Construction sector welcomes R700bn ‘project pipeline’

17-02-2020
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Moneyweb
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But dubious about government’s ability to deliver.

Construction industry bodies, companies and analysts have welcomed President Cyril Ramaphosa’s State of the Nation (Sona) statement that the Infrastructure Fund has a project pipeline with potential investments of over R700 billion over the next 10 years.

However, serious doubt has been cast about the ability of these projects to revive the beleaguered construction sector because of government’s previous implementation and delivery failures.

David Metelerkamp, senior economist at construction market intelligence firm Industry Insight, says he is leaning more towards Ramaphosa’s comments being “lip service” rather than leading to action because of his doubts about “all this private investment somehow magically expected in an environment that is politically very uncertain” and investor and consumer confidence being at all-time lows.

Read: Construction sector improvement depends on government action – Mace Metelerkamp stresses that a big aspect of the Infrastructure Fund is getting the private sector involved and incentivising companies to invest in infrastructure projects.

He agrees that this is a good idea but is not convinced it will lead to action.

“The biggest challenge will really be convincing the private sector to get involved in these projects without a stable political environment and policy certainty,” he says.

Roy Mnisi, executive director of Master Builders South Africa (MBSA), says the association believes these kind of investments are good for the construction industry but previous Sona addresses consistently mentioned similar commitments to infrastructure development but very little has happened in terms of implementation and the actual expenditure on these projects.

Last year it was R100bn over five years

Mnisi refers to Sona last year and Ramaphosa speaking about the Infrastructure Fund spending R100 billion over a period of five years.

He says very little has happened since then, apart from the announcement by the SA National Roads Agency (Sanral) that it will issue major road construction tenders to the value of more than R40 billion over the next two to three years and the announcement by Minister of Public Works and Infrastructure Patricia de Lille that government plans to develop Salvokop in Pretoria.

The first phase of the Salvokop Precinct Development will be developed in terms of a public-private partnership at an estimated cost of R6.5 billion to house four government departments, with the total development opportunity in Salvokop costing an estimated R18 billion.

‘Pinch of salt’ approach

Webster Mfebe, CEO of the SA Forum of Civil Engineering Contractors (Safcec), says Ramaphosa’s announcement will bring hope to the construction sector but contractors have the “lived experience” and will take them with a pinch of salt until something concrete happens on the ground.

However, Mfebe says that from his own personal perspective and having worked with the president within the Public Private Growth Initiative, they have “propelled into forward gear many projects that have been stalling”.

Mfebe says these announcements need to be concretised in the finance minister’s annual budget to make it clearer how much government is putting into infrastructure and development.

Mohau Mphomela, executive director of Master Builders Association North, says the fact is that the past three years have seen several of the country’s leading construction firms go into business rescue or go out of business – entirely because big infrastructure plans are not translating into work for the construction industry.

Steel and Engineering Industries Federation of Southern Africa (Seifsa) chief executive Kaizer Nyatsumba welcomes Ramaphosa’s undertakings to stimulate economic growth through infrastructure investment and crack down on the criminal syndicates that have been confronting the construction industry and other sections of business.

Read: Moves afoot to rein in the ‘construction mafia’

Construction group Grinaker-LTA chair Mlu Clive Manci, who headed up the consortium that bought the firm from Aveng last year, says Ramaphosa’s announcements about the various economic and social infrastructure initiatives and the special task force to fight construction site disruptions are to be commended because they will help the struggling sector.

“Construction contributes about 4% to South Africa’s GDP and is a key sector for the economy. The initiatives announced … [in Sona] provide a timely boost for a sector battling low confidence and weak investment,” he says.

“The president’s announcement that special units will be established to fight criminals who extort money from construction companies is unexpected but very welcome.”

Shovel-ready projects

Ramaphosa confirmed in his Sona address on Thursday night that the Infrastructure Fund implementation team has finalised the list of shovel-ready projects and has begun work to expand private investment into public infrastructure sectors with revenue streams.

He said these include areas like student accommodation, social housing, independent water production, rail freight branch lines, embedded electricity generation, municipal bulk infrastructure, and broadband roll-out.

“The team has a project pipeline with potential investments of over R700 billion over the next 10 years, including both government and non-government contributions,” he said.

“The cranes and yellow equipment that we have longed to see across the landscape of our country will once again soon be an everyday sight.”

Ramaphosa added that the social housing programme – which could leverage as much as R9 billion of private investment in the construction of 37 000 rental apartments for low-income families – is at implementation stage.

In addition, government will spend R64 billion over the coming years in student accommodation and leverage at least another R64 billion in private investment.

“These building projects are ready to start,” he stressed.

Ramaphosa said government is determined to overcome the financial and other challenges that have held back the construction of the Umzimvubu Dam in the Eastern Cape for almost a decade, while a new smart city in Lanseria that 350 000 to 500 000 people will call home within the next decade is taking shape.

He also said government will be piloting an alternative rural roads programme that will ensure cost effective solutions for the state, meaningful skills transfer, and higher potential for labour-intensive job creation than conventional roads construction methods.