To our most trusted reader/client, we would like to thank you for your support and loyalty. 2016 has been a great year and we hope that you enjoy reading our updates and we trust we will still have you as our reader in 2017. In this edition we address the challenges in the construction industry in South Africa and what can be done about them.
The Struggling Rand.
Firstly, there are the looming economic issues. The country’s slow economic growth makes for a sluggish construction sector, and in 2015 we were hit by serious knocks to the rand in relation to the dollar.
As the value of the rand decreases, project costs rise, as does the price of construction materials like steel and oil. Commodity markets are affected, with subsequent decreases in revenue being felt by major construction firms, such as Murray & Roberts and Group Five.
A poor-performing currency means plummeting profitability for construction firms. When economic growth stalls, so does the demand for construction work. If the demand for new construction work remains poor in 2016, it will pose a serious challenge.
Then there’s the issue of corruption, with companies paying governmental departments to have their tenders fast-tracked, and cartels that limit healthy competition on the scene. Collusive tendering in the public sector prevents consideration of competitively priced bids from varied players and undermines the reputation of the industry.
Power concerns abound, not just politically but in terms of actual energy. Eskom’s power problems alone can have devastating consequences for construction projects, causing costly delays. There was also not enough public sector expenditure for, and delays in, energy projects like Eskom’s Medupi and Kusile power stations.
In March 2015, construction on Eskom’s 4,800 MW Medupi coal-fired power station was halted when workers downed tools – but it was just one of many obstacles and delays. In the long run, power shortages may force construction companies to consider increased mechanization, the future effects of which remain to be seen.
Apart from added safety concerns, which mean more forking out on insurance, there’s the very real problem of a shortage of skilled Labour. There are few trained artisans, and few coming into the industry within the younger generations, and staffed skilled at supervision at the first level are also in short supply.
Some contractors have sought skills elsewhere, only to be met with high salary demands – and staff costs already contribute 29% of total operating costs.
Political and union unrest is also putting severe pressure on the mining industry, with industrial action increasingly making headlines. Post-Marikana, lending firms have also shown less confidence in the mining industry, which has a direct impact on construction and its costs
By Isipho Sempilo (IST HSE Solutions)
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