NDP action long overdue

NDP action long overdue

A lack of progress on National Development Plan implementation is killing off SA’s construction sector and hampering economic growth, says Master Builders’ Association North.

Musa Shangase, President, MBA North

The news that Group Five has filed for bankruptcy protection has come as yet another blow for South Africa’s construction sector, following shortly after a disappointing 2019 budget speech that offered little hope of significant infrastructure investment in the foreseeable future, says the President of the Master Builders’ Association (MBA) North, Musa Shangase.

MBA North, which represents members in Gauteng, North West, Mpumalanga and Limpopo, says the construction sector has suffered several consecutive quarters of slow – and even negative – growth, creating a ‘state of emergency’ for large and small construction firms alike.

While we understand the predicament the new Finance Minister is in, we believe the budget was not a visionary one. It cut spending on education, infrastructure and housing – all areas that could have boosted the ailing construction sector,” says Shangase. “And it must be noted that infrastructure development is the cornerstone of the economic growth of this country. If we want to achieve the growth goals set out in the National Development Plan, we need to fast track the execution of the plan and start investing in infrastructure development, which would boost investor confidence and catalyse an economic turnaround.”

Shangase says indications are that the same key stumbling blocks that emerged in recent years will continue to hamper growth in the construction sector. “The government is awarding fewer projects and has been slow to pay, which is crippling stakeholders,” he said. “We’re seeing even large contractors facing business rescue and liquidation as a result, while for sub-contractors with no cash flow, the wait of 180 days or longer for government payment is devastating.” Another challenge, he says, is local business forums demanding a 30% procurement allocation on every construction project, usually leading to delays, costly training and a risk to project quality.

Shangase says: “The Group Five news underscores the fact that the continued slow release of infrastructure projects and payments will impact the sector, with more major construction industries going into collapse if these problems are not given workable solutions.”

Shangase says 2018 was a challenging year for the MBAs, for the construction industry as a whole and for the economic growth of the country.

The Construction Industry Development Board (CIDB) small and medium-sized enterprises (SME) business conditions survey has shown that civil contractor confidence fell by six index points to an historic low of 27 during the third quarter. Weakness in all the underlying indicators, especially construction activity, contributed to the drop in confidence. Meanwhile, general building confidence has been trending downwards since early 2017.

In light of the infrastructure budget again being compromised and funds reallocated elsewhere, our concern is that we have fallen behind in terms of the NDP goals. If we want to achieve the growth goals envisaged in the NDP, we need to invest in infrastructure development now. But unfortunately, the NDP has been on the shelf since 2013. At this stage, the only positive note is the fact that we have a plan, but unless it is executed, our industry will die and South Africa’s economic growth goals will not be realised,” he says.

Group Five lays off more staff

Group Five lays off more staff

Reuters:

Group Five is cutting more jobs as it seeks to trim loss-making divisions, highlighting an industry-wide slump that has left many companies fighting for survival.

South African construction companies have been hit hard in recent years as stagnant economic growth has hobbled public infrastructure spending, prompting some of them to file business rescues, similar to chapter 11 bankruptcy in the United States.

Group Five is going through a restructuring in which it has closed multiple non-profitable businesses in its local construction unit and cut 602 permanent staff in the 2018 financial year.

The company is cutting more jobs in its money-losing Engineer, Procure and Construction (EPC) division, which already lost 175 employees last year. The EPC business suffered an 82.3 percent slump in revenue to 386.9 million rand ($26.91 million) in the 2018 fiscal year, further widening the operating loss at group level.

The numbers of workers to be retrenched is still a work in progress right now but the main areas affected will be our EPC business as we continue to resize for the current market,” said Chief Executive Themba Mosai. Group Five posted a full-year operating loss of 1.4 billion rand compared with 718 million rand loss the prior year, due to higher costs from the delayed Kpone power project in Ghana.

Mosai was cautiously optimistic about President Cyril Ramaphosa’s plan to launch a 400 billion rand fund aimed at re-igniting infrastructure spending even as the sector has suffered delayed payments of some government contracts.

The fund is part of a long-awaited stimulus package seeking to revitalise an economy that recently slipped into recession. “The partnership between private sector and the government is important to bring infrastructure development into the country,” said Mosai. “The fact that the government is focused on that means that we can deliver quite a lot of infrastructure in a short space of time.”

Mosai also said that the downsized local construction business was on the right path to return to profit in the 2019 financial year.

Further retrenchments plague the industry – more skills lost

On the back of the recent demise of a number of notable construction companies the news that more companies are also retrenching staff does not bode well for the sector.

Not only is this traumatic for the individuals concerned, the companies as a whole and our nation – but the resultant skills losses – mostly permanent – will be a huge blow to the construction industry. The timing couldn’t be worse as for a number of years now skills development has been high on the agenda.

Early in October PPC initiated a retrenchment programme – the extent of which is presently unknown, as did Group Five who is is cutting more jobs in its money-losing Engineer, Procure and Construction (EPC) division.

In September Master Builders SA Congress 2018 specifically addressed the skills shortages issue as well as the means to prepare and train the sector for the 4th industrial revolution. Continued regression in the sector will undoubtedly undermine these plans, making advancement of this cause that much more challenging.

However, in the short- and medium-term the immediate loss of significant skills and expertise – at professional and trade levels – as a direct result of retrenchments will dramatically exacerbate the situation, creating a huge and unwanted vacuum as those retrenched are likely to move into other sectors of the economy.