From a global consulting engineers’ perspective, construction industries globally suffer the consequences when large construction companies close down.
Consulting Engineers South Africa (Cesa) says this is also becoming a concerning trend in South Africa, with larger construction companies struggling to remain competitive affecting the industry.
The factors affecting construction companies negatively includes corruption – a prevalent topic in South Africa’s current political and economic climate – and work not being readily available, owing to delays in major projects, especially those of State-owned entities. Companies are also “scoring own goals” when they do not adequately perform according to contract conditions. This has both a financial and reputational impact on them and compromises their ability to compete for projects in the future, states Cesa CEO Chris Campbell.
For example, he says penalties for the late delivery of projects impact on profit margins of construction companies and it is possible for them to end up running a project at a loss.
He adds that there is concern regarding whether this trend will continue, and what the consequences may be, should too many of the larger companies or global companies close down.
Campbell says this poses a problem as large construction companies provide skills development and opportunities for accelerated transformation of the industry.
“Local, large companies closing down may lead to companies from the Far East, particularly China, offering capital and construction services for South Africa’s megaprojects, which is bad news for local employment and local economic development.”
Campbell suggests that the overarching solution to this challenge would be to build a stronger relationship between business and government. Current low levels of investment in capital projects lead directly to higher levels of unemployment.
“We want to encourage our consulting engineering member firms to be more involved in business groups that lobby for more political certainty, which will also increase investor confidence. “Without certainty, the dynamic is not going to change, growth will not happen.”
Meanwhile, Cesa released its Bi-yearly Economic Capacity Survey (Becs) for the January 2017 to June 2017 cycle earlier this month.
This survey is open to participation from Cesa’s 540 consulting engineering member companies and provides an industry outlook relevant for the consulting engineering industry.
The Becs survey provides an overview of national and international trends relating to the economic climate. It also provides an industry outlook and local market profile, while highlighting prevailing issues and industry challenges.
Campbell says the current report highlights the increasing offtake of commodities in South Africa driven by demand from India, which is beneficial for the economy and will ultimately increase available spend for major construction projects.
However, State-owned utility Transnet’s projects have been deferred, owing to the demand for iron-ore and coal tapering off because of China’s tempered growth rate, which is pegged at 6.7% last year and this year.
Campbell mentions that India’s economic growth has increased from 6.8% last year to 7.2% this year, which bodes well for South African commodity markets and related infrastructure industries in the country.
Further, he says South Africa’s growth decreased from 2% in 2015 to 0.3% in the technical recession of 2016, but has thankfully increased to in 2017.
“However, the problem we have is that the outlook is still not as positive as it needs to be. “The only certainty we have is political uncertainty, which has weakened consumer and business confidence,” Campbell concludes.