Despite a slowdown in investment by government and general economic conditions not facilitating growth, expectations as reflected in the consulting engineering industry’s confidence levels for the first six months of this year remain positive, reports Consulting Engineers South Africa (Cesa).
Releasing the results of its bi-annual Economic and Capacity Survey for the June to December 2017 period, Cesa on Monday said 2018 has gotten off to a relatively good start, following Cyril Ramaphosa’s swearing in as President of the country.
In the December 2015 survey, Cesa CEO Christopher Campbell had noted that industry confidence levels had fallen to their lowest level in 16 years.
“Since then, there has been good improvement with the net satisfaction rate improving to 96.3% in the first six months of 2017 and falling significantly to 54.4% in the December 2017 survey, but signs are positive for 2018,” he noted on Monday.
This, Campbell added, is despite employment in the industry decreasing by an average of 12% in the last six months of 2017, one of the biggest declines since the inception of the survey.
Gross fixed capital formation (GFCF) fell by 3.9% in December 2017, the third consecutive contraction, following contractions of 2.1% and 3.9% in the second and third quarters of 2017, respectively.
GFCF as a percentage of the gross domestic product (GDP) averaged at 9.5% in 2017 overall and was 9.3% in the fourth quarter.
The National Development Plan (NDP) does have what Campbell says seems to be a somewhat unachievable target of 30% contribution of GFCF to GDP by 2030.
“All economic indicators currently suggest that investment in relation to GDP is likely to slow over the medium term, owing to slower government spending, financial constraints experienced by State-owned enterprises and continued weak private sector confidence.”
However, Campbell cautions that regulatory issues, including the procurement of consulting engineering services, remain one of the biggest challenges faced by the industry.
Procurement is currently based on price and broad-based black economic empowerment points, with functionality or quality having a minimum threshold, thereby being largely price driven.
This is affecting tender prices, he explains, as firms sometimes tender below cost in view of the diminished availability of projects.
A further challenge to the industry is to find a way to standardise the procurement procedures applied by the different government departments.
“Unlocking greater private sector participation is seen as a critical element to fast-track delivery, which will support engineering fees and as such engineering development in the industry.
“Government must create an environment for the private sector to play a much bigger role in infrastructure delivery. Many of the projects highlighted in the NDP can be carried out by the private sector through public–private partnerships,” he averred.
Service delivery, especially at municipal level, remains a critical burning issue.
The consulting engineering industry is further threatened by incapacitated local and provincial governments, Campbell notes.
“As major clients to the industry, it is important that these institutions become more effective, more proactive in identifying needs and priorities and more efficient in project implementation and management.”
Fee earnings in the last six months of 2017 increased by 2%, compared with the first six months of 2017, which was relatively unchanged compared with the same period in 2016.
The increase, Campbell said, was better than the expected 0.4% increase as reported by firms in the previous survey with regards to the outlook for the last six months of 2017.
Larger firms reported an increase of 4%, while earnings for medium-size firms were 27% lower. Smaller firms saw the biggest increase of 17%, but microenterprises saw a decrease of 4.1%.
Earnings, Campbell said, are expected to decrease in the first half of this year, with all size firms expecting a decrease of some sort.
He further added that outstanding payments remains a serious issue, having a broad-based effect on firms operating in the industry.
After having shown some improvement in the December 2015 survey, the percentage of fees outstanding for longer than 90 days as a percentage of total estimated income (including late payments) deteriorated to an average of 25% in the last six months of 2017.
It is estimated that around R6.6-billion in earnings is currently outstanding after the 90-day period, the survey found.
In terms of industry transformation, Campbell stated that the appointment of black executive staff measured by the contribution of black executive directors, nonexecutive directors, members and partners as a percentage of total executive staff, increased slightly to 41.5% from 37.4% and 45.7% in the previous two surveys.
The appointment of women at an executive level decreased to 11.9% from 12.8%, and remains below the 13.6% in the June 2016 survey.
Of the total women employed in the consulting engineering industry, the survey indicates that 2.5% were reported at an executive level, up from 1.6% in the June 2017 survey.
In terms of human resources, the survey found that employment decreased by an average of 12% in the last six months of 2017 to an estimated 21 369 employees in the industry, compared with the first six months of 2017, following the 4% increase reported in the previous survey.
This is one of the biggest declines since the inception of the survey and represents a decrease of 8.5% compared with the same period in 2016.
“The number of firms looking for engineers decreased to 51.7% from 67.3% in the previous survey, with a notable decrease in demand for technicians to 1.9%, from 73.4% in the previous survey. Demand for other technical staff also decreased markedly to 3.7% from 75.1%, while demand for technologists decreased to 45.3%, from 71.8%,” concludes Campbell.