Newly appointed Concor CEO Lucas Tseki believes the strong flow of tenders in the last quarter of 2019 could signal that the domestic construction market is finally bottoming out.
He is also cautiously optimistic that infrastructure-focused departments and State-owned enterprises (SOEs) are, at last, starting to align their expenditure programmes with government’s stated intention of using infrastructure to catalyse growth and investment.
This aspiration was reaffirmed by President Cyril Ramaphosa in his February 13 State of the Nation Address (SoNA), when he said government was aiming to shift government spending from consumption expenditure to investment in infrastructure.
Ramaphosa also announced that the Infrastructure Fund implementation team had finalised a list of “shovel-ready projects” in student accommodation, social housing, water, rail freight branch lines, embedded electricity generation, municipal bulk infrastructure and broadband infrastructure.
“The team has a project pipeline with potential investments of over R700-billion over the next ten years, including both government and nongovernment contributions,” the President stated.
In a broad-ranging interview with Engineering News, Tseki, who is also a director at the Southern Palace Group, which leads the black-empowered consortium that purchased Murray & Roberts’ infrastructure and buildings unit for R314-million in 2018, acknowledged that the market remained worryingly depressed.
This slump has persisted for a decade and has resulted in severe distress among several contractors, some of which had succumbed to business rescue and even liquidation.
The National Development Plan set a public infrastructure investment target of 10% of gross domestic product (GDP), but beside the pre-FIFA World Cup peak of about 9% of GDP, the average investment rate over the past 20 years had been below 6% of GDP. During the period, departments, municipalities and SOEs had typically failed to meet infrastructure expenditure targets, owing to a combination of factors, ranging from financial mismanagement and corruption, to a lack of capacity to develop bankable projects and oversee project implementation.
Concor’s own order book remains under pressure and about 36% short of its internal budget. Nevertheless, Tseki told Engineering News that he was more optimistic at the start of 2020 than he had been at the same time last year, when the company’s backlog was theoretically in better shape at 85% of budget.
The private construction group has a yearly turnover of about R5-billion and employs more than 3 800 people.
“We saw a number of large tenders being issued late last year and, as Concor, have priced projects with a combined value of R25-billion. We now eagerly await the award announcements.”
Tseki was also optimistic that most of the tenders would indeed be progressed to awards, drawing particular comfort from the recent award by Eskom of the R642-million Majuba power station’s ash disposal facility contract to Concor.
Some additional cause for optimism could also be found in Industry Insight’s project database, which pointed to a 20% increase in the number of construction projects released for tender in the fourth quarter of 2019, including a 21% rise in public-sector projects.
South African Forum of Civil Engineering Contractors (Safcec) CEO Webster Mfebe told Engineering News in response to questions that there had also been a pleasing 25% increase in the number of enquiries released for larger-scale projects, known as Construction Industry Development Board Grade 9 contracts. There is no upper limit to the value of such contracts, with the lower limit set at above R130-million.
“Hopefully, these might be the first signs of a glimmer of hope for a severely depressed industry, whose civil confidence index has hit rock bottom, with negative nett satisfaction rate of -100 points as of the third quarter of 2019, according to the Safcec State of the Civil Engineering Report,” Mfebe added.
Tseki said that most of the largest tenders has been issued by SOEs such as the South African National Roads Agency, Eskom, Transnet, and the Airports Company of South Africa. There were also a number of large water projects and municipal contracts on offer, however.
As a result, Concor’s order book – which had, in recent times, been heavily leverage to private work, especially work related to South Africa’s renewable-energy programme – was likely to be more evenly balanced between public and private projects in future.
That said, Tseki expects its electricity-related backlog to increase in the coming years as the Department of Mineral Resources and Energy moves to re-initiate emergency and non-emergency procurement programmes in line with Ramaphosa’s SoNA statement that the trajectory of energy generation and procurement in the country would be “fundamentally changed” in the coming months. Likewise, contracts could well arise as a result of efforts to facilitate self-generation by mines, factories and farms.
Concor would also seek to participate in some of the public-private partnerships that could flow as a result of activation of the Infrastructure Fund and would also consider taking equity where appropriate.
Tseki also had aspirations to expand Concor’s regional footprint and was paying particularly attention to the opportunities arising in northern Mozambique, where some multibillion-dollar liquefied natural gas projects were either under development or under consideration.
“In five years, Concor should have not only doubled its turnover, but should have become the contractor of choice in both the South African private and public sectors, as well as in the Southern African Development Community.
“To achieve that goal, we are ready and willing to take an element of risk by putting our balance-sheet where our mouth is so as to support and delight our customers,” Tseki concludes.