Despite state’s dismal development spend, engineering’s confidence up
THE results of Consulting Engineers SA’s (CESA) Bi-annual Economic and Capacity Survey for the period June to December 2017, released recently, indicate expectations relating to industry confidence levels for the first half of 2018 were positive.
This was despite the slowdown in investment by the government, and general economic conditions not facilitating growth in the sector. With investment by the government showing the biggest decline in 2017, since the financial crisis of 2009/2010.
This year got off to a relatively good start, with economists and market analysts hailing President Cyril Ramaphosa’s victory in the ANC’s December elective conference, as well as the eventual resignation of Jacob Zuma as president, which boosted industry confidence indices in the short term.
In the December 2015 survey, industry confidence levels fell to its lowest level in 16 years.
Since then there has been an improvement, with the net satisfaction rate improving to 96.3% in the first six months of 2017, and falling significantly to 54.4% in the December, 2017 survey. But both are positive for 2018, rising to 92.6% for the first half of this year.
This is despite employment in the industry decreasing by an average of 12% in the last six months of 2017, one of the biggest declines since the inception of the survey, said CESA chief executive Chris Campbell.
Gross fixed-capital formation (GFCF) fell by 3.9% in December, the third consecutive contraction following contractions of 2.1% and 3.9% in the second and third quarters of 2017, respectively.
Investment was negatively affected by the slowdown in government investment, as well as the prevailing economic conditions not facilitating growth in the sector, despite an increase in confidence.
Investment by the government saw the biggest decline in 2017, with a contraction of 5.5% year-on-year, the biggest year-on-year contraction since the financial crisis in 2009/2010.
GFCF as a percentage of GDP averaged at 9.5% in 2017 overall, and 9.3% in the fourth quarter.
The National Development Plan (NDP) has what may seem to be a somewhat unachievable target of 30% contribution of GFCF to GDP by 2030. Economic indicators suggest that investment in relation to GDP is likely to slow over the medium term due to slower government spending, financial constraints experienced by the SOEs, and continued weak private sector confidence.
Challenges Campbell cautions that regulation issues, including the procurement of consulting engineering services, remain one of the biggest challenges faced by the industry.
Procurement is currently based on price and broad-based black economic empowerment (BBBEE) points with functionality or quality having a minimum threshold, thus being largely price driven.
This is affecting tender prices, as firms sometimes tender below cost in view of the diminished availability of projects. A further challenge to the industry is to find a way to standardise the procurement procedures applied by the different government departments.
Unlocking greater private sector participation is seen as a critical element to fast-track delivery, which will support engineering fees, and as such, engineering development in the industry.
“Government must create an environment for the private sector to play a much bigger role in infrastructure delivery. Many of the projects highlighted in the NDP can be carried out by the private sector through public-private partnerships,” Campbell pointed out.
“Service delivery, especially at municipal level, remains a burning issue. The consulting engineering industry is threatened by incapacitated local and provincial governments. As major clients to the industry, it is important that these institutions become more effective, more proactive in identifying needs and priorities, and more efficient in project implementation and – management,” he said.
Fee earnings In the last six months of 2017, fee earnings increased by 2% compared to the first six months of 2017, which was relatively unchanged compared to the same period in 2016. The increase was better than the expected 0.4% increase as reported by firms in the previous survey, with regard to the outlook for the last six months of 2017.
Larger firms reported an increase of 4%, while earnings for medium-size firms was 27% lower. Smaller firms saw the biggest increase of 17%, but micro firms saw a decrease of 4.1%. Earnings are expected to decrease in the first half of 2018, with all size firms expecting a decrease of some sort.
Outstanding payments This remains a serious issue, having a broad-based effect on firms operating in the industry. After having shown some improvement in the December, 2015 survey, the percentage of fees outstanding for longer than 90 days as a percentage of total estimated income (including late payments), deteriorated to an average of 25% in the last six months of 2017. It is estimated that around R6.6 billion in earnings is currently outstanding after the 90-day period.
Transformation The appointment of black executive staff measured by the contribution of black executive directors, non-executive directors, members and partners as a percentage of total executive staff, increased slightly to 41.5% from 37.4% and 45.7% in the previous two surveys. The appointment of women at an executive level deteriorated to 11.9% from 12.8%, but is still below the 13.6% in the June, 2016 survey.
Of the total women employed in the consulting engineering industry, 2.5% were reported at an executive level – up from 1.6% in the June, 2017 survey.
Human resources Employment decreased by an average of 12% in the last six months of 2017 to an estimated 21 369 employees in the industry compared to the first six months of 2017, following the 4% increase reported in the previous survey.
This is one of the biggest declines since the inception of the survey, and shows a decrease of 8.5% compared to the same period in 2016.
The number of firms looking for engineers decreased to 51.7% from 67.3% in the previous survey, with a notable decrease in demand for technicians to 1.9% from 73.4% in the previous survey.
Demand for other technical staff also plummeted to 3.7% from 75.1%, while demand for technologists fell to 45.3% – from 71.8%, Campbell said.
Ndaba is strategic communicator at CESA