Government and the seven leading construction companies reported further progress on Monday in the implementation of a voluntary agreement that seeks to materially accelerate the racial transformation of the South African industry and raise the combined revenue attributable to black contractors to as high as R27-billion a year within a seven-year period.

The “ground-breaking” deal is the culmination of more than three years of discussion, initiated in a bid to reverse the tarnished reputation of the industry after findings of widespread collusion, which culminated in 15 firms paying fines collectively worth R1.46-billion in 2013.

Following the signing of the agreement in October, companies have been given until the end of March to finalise transformation pledges, which can take the form either of equity transactions, or partnerships with emerging black contractors that will generate value equivalent to 25% of the large contractor’s yearly turnover.

Murray & Roberts (M&R) has already announced that it will sell 100% of its infrastructure business to a consortium led by black investment company Southern Palace, while Aveng is in the process of finalising the sale of 51% of Aveng Grinaker-LTA to a black-women-owned company called Kutana Construction.

Three other companies – WBHO, Stefanutti Stocks and Raubex – have indicated that they intend pursuing partnerships with emerging contractors to meet their commitments, while Group Five and Basil Read are yet to confirm what model they intend pursuing to meet commitments under the so-called Voluntary Rebuilding Programme (VRP).

Should all targets be met, more that 40 black-owned firms could benefit, with the expectation that several black contractors will emerge with market values of above R3-billion over the period.

Besides the ownership and partnership targets, the companies have also agreed to contribute R1.5-billion, paid in tranches, to the Tirisano Trust, which will support various development initiatives, from the funding of bursaries for black engineering students, to enterprise development programmes and supporting maths and science education in public schools. The first R117-million payment has already been made, with the second tranche due in July.

Delivering an update on the VRP, in Pretoria, on Monday, Economic Development Minister Ebrahim Patel described the agreement as a “ground-breaking model of effective and massive transformation” and indicated that other sectors might be able draw lessons from the agreement as they seek to align with government’s vision for “radical” economic transformation, as outlined by President Jacob Zuma in his recent State of the Nation address.

The Minister also confirmed that implementation would be the subject of ongoing monitoring and evaluation, with those failing to honour their commitments facing “enormous” financial penalties, in most cases running into billions of rand.

Flanked by Ministerial colleagues Gugile Nkwinti, Thulas Nxesi and Dipuo Peters, as well as Southern Palace CEO Lucas Tseki and WBHO chairperson Mike Wylie, Patel announced that an industry sector summit would be convened within four months to draw a wider group of companies into the construction partnership.

“The industry is expected to see far-ranging changes in ownership, control and management that will bring black South Africans into the mainstream of construction and civil engineering over the next half-decade.”

INDUSTRY WILL NEVER BE SAME AGAIN

Wylie added that the “industry will never be the same again”, adding that, while some shareholders had found the concept difficult to digest, the seven companies were convinced that the VRP would deliver a more inclusive and sustainable industry in the longer term.

“About three-and-a-half years ago we started this process and really did start from the fact that, while we thought our fines with the Competition Commission were too high, government definitely thought they were too low. We didn’t want to argue about this, because as civil engineers our job is to create infrastructure and alleviate poverty – that’s what we’re trained for – and it was really important for us to be aligned and on the same side as government,” Wylie explained.

He added that it became increasing apparent that “the industry had to be more inclusive – it had to involved more black companies, with black equity ownership”, which was also the goal of the Construction Sector Charter. “But because we are working with government, because we are building the very infrastructure of the country, we had to take it a step further . . . and we are really now pushing the boundaries of black equity.”

South African Federation of Civil Engineering Contractors CEO Webster Mfebe argued that the agreement was “unprecedented”, with the construction industry having taken the concept of radical economic transformation “right into government’s court”.

Tseki said the transaction with M&R to acquire its South African-focused infrastructure businesses had been concluded at “market value” and was in line with the company’s strategy of migrating from being an investment holding company to having operational control in the companies it owns.

Tseki also shrugged off suggestions that M&R had simply exited a struggling business unit with weak prospects, arguing that, despite the current difficulties, Southern Palace was optimistic that prospects for the industry would improve both inside South Africa and in the rest of the region.

“Our idea is to become a leading, tier one, infrastructure player in sub-Saharan Africa. This is the same team that built the Gautrain infrastructure, it’s the same team that did the Dubai airport. We needed to ensure that we keep and maintain that capacity, and that expertise, and take this 115 years of heritage to greater heights.”