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The construction industry is positive about a better year ahead, locally and internationally, reports Karen Harverson
Despite a slowdown in the building and construction industry towards the end of last year, the industry is optimistic that activity will pick up significantly by mid-1996.
“The situation is a lot better now than two years ago,” says Grinaker chief executive Bean Bornheimer. He says the increase in activity began after the elections in 1994, but flattened off in 1995. “However, we are optimistic that things will pick up in 1996.”
He says the industry is looking forward to the Saldanha Steel Project, having seen mega projects like Columbus and Alusaf come to an end.
Building Industries Federation South Africa (Bifsa) executive director Ian Robinson says although momentum in the building industry slowed towards the end of 1995, he predicts a 10 to 12% growth in real terms in 1996. “Turnover will increase from R17,5- billion to more than R19-billion during the current financial year.”
The main areas to experience growth will be the industrial sector (18%), commercial (14%) and housing, albeit off a very low base.
“Tourism will have a major effect on the building industry, particularly in the Western Cape, where some 30 hotels are being built over the next two to three years,” says Robinson. This will boost activity by some 30 to 50% in that region.
Other factors influencing the upturn in activity will be the expected drop in prime overdraft rate by 1% this year.
If growth continues to improve as expected, says Robinson, the impact on job creation in the building industry could result in an additional 600 000 direct jobs and about one million jobs indirectly by the year 2000, assuming the reconstruction and development programme (RDP) is implemented.
He says the RDP impact on the industry has been modest to date, but there are signs it is picking up.
However, he warns that a boom in South Africa’s construction economy could be trouble if the construction economies of neighbouring countries remain stagnant. “We’ll see an unwelcome migration of people to South Africa.”
Robinson says a joint venture has been established between the Minister of Public Works and the Council for Construction in South Africa (Cocosa), which will attend a regional council meeting in Lusaka in two months’ time.
The regional council was set up to address four key issues: capacity building in the region as a whole; the promotion of local and regional construction industries; the implementation of common standards throughout the region; and ways to access capital for regional initiatives.
“It is vital that we develop a regional strategy as well as a national strategy to establish common training programmes so that standards are upheld and accreditation processes are the same,” says Robinson.
He says the shortage of work in the local industry has resulted in a number of big companies seeking work in neighbouring countries and internationally. “However, their need will not be as great in the future, as there will be more opportunities locally,” he adds.
Despite the slackening off last year, all the major companies reported improved earnings.
Murray & Roberts reported attributable earnings of R177-million for the half year ended December 1995, an increase of 22%. Group chief executive Graham Hardy said a response to the depressed local conditions had been to go offshore.
“The group is working in Hong Kong, Dubai and neighbouring sub-Saharan countries.” International activities contribute 17% to turnover and are expected to rise to 20% by 1998.
Construction company LTA increased its operating profit for the year ended December 1995 by 18% to R75,9-million. Besides its involvement in all major construction projects in South Africa, chairman Hilton Davies said it had secured significant contracts including the Mohale and Mountain access roads in Lesotho, the north/south pipeline contract in Botswana and the plant construction at the Sadiola Hill gold mine in Mali.
He said that despite the dearth of new major construction projects, the strong growth forecast for 1996 is expected to ensure another good performance for the company.
Construction and development company Group Five boosted attributed earnings by 42% to R10,7-million for the interim period. However, the company was not reliant on projects in sub- Saharan Africa to improve its bottom line.
Says executive chairman Theunis Kotzee: “Although growth is expected in those regions, it will be off a low base and none of the countries we’ve investigated has justified the setting-up of stand-alone business units.” Instead, the company is looking to Europe for new market opportunities.
He believes the lull in South Africa is short-term and expects a considerable growth period to begin and last through the next decade. “With local government in place and money spending power decentralised, fixed investment will rapidly increase.”
Kotzee says while mega projects such as Iscor, Columbus and Alusaf boosted the industrial market by millions of rands last year, growth in office accommodation was stagnant, “but this will increase when growth in the economy reaches the anticipated 5 to 6%”.
He said one of the problems affecting companies involved in the export of building materials was the issue of import tariffs. “We’re penalised by countries such as India which impose a tariff of 50% on goods, but their manufacturers can export products into South Africa at a mere 20%.”
He says this is putting pressure on manufacturing companies, which are being pushed out of the industry, with dire consequences for job creation.
An emerging trend in the industry is the splitting up of mega projects into smaller, packaged contracts to enable previously disadvantaged contractors to compete.
Another trend, says Concor’s Leo Rohrig, is the involvement of the private sector in big infrastructural projects such as tollroads.
Concor announced last week that its net attributable income for the six months ended December 1995 increased by 20% to R10,85-million. Turnover was up 20% to R441-million.
Chairman Brian Murphy said conditions in the construction industry were likely to remain difficult, but said a similar percentage increase was expected for the full year in June 1996.