Public Enterprises Minister Malusi Gigaba has warned the construction industry against adopting what he describes as a “parasitic” role in government’s infrastructure roll-out programme, questioning whether the sector would choose to partner in or profiteer from the country’s development agenda.

“The construction industry must think carefully of the role it will choose to play, as this will determine whether the sector plays a developmental role or a narrow parasitic role that rates profits above everything else, important as these are for the private-sector shareholders.

“The posture the sector takes will play a critical role in whether our economy can industrialise and thus diversify, develop new supplier sectors among blacks and female stakeholders and help to create jobs and skills, and, accordingly, spread wealth and expand the frontiers of opportunity and inclusive growth,” the Minister said at the recent launch of the KPMG International 2013 Global Construction Survey.

While he hastened to add that he recognised that the sector’s involvement in the development programme was driven by the need to make a profit, he believed this should not preclude the industry from also partnering with government in a developmental capacity.

“However, South Africa will miss out on the opportunities of the infrastructure programme if all that this programme entailed was the State investing in infrastructure expansion and the private sector [raking] in the profits by any means necessary,” he commented.

The Minister’s comments come four months after the Competition Commission announced that it had, following a Construction Fast-Track Settlement Process, fined 15 major construction firms a collective R1.46-billion for “rampant” collusive tendering related to projects concluded between 2006 and 2011.

Gigaba cautioned that the anticompetitive effect of such behaviour in the construction industry not only hampered the development of the South African economy as a whole but also impeded the employment-creation imperatives of government in general.

“The recent exposure of anticompetitive behaviour through cartels imposes an economic and social cost to South Africa and many developing countries. Such conduct is unacceptable because it undermines the benefits to the clients of receiving competitively priced bids,” he said.

As a result of the sector’s indiscretions, government had embarked on a review of public- sector procurement processes, with Gigaba adding that “active steps” had been taken by public institutions to minimise the risk of collusive tendering in their procurement processes.

“As you can glean, this story is not over yet; a reparation process is needed.
The State has suffered damages that extend beyond the penalties; we need to deal with the fact that the State has overpaid. The sector must atone,” he asserted.

Gigaba further averred that the South African construction sector was prone to competition law infringements owing to the country’s “small economy”, which was characterised by the limited number of general contractors capable of managing large projects in the construction sector.

Further, transportation costs and safety or environmental standards could constitute “formidable” entry barriers in some construction markets.

“However, this does not legitimise collusive activities. Obviously, limited competition and substantial entry barriers can, in turn, facilitate different types of anticompetitive conduct, which creates an important need for smaller construction companies to grow in order to counter this,” he commented.

The Minister added that the formation of construction industry development agencies in the Southern African countries, with a regional initiative to coordinate efforts and pool resources, was encouraging.

In addition, the economic slowdown had indicated that South Africa needed to accelerate its economic integration into Africa by expanding intra-African trade, and exploring new market destinations for its products among emerging markets.

Despite his outspoken criticisms of the industry, Gigaba said government considered the construction sector a vital part of the country’s “economic fibre”, assisting it in meeting its economic and social objectives.

“We are committed to the success of the construction industry, as it contributes significantly to both the gross domestic product (GDP) and employment. In this financial year, the construction sector contribution to our GDP grew from R4-billion to R31-billion,” he said, adding that the sector also contributed considerably through backward and forward linkages.