Bleak outlook for construction
Lagging economy, lack of projects mean more job losses
MORE job losses in construction are likely, with executives in the sector predicting it will continue to suffer the effects of slow economic growth and falling commodity prices during the next financial year.
South Africa’s big five construction companies all took a beating in the 2015 financial year in terms of earnings, and all had to right-size quickly, leaving thousands of construction workers without work.
“Our order books and revenue streams have been on the decline, and if we don’t get the work quickly we will have to reduce our workforce further,” Aveng CEO Kobus Verster said.
During the past financial year, the company cut 885 permanent jobs and let 6 000 contract workers go.
Henry Laas, who heads Murray & Roberts, cut the company’s workforce by between 15% and 20% across several divisions.
Group Five CEO Eric Vemer let 2 600 people go during the past financial year.
Employment in construction is mostly cyclical, and closely linked to economic activity and the roll-out of projects.
The government has promised to roll out infrastructure projects of more than R800-billion over the next year.
But Laas pointed out that the money was mainly being spent on rail rolling stock and roads, and not on civil engineering projects, leaving a glut of skilled people without projects to work on.
Verster said the construction
CONCRETE DREAMS: A pedestrian bridge in Adelaide, Australia, which was an Aveng project sector was worse off now than it was after global markets collapsed six years ago.
“Back then we had a number of big projects to work on in South Africa because of . . . the World Cup,” said Verster.
Construction companies were heavily fined for collusion on World Cup projects, which ate into their bottom lines during the past financial year.
Verster said the industry had been in constructive talks with the government to mend relationships.
“We are not there yet, but we have been progressing well.”
He said local construction companies would be happy to play a supporting role if the government decided to go ahead with building big-ticket nuclear power stations.
“In South Africa we currently do not have the technology, but there would certainly be room to play a supporting role.”
Verster said there could be contraction in construction activity over the next two years, but he expected an upturn in the industry over the medium term as oil, gas and other commodity prices strengthen.
Laas, who spent $435-million (about R5.7-billion, equal to Murray & Roberts’s market capitalisation) on oil and gas company Clough, also expected earnings to be under pressure in the 2016 financial year.
The oil price is now around $40 a barrel, but Laas said the Clough deal was a long-term strategic investment with a lot of upside in the medium term.
“We are in a very good position to reap the benefits when the oil price recovers.”
Aveng lost three-quarters of its value in terms of market capitalisation and saw its share price plummet to R4.50 from a high of R24.20 in the year to August, but investment companies such as Allan Gray see this as an opportunity.
Allan Gray this week increased its holding in Aveng by 15%.
During the same period, the Murray & Roberts’ share price fell from a high of R27.50 to just over R12 now, while Group Five’s share price went from a high of R43 to R22 now.
Rory Kutisker-Jacobson at Allan Gray said of construction stocks: “We do believe that they are offering value once again.”
There would certainly be room to play a supporting role
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