Construction ‘set to gain from faster infrastructure roll-out’
IT APPEARS “real traction” in the government’s stalled infrastructure programme is finally imminent and construction firms will be well placed to take advantage of a better 2015 after repositioning their businesses, an analyst says.
Picture: THINKSTOCK
Construction companies have said for some time that the government’s multitrillion-rand infrastructure programme, which involves R847bn of spending over the next three years, has shown little signs of materialising.
To counter thin margins in a competitive local market, contractors have sought to grow their international operations.
Wilson Bayly Holmes-Ovcon (WBHO) said in its results on Monday that South African work accounted for only 31% of its R36bn order book as at the end of June, from 45% previously.
FNB senior industry analyst Jason Muscat said that despite delays in local public-sector projects, “recent comments from government and public corporations lead us to believe that real traction is imminent”. No major tenders had yet been put to the market but prospects for the sector’s recovery were improving.
The optimism was based on various statistics and a change in the government’s attitude that implied a far greater role for the private sector.
Increased work
Mr Muscat said Reserve Bank data suggested the sector was gaining momentum.
In the first quarter of the year, investment in public sector-led construction work increased 24% from the previous quarter.
“There is typically a three-quarter lag between fixed investment in construction works and a response in construction sector growth,” Mr Muscat said. “A 24% quarter-on-quarter improvement in quarter one investment suggests that 2015 growth could show a significant improvement.”
The need for major infrastructure investments had now become “critical” to boosting economic growth, he said.
Another positive indicator was the 5% uptick in the construction sector’s gross domestic product (GDP) in the second quarter, though off a low base. “The correlation between infrastructure spending and GDP for the construction sector is extremely strong,” Mr Muscat said.
Meanwhile, in contrast to what had previously been the case, government and state-owned entities had started encouraging public-private partnerships, which would expedite the investment programme. As much as there appeared to be a greater willingness to partner with the private sector, “it’s almost been forced upon government simply because they’re running such a big fiscal deficit”, Mr Muscat said.
“Any further undue spending and they’re going to risk another ratings downgrade.”
Open to private-sector investment
It was “very encouraging” that the usually state-owned energy generation function was now open to private-sector investment and even part ownership.
Mr Muscat said construction firms were poised for a recovery because of greater opportunities that were now available. They would also benefit from moves to restructure their businesses, improve their balance sheets and dispose of noncore assets.
“So we think they’re also better positioned to take advantage of what we see coming in the next year,” Mr Muscat said.
There was also some evidence that contractors themselves were gearing up for a better 2015, based on growth in capital expenditure on heavy vehicles, which was still negative but turning positive.
PwC projects annual infrastructure spending in SA will grow on average by 10% a year and will reach $60bn by 2025, from $22bn in 2012, with “rapid” growth in transport investments.
South African Institution of Civil Engineering CEO Manglin Pillay said the calls for greater private-sector involvement were “very positive”, but the constant delays of the infrastructure roll-out meant the private sector’s confidence was low.
Mr Pillay said there was an “urgent need” for the private and public sectors to come up with solutions for more efficient tendering and roll-out processes.
