Struggling construction sector needs help from the state

Government intervention is needed to save the ailing construction industry and the jobs it creates, according to head of the ANC’s economic transformation subcommittee Enoch Godongwana.

He said the sector was devastated after a five-year slump, especially in civil build projects, which were key to infrastructure-induced job creation and economic growth. Industry Insight’s senior economist David Metelerkamp said last week’s budget gave little hope of improvement.

He said the downward spiral began in 2014, and was exacerbated by government underspending on certain programmes that affected construction. In 2018 alone, it had spent R78 billion, instead of R86.9 billion for transport – a drop of 11%. Water spend was at R35.6 billion, instead of R38.3 billion, a decrease of 7%, and power was down from R62 billion to R54.6 billion, or 12%.

He was concerned about infrastructure spending as announced last week in the budget, which was below par, despite President Cyril Ramaphosa’s recent state of the nation address citing the importance of capital/infrastructure spending.

“Overall allocations for infrastructure spending increased from R834.1 billion to R864.9 billion, which is an increase of only 3.7% in nominal terms, which will do little to stimulate the overall environment from current levels.

“It’s important to remember that this is off the back of really massive declines in spending after it was slashed in last year’s budget from R947.2 billion to the R834.1 billion quoted.”

This was one of the main drivers of the disarray the civil construction sector was in. This year’s figures suggested there would be some stabilisation in the civil sector, he added.

Godongwana said they had noted the plight of firms such as Basil Read, which had to be placed under voluntary business rescue, and others such as Aveng and Group Five, that were being squeezed by the economic conditions.

He said this was contrary to the spirit of the ANC’s national development plan (NDP), which cited infrastructure as a catalyst for economic growth and job creation.

Metelerkamp also raised the problem of collusion, among other things, for the loss of trust between big contractors and government. There was also the objective of transformation, which saw the government break up big projects into smaller parts to accommodate new and smaller entrants.

Metelerkamp said industry saturation was a problem. There were too many contractors in the game, so some lost out. Godongwana said they were aware the slowdown in the infrastructure build had a serious negative impact on the industry.

“Government has to do something; it’s an important sector. We have to ensure there is institutional capacity to deliver at all levels if our NDP goal of using infrastructure to create jobs and grow our economy is to be realised,” he said.

“As we succeed in reconfiguring the state, improve capacity to deliver, stabilise state-owned enterprises and deal decisively with corruption, we expect incremental increases of resources to go to infrastructure.”

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