Construction faces ‘uphill battle’ next year on 7% costs rise

COFACE, a France-based international credit insurer, estimates South African construction costs will rise 7% next year, which means the industry will need to grow above this figure to show any improvement.

But, judging by the depressed state of the construction and engineering markets, it said this is unlikely. Instead, the sector faces an uphill battle.

“This is based on our internal projection model, which caters for a number of factors,” Saijil Singh, lead analyst for Coface SA, said yesterday.

He said the weighting included rising fuel prices; the number of commercial and residential building plans passed; SA’s consumer inflation index; and gross domestic product projections.

While prime interest rates had been reduced to 8.5% this year, Coface said the industry would be hampered by other factors, including labour disruptions and skills shortages. There had been labour problems at Eskom’s Medupi and Kusile power station sites, and SA was now facing deadly strikes in trucking and mining. However, it said government plans to spend heavily on infrastructure were a positive factor for employment.

It said it expected residential and nonresidential investment in SA to increase at a constant rate over the next four years.

But, complementary industries had declined on the building and construction slump, and output remained at levels below those seen before 2008.

Investment in the domestic con- struction industry last year grew by only 0.9% year on year compared with 2010, according to economic consultants Econometrix.

Coface said coupled with rising costs and cheaper imports, South African manufacturers of steel, aluminium and cement had been severely affected. Logistics costs and looming new Gauteng toll-road charges would also hamper growth in the industry.

There was also the uncertain development of public-private partnerships in SA.

Mike Stricker, CEO of MLC Quantity Surveyors, said last month big South African contractors were “tired” of spending large sums of money on tenders that never came about. He also said SA’s Construction Charter empowerment codes were “very onerous and difficult”.

Cyril Gamede, president of the Engineering Council of SA, last month said cadre deployment and a lack of skills hampered infrastructure development.

“Where we have challenges right now is infrastructure implementation in SA,” he said.