Better long-term prospects for construction in SA

whereas companies within south africa’s construction sector are currently struggling as a result of the country’s strong currency, industry experts predict more positive conditions in the longer-term.

construction giant aveng, on monday, issued a profit warning, saying its earnings for the six months to december could decline by as much as 10% to 30%.

however, south african federation of civil engineering contractors (safcec) executive director henk langenhoven is reluctant to forecast similar declines for other companies in the construction sector.

“it very much depends on a company’s exposure to foreign markets and foreign currency earnings. it also depends on companies’ group structure and diversification,” he told engineering news online.

langenhoven agrees that the construction sector is generally being affected by the strong rand and the problem is further confounded by a lack of major projects in the pipeline.

“the big projects that are in the pipeline, such as the gautrain, the n2 toll road or the berg river dam (skuifraam), will only have an effect on earnings in 2005. this decline in local expansion projects is again largely due to the strong rand,” he commented.

langenhoven suggested that geographical diversification could be a way for companies to counteract the effect of the south african currency, but it is debatable whether this can be readily achieved within the construction industry.

he is, however, optimistic about the long-term forecast for this sector.

“it must be kept in mind that we are emerging from 25 years of decline in infrastructure investment. but now the economy is accelerating, which leads to a greater strain on roads, ports and airports.

“this means that we need massive infrastructure expansion for the economy to survive. and i believe this will happen,” langenhoven said.

however, he warned that the rate of increase of infrastructure investment would have to be adequate for south africa’s economy to remain intact.

“the importance of investment in infrastructure cannot be overstated. in 1973, south africa invested about 30% of its gross domestic product in infrastructure. now this figure is about 5%. we need to change this, but i believe it can happen in the long-term,” he concluded.