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Housing emerging as key market for S African engineering sector

Housing emerging as key market for S African engineering sector

Photo by Duane Daws

12th October 2015

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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While the pipeline of infrastructure projects promised under government’s National Development Plan remains largely empty, the country’s housing and human settlements sector is emerging as a key market pillar for the consulting engineering sector, providing around 11% of the industry’s earnings in the first half of the year, the media heard on Monday.

This represented impressive year-on-year growth on the 6% of total earnings it accounted for in the first half of 2014 and was largely attributed to a shift towards mixed-use ‘mega’ human settlement developments, as directed by government’s spatial transformation agenda.

“I’m quite excited about the housing sector,” construction market intelligence firm Industry Insight’s Elsie Snyman said during a presentation of the findings of a bi-yearly report commissioned by sector body Consulting Engineers South Africa into the state of the industry in the first six months of the year.

“We are seeing a lot of big projects, including townhouses, mixed-use developments and increased focus on ‘mega’, mixed-use development, which is like a buffet for an engineering firm.

“Private housing is also being supported by a listing of residential property funds amid a growing housing shortage,” she commented.

The commercial construction industry remained the largest source of revenue for the engineering sector – accounting for 28% of its R24-billion a year earnings – and remained bolstered by higher levels of investment in owner-occupied developments, offices and mixed-use developments.

However, these were mainly centered around business nodes in Gauteng and included retail extension developments.

Projects in Africa, which Snyman asserted still offered “fantastic” opportunities, accounted for 13% of overall earnings, while 21% of profits had been accrued outside of South Africa.

Projects offered by the private sector remained the largest earnings contributor, at 43%, while 25% emerged from local government, 14% from parastatals and 13% from provincial government.

Interestingly, Snyman noted that central government was starting to play an increasingly smaller role in terms of opportunities offered to the engineering industry, with local government emerging as a more important client.

“This increased spending by local government is creating opportunities for medium and small players, in particular and it should be increasing its role as the public infrastructure budget will increase.

“This is why it’s very important that whatever blockages there are in terms of partnerships between the public and the private sector are being addressed,” she said.

The contribution of the transport sector, meanwhile, declined from 28% in the first half of 2014 to 25% in the first half of this year, with lower spending by the Department of Transport (DoT), reduced capital expenditure by parastatal Transnet and the South African National Roads Agency Limited’s e-toll debacle limiting engineering and construction opportunities.

Developments in the water sector accounted for 14% of the industry’s earnings in the first six months of the year, dropping from 17% in the first half of 2014 and demonstrating the delay of large-scale infrastructure projects.

Despite government’s multibillion-rand renewable-energy programme, the contribution of energy-related products to earnings in the sector dropped from 9% in the first half of 2014 to 6% in the period under review, owing largely to the wrapping up of the Kusile and Medupi power projects and continued uncertainty around government’s mixed energy development plan, explained Snyman.

“There aren’t any major DoE projects coming up that will fill the gap left by Medupi and Kusile . . . [but] some of this void is being taken up by the private sector, which is spending billions on renewable energy. Even though there’s talk of nuclear, there are no set plans.

“The energy sector is not a big money spinner for the engineering industry and is constrained by policy uncertainty, the threat of expropriation and the moratorium on oil and gas exploration,” she held.

Mining’s contribution slipped further in the first half of the year to account for only 2% of overall engineering revenues and demonstrating continuing uncertainty in the afflicted sector.

Looking to the survey’s broader indicators, Snyman added that nominal fee earnings increased by around 1.2% in the first six months of the year, which was better than expected and was owing to an improved showing by the larger firms.

However, she cautioned that earnings were expected to fall by between 2% and 3% in next six months as the affect of government’s stalled infrastructure plans intensified and dampened business confidence become more intensely felt.

“Considering the trends in the industry, its likely that earnings have reached an upper turning point. Profitability remains under pressure, while an increasing number of firms have expressed their dissatisfaction with current margins.

“The majority of firms expected further weakening in profit margins,” said Snyman.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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