Dire construction sector set to worsen

JOHANNESBURG – The dire lack of work in the construction sector, which has resulted in several major listed companies experiencing financial difficulties, appears set to get worse.

Construction market intelligence firm Industry Insight reports that tender activity slumped by 20percent year-on-year in the fourth quarter, while tender award activity disappointed and postponements increased 24percent year-on-year.

Postponements in the building sector increased by 117percent and were largely responsible for the rise in postponements, Industry Insight said in its fourth quarter construction activity profile released this week.

The postponement rate is the number of projects postponed expressed as a percentage of the total number of tenders received during the same period.

Industry Insight said there was a 20percent year-on-year improvement in the number of higher value projects, with an estimated value exceeding R130million, out to tender in the fourth quarter, but 13percent fewer projects were put out to tender compared to the third quarter.

There were 144percent more higher value building projects out to tender in the fourth quarter, but larger civil projects contracted by 41percent year-on-year.

However, Industry Insight said there was a 38percent year-on-year decrease in the awarding of higher value projects in the quarter.

The number of higher value projects awarded was also far below the average for 2016 and 2017, with almost half the number of projects awarded, it said.

The nominal value of construction projects awarded declined by 18percent year-on-year in the fourth quarter, while the number of contracts awarded decreased by 16percent year-on-year, but was 19percent higher than the contract awards in the third quarter.

David Metelerkamp, an Industry Insight economist, said historically they saw an increase in tender activity in the run-up to elections, as well as “a sharp drop-off post-election”.

Metelerkamp said the construction industry ended the 2018 calendar year with rather disappointing tender award activities, with more depressed levels compared to an already beleaguered 2017.

“With fewer projects out to tender, and fewer projects awarded, the short-term effect suggest further contraction in the local construction market. The recent increase in postponements aggravates an already precarious situation,” he said.

Metelerkamp said postponements caused serious problems in the industry, because tendering was a costly exercise and the “promise” of pipeline work meant companies had to hold on to resources that could have otherwise been used elsewhere.

He said it also led to underutilisation of already excess capacity.

“There are many reasons for these delays, including poor planning, environmental issues, availability of funds, to name a few. Public sector projects are becoming increasingly constrained by a lack of finance as government expenditure is capped to alleviate some of the pressure on the fiscus,” he said.

Industry Insight said earlier this month that the construction industry faced a trio of major risks this year from the general election, failing state-owned entities and the Budget.

However, the firm said it was not expecting this calendar year to be “as bad as last year”.

A number of other prominent construction companies have been experiencing financial difficulties, largely because of the dearth of large government-funded construction and infrastructure contracts.

Listed Basil Read applied to be placed in voluntary business rescue in June last year and privately black-owned Liviero Group did the same in July. Listed Aveng and Group Five have both had financial difficulties.


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