The Construction Industry in South Africa - Caution and Optimism

Posted on June 04, 2024

1. Introduction The South African Construction Industry Report 2022 stated that the South African construction industry employed well over 1.2 million people in 2021. This was after losing just short of 260,000 jobs in Q3 2020, mainly due to the effects of the Covid 19 pandemic. The report also mentioned that it contributed an added value of approximately R111 billion (circa US$7.1 billion) to the country’s gross domestic product (GDP). Statistics South Africa reported in March 2024 that the South African Construction sector contributed an annualized added value of R109.5 billion rand to the South African Gross Domestic Product in the fourth quarter of 2023. These figures are a sobering reminder of the value and sensitivity of our industry. As we continue into 2024, forecasts for the industry are optimistic, but several pre-existing constraints may dampen optimism in the short to medium term. The industry's resilience and its people are expected to navigate the constraints to use opportunities in new projects.

2. Forecasts and sentiment In December 2023, Global Data indicated that the SA construction industry is expected to achieve an average annual growth rate (AAGR) of more than 3% from 2024 to 2027, with expected investments in transport, energy, industrial, and housing projects. Infrastructure News stated that the construction sector was poised to start robustly in 2024. They support this statement by, among others, the optimistic outlook of the Afrimat Construction index, which reached its highest level in nearly seven years in the three months leading to September 2023. The index of the fourth quarter of 2023 continued to reflect this optimism, with only a minor decline from Q3 value. 

3. Challenges No doubt, all sectors of the economy will be faced with macroeconomic and geopolitical challenges, but there are specific local factors that have been and remain significant challenges to the construction industry. These include uncertainty and high logistics costs, corruption, the construction mafia, and our wellknown adversary- load shedding, to name a few. 3.1. Logistics Without a trustworthy rail network, contractors rely on road transport to deliver their equipment and materials. Poor road conditions can lead to delays, and the ongoing demand for road transport increases costs. Meanwhile, the challenges at South African ports present additional risk. In a recent article, Clyde and Co., a global law firm providing services in insurance, transport, energy, infrastructure, and trade and commodities, stated that backlogs outside the Port of Durban between the 23rd and 30th November 2023 resulted in an estimated 79 vessels and more than 61,000 containers being forced to remain at outer anchorage due to operational challenges, equipment failures, and stormy weather at the port. Although the congestion has since begun to ease at South African ports, reports indicate that the Port Terminals will take until mid2025 to regain optimum functionality. Clyde and Co point out that the port of Durban consistently ranks among the busiest ports in the world on the Lloyd’s List's One Hundred Ports rankings, but even before the 2023 crisis, it moved from 45th with a throughput of 2,710,000 twenty-foot equivalent units (TEUs) in 2011 to 79th with a throughput of 2,574,931 TEUs in 2022. 3.2. Construction Mafia Disruption of infrastructure development, intimidated communities and workers, protection money demands, and procurement exploitation are some of the adverse effects of the so-called construction mafia's actions in the construction industry. It will take some time before the industry rids itself of this problem. Corruption Watch, however, believes there is a ray of light in the form of anti-corruption progress, shared recently by the Infrastructure Built Anti-Corruption Forum (IBACF), of which Corruption Watch is a member. At the IBACF quarterly meeting on 12 December 2023, it was reported that 712 cases referred for investigation have resulted in 722 arrests and 52 convictions. 3.3. Load-shedding In 2023, South Africa saw more load-shedding days than any of the years since load-shedding began, and there is hardly a discussion about our country that does not touch on the subject at some point. Way beyond our daily personal frustrations, the number of businesses that had to close their doors is a tragedy. In the meantime, the construction industry must carry the increased cost of keeping site activities going with off-grid power solutions while dealing with delays and additional costs in manufacturing and distributing equipment and materials. At this stage, it does not appear that there is a short-term solution to load-shedding, but with improved technology and the increase in renewable power projects, there is hope that the industry players will be able to ride out the ongoing storm.

4. Opportunities While navigating the problems and constraints in existing projects, there is some good news regarding future projects. Infrastructure South Africa (ISA) is a program in the Ministry of Public Works, mandated as the single point of entry for accelerated infrastructure development. In the 19 March 2024 edition of Engineering News, it was reported that ISA aims to “unblock” 12 major projects in 2024. These projects are: • The R2.1-billion liquid natural gas import terminal in KwaZulu-Natal. • The R38-billion Durban Container Terminal (DCT Pier 1) project in KwaZulu-Natal. • The R2.2-billion Berth A100 liquid bulk project in the Eastern Cape. • The R7.5-billion Ukuvuselela rail project between Gauteng and the Eastern Cape, aimed at assisting car and component manufacturers and exporters. • A R16-billion project to refurbish health facilities. • An R8.5-billion school project in Limpopo and KwaZulu-Natal. • The R30-billion Eskom Mossel Bay gas project. • The R35.8-billion Eskom Tubatse pumped hydro storage project. • The R35.8-billion Rooiwal Phase 2 wastewater project in Tshwane. • The R5.5-billion Amathole water bulk supply augmentation project in the Eastern Cape. • The R8.4-billion Nkhomazi Special Economic Zone (SEZ) in Mpumalanga. • The multi-billion Rand Namakwa SEZ in the Northern Cape. The scale of these projects is exciting, and their " unblocking " can potentially create substantial direct and peripheral construction opportunities.

5. Closing thoughts The South African construction industry has given many of us a place to live out our ideals, and it continues to be a source of life for so many in our country. It is often not an accessible realm, but it can be advantageous. New opportunities are presenting themselves; hopefully, we will all be fortunate to share them soon. Here is to meeting each other on a construction site and celebrating that we did not stop believing!

Regards, Prof Giel Bekker

Director

 

References

Research and Markets

Statistics South Africa

Global Data

Infrastructure News

Afrimat

Engineering News

Clyde and Co

Corruption Watch 2024

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