Construction firms seek growth elsewhere in Africa
To counteract the weak local market, South Africa-based construction firms are looking to Africa to export their services and expertise, credit insurer Coface South Africa said on Wednesday.
Brian Peterson, industry analyst at Coface South Africa pointed out that the construction industry was one of the hardest hit industries during the recession with a large number of companies going into liquidation.
In the ensuing 18 months of recovery since 2010, Coface said it had seen very little positive movement in the industry. Three elements that made up the construction industry; government, corporate and domestic spending, had been plagued by negative factors.
It said that while some government projects remained active, the greatest concern was a slowdown in the tender process for new infrastructure projects such as schools, hospitals and housing with some tender processes being delayed by up to six months.
“The corporate and domestic construction sectors are finding access to credit and lower spending a continued hindrance to the development of new building projects,” Coface said.
To counteract the weak local market, companies were looking to Africa to export their services and expertise. With the positioning of South Africa as a springboard into Africa, Coface noted that larger construction companies were supplying construction skills into Africa for infrastructure development projects to facilitate trade with large foreign investors such as China.
“What is interesting is the manner in which these companies are circumventing the instability of certain African countries’ inherent business environment,” said Peterson.
Peterson explained that Coface rated the business risk environment of over 170 countries worldwide. The ratings were based on factors such as the availability of reliable financial information, the country’s judicial and legal systems covering debt collection, and business infrastructure such as the banking system.
The risk ratings ranged from A1 to D, with A1 being a low-risk country and D, high-risk. South Africa was only one of two countries in Africa with the most stable A3 business rating, the other was Mauritius.
According to Coface, South African construction companies recognised the potential pitfalls of doing business in Africa and instead of relying on the internal systems of some of these high-risk African countries, foreign direct investors were buying the skills and project management from South African construction companies and implementing projects in countries such as Mozambique, Zimbabwe, Malawi and Zambia, who were then paying the South African companies directly.
“This is ensuring the stability of trade, ensuring that South African construction companies are able to control the funding of projects while African countries benefit from improved infrastructure. Without this process and the involvement of the South African construction sector, infrastructure development in Africa may not have advanced to the point it has,” the risk insurer said.
“It has also created alternative opportunities for an otherwise weak local construction sector with a more stable financial platform compared to dealing directly with a high-risk country,” Peterson concluded.—I-Net Bridge