Construction sector braces for storms
SA’s distressed construction sector faces a host of risks and challenges this year.
These include the continuing shortage of major projects, non-payment by government and other state entities, the risks to the economy from a sovereign credit ratings downgrade and the hijacking of construction sites by the “construction mafia” or business forums.
David Metelerkamp, senior economist at Industry Insight, said 2019 was another tough year for the local construction industry, which has proven to be SA’s worst-performing sector over the last two to three years.
However, Metelerkamp added there was an improvement last year from the dismal performance in 2018, when sharp contractions were reported in construction activity.
He said the data released so far shows an estimated 2.7% decline in the nominal value of construction projects awarded in the 10 months to October last year (2018: 14.3% year-on-year decline).
Metelerkamp highlights three major risks this year:
The 2020/2021 national budget, Militant unrest, and
Failing state-owned entities (SOEs) and a stagnant economy.
He said the shocking state of the fiscus was revealed in the mini-budget speech last year and will have a negative effect on infrastructure allocations in the national budget due to be tabled next month.
“For the first time in several years, there was no mention of the total amount allocated for infrastructure in the mini-budget speech, which gives further anecdotal evidence that Treasury is still planning on how to deal with all of the funding shortfalls.”
Metelerkamp said it was also widely accepted that Moody’s will downgrade SA’s sovereign credit rating to junk status this year or early next year.
He said the hijacking of construction sites was a major theme last year, with these disruptions adding to the misfortunes of contractors.
A stagnant economy was one of the biggest risks to the construction industry, he said, adding that a major bottleneck to escaping this low-growth environment was economic and political reform, most importantly at SOEs, which remain in a state of disarray.