President Cyril Ramaphosa’s announcement following his latest investment conference that “cranes and construction equipment are set to appear countrywide” has been met with deep scepticism by the construction industry.
“We’ve had these promises before, and we’re very sceptical,” says Werner Jerling, vice-president of the South African Institution of Civil Engineering (SAICE). “We’re not experiencing it; we’re not seeing it in our towns and cities. What we’re still seeing are many contracting companies that have spare capacity out there. That’s what we’d like to see filled, and it’s not happening.”
South Africa has an infrastructure backlog of more than R400bn. “We must go beyond extravagant promises of infrastructure development to actual execution of sustainable projects,” he says.
Ramaphosa announced that since the first investment conference in 2018, there’d been pledges of R2-trillion which would see the construction of infrastructure booming. But the only number that matters for infrastructure development is gross fixed capital formation, and that’s not happening.
“Gross fixed capital formation is the lifeblood of a country,” says Jerling. In South Africa it’s below 14% of GDP. Ramaphosa recently acknowledged that achieving the National Development Plan’s GFCF target of 30% by 2030 would require “sustained, collective effort and productive domestic investment”.
“The president and other public figures are at least starting to speak this language,” says Jerling. “I’m excited about that because we’re starting to see it come out in the public narrative — how important infrastructure spending is, how it drives the economy, how it drives jobs. Those are all the right words; it’s how do we translate those into action.”
In many countries with growing economies, the public sector accounts for more than 70% of infrastructure spending. In South Africa it’s around 28%. This translates into gross fixed capital formation by the government of below 5% of GDP.
“We have government programmes and strategy documents that tell us how important this is. It’s about actually seeing the spending coming through in the national budget and seeing the construction sector delivering infrastructure projects to South Africa Inc — which we’re not. The parties that have to play a role are the government as our client in the public sector and the private sector.”
The investment summit has highlighted how many private sector companies are starting to invest, but they’ve always been there, says Jerling. “It’s the public sector that we need to see coming alive again.”
There’s more than enough capacity and resilience in the construction sector, but the ability of the public sector to translate funding into live projects is constrained by having to go through a complex procurement process.
“Corruption is part of it, but primarily it’s the sheer complexity which makes it extremely difficult for accounting officers to take the funding they’ve been allocated and get it out to tender and get those tenders awarded on time.”
Tenders for urgent infrastructure projects are taking up to 18 months, he says. State-owned enterprises such as Transnet and Sanral also have complex processes but seem to be handling them better.
The construction sector wants to see that happening at municipal level and that’s the biggest hurdle. “At least we’re starting to see a number of municipalities saying, ‘We need to spend our budget’. That has to be the most important thing. There’s little sense in government making budgets available for infrastructure but they’re not being spent, or tenders are being cancelled or re-advertised.”
Regulatory uncertainty is also a hurdle, he says.
“When contractors tender, every specific client has different regulatory and BEE requirements they have to meet, and those requirements are not totally consistent.” The regulatory environment around starting and running a business is also too complex, he says. “It could be made a lot easier. There’s always room for red-tape reduction.”
The construction mafia is still a major threat to the execution of projects. Contractors and their employees are often caught in the crossfire when warring gangs attack each other. The infrastructure projects they’re doing are desperately needed and can’t be put on hold or abandoned, waiting on law enforcement to do its job.
What we don’t always realise is the terrible impact this construction mafia activity has on the very smallest contractors and emerging enterprises
— Werner Jerling
“And specifically in high-crime areas, not in the leafy suburbs. We have to put extraordinary measures in place to ensure that when those construction teams work in areas where services are arguably needed the most, there is additional protection to ensure that they can execute their projects.” Getting these cases to prosecution is complex and takes far too long, but at least they have people on speed-dial who can help in an emergency.
When he talks about contractors, he’s talking about a large ecosystem — from small contractors providing day-to-day labour and other services all the way up to listed entities that are very professional and very large.
“What we don’t always realise is the terrible impact this construction mafia activity has on the very smallest contractors and emerging enterprises, because they don’t have the resources to fight or resist.”
The cost to the economy is immeasurable — not least in terms of jobs and livelihoods — when these small contractors are forced to close rather than build their businesses and move beyond the threats they face.
Their role in infrastructure development is “invaluable”, he says. “You’re talking a whole ecosystem of service providers, from materials suppliers to subcontractors to main contractors. If the objective is to stimulate our economy by putting money into the hands of entrepreneurs that will grow their businesses, then we have to acknowledge that smaller contractors and emerging contractors are very important.
“Worldwide, a good cohort of subcontractors and growing, smaller contractors signifies the future health of the industry. We want to see those contractors grow and become more competent and more professional.”
Meanwhile, many highly qualified professionals with specialised engineering skills have left the country. “It’s about this: does the opportunity exist to execute specialist engineering projects in South Africa? We’ve seen in the rollout of renewable energy new specialist capabilities emerge among South African contractors who are now delivering services in this space at world-class standards.”
For an individual to gain specialist skills, and to go from junior to senior engineer and then to overseeing a project, one needs actual projects to work on. State institutions are contracting large projects out to foreign entities because there are “supposedly” no local skills. This is damaging the industry by denying junior engineers exposure, says Jerling.
“The core skills that come from our education and training in South Africa are there. It’s the ability to execute those skills and use them on a project where we have a problem.”
Three years ago, SAICE blew the whistle on the award by government roads agency Sanral of R6.65bn worth of tenders to Chinese contractors after promised government tenders for the local construction industry failed to materialise.
Now it looks like the local industry might be excluded from the government’s R400bn electricity transmission development programme. “We’re concerned about bringing in foreign contractors to the detriment of our South African construction ecosystem.”
According to the latest report by Who Owns Whom, the construction industry’s contribution to the economy has declined for eight straight years. “In a country that’s growing, the construction sector should be the second-highest or at worst third-highest contributor to GDP,” says Jerling. Now it’s contributing just 2% to GDP, down from 3.5% in 2018 and 4% in 2016.
“The industry is resilient and able to respond quickly in terms of adding jobs when the investment is there. But it’s a problem that so many entities have gone out of business, both listed entities and, of more concern, smaller private companies.”
Jerling likes to think things may be picking up for the industry, but with global uncertainty pushing the price of diesel up by 60%, hopes of a revival could be short-lived.
“It’s something all of us in the industry are watching with trepidation and concern because obviously the ability for contractors like ourselves to work will be constrained by a rising fuel price. That speaks to a very large percentage of our supply chain.”
