behaviour have weakened confidence and undermined competition.

According to evidence presented at the Competition Commission’s tribunal into construction cartels, at least 21 companies, including a number of the country’s top construction businesses, have had some involvement in bid rigging.

More than 300 projects (worth approximately R47 billion) were affected, including major undertakings like the Gautrain, the Lesotho Highlands Water Project and several World Cup football stadia.

Green shoots

Despite all the setbacks, the future of the industry is not as dire as some sources might have us believe.

The creation of a R400 billion government Infrastructure Fund by President Ramaphosa is good news for the industry.

Also good news is that corruption in the industry isn’t simply being ignored. The Commission has doled out fines to the value of R1.46 billion to 15 major construction companies.

Above all, demand for new infrastructure and roads, and for on-going maintenance, remains extremely high in South Africa. In this context, construction businesses that operate efficiently and remain agile have great potential.

Investing in reconditioned construction equipment

Investing in core business assets that offer high performance at low cost is one of the keys to remaining agile, despite tough times for the industry.

Expertly rebuilt or reconditioned construction equipment can provide the same performance and lifespan as brand new equipment.

At KH Plant, we specialise in restoring Caterpillar 140G, 140H and 140K motor graders and components to as-new condition – so you can get the benefits of a new motor grader at a fraction of the cost of a new machine. Contact us for more information or to discuss your needs.

Contact us for more information