Making budget spend could save the industry and make a dent in unemployment figures {writer: Piet Coetzer}

Following the completion of infrastructure projects associated with the 2010 Fifa Soccer World Cup, there has been a considerable slowdown in the approval of new projects, and work volumes in the construction sector have hit an all-time low in the third quarter of 2010.

However, if municipalities could succeed to spend their full capital budgets, it could go a long way toward turning around the fortunes of the industry.

This was the message coming out of the recent 2010 national Stakeholder Forum meeting of the Construction Industry development Board (cidb).

Chief executive officer of the cidb Ronnie Khoza said that despite the battle for continuity of projects facing the industry, there were still opportunities available to it.

It was, among others, highlighted that the fact that municipalities collectively have underspent R8 billion on their capital budgets during the 2009-10 financial year, requires urgent attention. If municipalities were to meet their capital spending targets, it could unlock substantial opportunities for the industry.

It would further impact on the unemployment situation, since the downturn in the third quarter forced construction companies to downsize their workforce, according to cidb chairperson, Raymond Nkado.

Khoza pointed out that the huge challenges the country was facing in terms of water resources and reticulation, as well as waste water treatment, were two areas from where the construction industry could benefit, through the development of new or the expansion of infrastructure.

Further possible opportunities would come from power-generation projects, other municipal infrastructure needs and the maintenance of public infrastructure.

There were, beside the opportunities and reasons for optimism, real challenges.

Most important of these was the impact of an increase in the delay of payments.

Nkadu identified corruption as a major problem, and urged members of the industry to steer clear of corrupt transactions.

Khoza bemoaned the lack of integrative planning in the industry. Planning was not long term enough and funding was not always assured, often leading to escalations in costs of infrastructure projects.

Civil engineering

In the interim, the South African Federation of Civil Engineering Contractors (Safcec) in August expressed the expectation that the turnover in that sector would decline by 40% during this year compared to 2009, which in turn was 10.7% down on the 2008 figures.

This represents a markedly more pessimistic view than the one expressed in April this year, when a decline of a much more modest 25% was expected.

In line with the trend reported at the cidb meeting, the “State of the Civil Engineering Industry” report indicated that employment was starting to show stronger signs of contraction, and noted that it had declined by 7% compared to a year earlier as the industry’s prospects were becoming weaker against the background of a slowdown in capital expenditure (capex) in the country.

Within all three levels of government, capex has dropped by 1.2% in 2009 and by 8% during the first quarter of 2010.

Private sector investment declined by 7 in 2009 and by a further 0.7% during the first quarter of 2010.

The capex of public corporations, on the other hand, grew by 41% in 2009. It has, however, since slowed to a 7% growth during the first quarter of 2010.

Safcec notes in its report that this slowdown was reflected in the value of contracts awarded to the civil engineering sector, which have halved in the first quarter of 2010, compared to the first quarter of 2009.

Roads

It is expected that contracts awarded by the South African National Roads Agency Limited (Sanral) will drop to around R10bn a year for the budget years 2010-11 and 2011-12, down from the more than R18bn per year that was spent during the previous two budget years.

The large expenditure over the previous two financial years was mainly due to the Gauteng Freeway Improvement Project, which is nearing completion toward the second quarter of 2011.

In the medium term, however, there is some light at the end of the tunnel for the industry from this sub-sector.

According to Nazir Alli, Sanral CEO, the Agency is presently planning for its next round of big projects. Decisions will be made by February next year about a construction programme to kick off by 2012.