PRETORIA – South Africa's beleaguered construction industry faces a trio of major risks this year from the general election, failing state-owned entities (SOEs) and the Budget, according to construction market intelligence firm Industry Insights.
However, Industry Insights said on Monday that it was not expecting this calendar year to be “as bad as last year”, although it certainly did not expect any big turnaround.
It said there were some quite serious headwinds potentially ahead for the economy and subsequently the construction industry.
Industry Insight said last year proved to be “one of the toughest years on record” for the construction industry, with the economy facing several headwinds at home and abroad and big cuts in infrastructure spending.
It was “not entirely” surprised by the downturn but “somewhat surprised” by the pace at which it unfolded.
Industry Insight said the data available until October showed there was “quite a serious decline” of 14.3 percent in the nominal value of construction projects awarded, compared to the corresponding period in 2017.
In regard to this year's general election, Industry Insight said the outcome and all the populism that would be involved “was certainly the biggest risk the South African economy will face in 2019. The bottom line is that if the ANC does not get a decent majority of the vote (in excess of 55 percent), (President) Cyril Ramaphosa will not have the political capital to implement his ‘market-friendly’ reforms, such as reducing the size of the Cabinet and reforming SOEs. This would also generate high levels of uncertainty and will not appease the appetite of investors.”
Industry Insights said while construction tenders may increase in the run-up to an election, there seemed to be a tendency for the projects to either be postponed or cancelled.
“Making matters worse, tender activity generally decreases by between 15 and 25 percent, following an election period, and could even be higher where political parties change within a geographical area, as all prior contracts need to be reviewed and may be reprioritised, pending the newly elected parties’ mandate and focus,” it said.
Industry Insight said the performance of SOEs was crucial to the growth of the construction industry, especially the civil construction sector, as they were the biggest spenders of the government's Budget and expected to spend 43 percent of the infrastructure budget over the next three years.
But it said the fact that most SOEs were broke and inefficient did not bode well for the construction industry and this remained a major risk to the growth outlook for the sector.
The firm added that further consolidation in the Budget this year or more of the same in terms of infrastructure spending was a big risk for the construction sector going forward.
It said infrastructure spending was expected to total R855 billion over the next three years, but this was only up by 2.5 percent in nominal terms from the R834.1bn announced at the beginning of last year.