/ 19 October 2020

Black construction businesses sidelined

Construction Cartel Faces Disqualification From Govt Tenders
When it comes to mega infrastructure projects, it is still the mega white-owned companies who score government contracts

The economic recovery of black-owned businesses in the aftermath of the extensive lockdown period is cause for concern and particularly for businesses within the construction sector. Although the government has come out to assure businesses that their shortfalls will be catered for in the form of relief packages, these have not come soon enough for many companies, several of which are micro, small or medium enterprises.

The scale of the crisis for business was laid out in data released by Statistics South Africa (Stats SA) earlier this year. The data found that nearly half of the businesses that had been surveyed may not have enough money to continue their operations beyond the lockdown. Only 29% of businesses said with certainty that they would survive the lockdown. A third of businesses surveyed had already laid off staff.  The Stats SA data shows the extent of the damage that Covid-19, and the subsequent isolation period, has had on the economy, and on business as a whole. In this era of uncertainty and market volatility, as global markets plunge under the pressure, the only certainty that remains is that the economy is headed for an even deeper contraction. 

The South African government has labelled infrastructure as a key part of the economic recovery plan through their announcement about the first 50 out of 276 strategic infrastructure projects (SIPs). These SIPs are said to be worth about R360-billion. One of these is the Mooikloof housing project at an estimated R84-billion, R30-billion of which comes from state funds. This has not been without heavy criticism because of its design and since the plans lack critical information, including on how black businesses will be involved. It will be highly disappointing from a transformation perspective if the government’s inability to prioritise black-owned companies results in their failure and ultimately the livelihoods of the many families who depend on those companies for their bread and butter. 

The success of any housing development rests with public/private sector collaboration. According to President Cyril Ramaphosa, private sector resources and expertise will aid the government’s efforts to meet the housing demand. The public sector can incentivise further investment by providing the necessary bulk infrastructure to enable development, but Ramaphosa ought to know that all of these efforts without the active involvement of our black-owned companies defeats the purpose of developing our society and, therefore, government should highlight and note transformation obligations before undertaking such mega projects. 

Property developers and big wigs, Balwin Properties’ share price jumped by 15% after launching the largest sectional title development for the intended Mooikloof Mega City. The white-owned enterprise has seemingly cashed in on the lucrative opportunity and is making great gains on the back of the government’s economic recovery plan, a tale many black owned companies could only wish to tell.

Truthfully, the government’s economic stimulus package has been slow to reach black businesses if at all during these trying times for the construction sector. To support businesses during this time, Ramaphosa announced various measures as part of the government’s R500-billion stimulus package. The largest single intervention is a R200-billion loan scheme to help businesses pay salaries, in co-ordination with major banks, the treasury and the South African Reserve Bank. Many have applied for government aid to no or slow and unsatisfactory avail. Minister of Small Business Development Khumbudzo Ntshavheni said in Parliament that most of the Covid-19 relief money had gone to white-owned companies.

Disqualifying black-owned businesses from receiving relief packages through bureaucracy is unethical yet the banking industry is complicit through various means; such as stringent qualification criteria like credit history, limiting information on how to access this funding and implementing procedurally intensive application methods to name a few. The institutional barring of participation of black companies in the economy benefits a few and has dire consequences for many, therefore it should be denounced whenever it rears its ugly head. More work needs to be done to suffocate oppressive tactics that seek to starve black businesses from real growth and bankable opportunities.

Black-owned construction companies have many challenges that have led to the instability they currently face. From delayed payments or non-payments for services rendered, all the way to Covid-19-related risks; operating in the South African construction industry appears to be risky business. Past practices have shown that the public sector is often guilty of not paying contractors on time or at all and most times, it is black-owned companies unfairly bearing the brunt of gross maladministration of government. 

Trading under such conditions has led to changes being made to standardised contract agreements to protect the contractual rights of contractors. Government should, going forward, produce a guarantee of payment to contractors to eliminate the risk of non-payment to construction companies. The Public Finance Management Act stipulates that late payments from the public sector incur interest charges, time value of money is important and companies must be compensated accordingly. Other trusted institutional practices such as risk-assessment procedures may assist contractors in avoiding business risk and possibly ending up in business rescue such as the prominent, listed construction group, Basil Read.

Businesses that have drawn the short-end of the stick when working with the government need to take action against the state and investigate money-flows and administration practices in all spheres of government in an effort to end the scourge of non and late payments to private-sector companies. 

As things stand, the government is essentially killing black business by collaborating with so-called “white monopoly capitalists” on every front. It is turning its back on black businesses in the private sector instead of fertilising its growth to forge real economic prosperity in our country and for our citizens. 

To echo Gregory Mafokeng of the Black Business Council in the Built Environment, by not honouring its obligations, the government is causing the demise of black businesses which are often unable to ensure recourse because of the high legal costs involved. The chances of one getting work after suing the government is very small. Also, it seems that black businesses are relegated to the sidelines as sub-contractors on these mega projects. 

Black people will never be truly liberated without pragmatic avenues that lead them to economic freedom. Black Economic Empowerment is not implemented as robustly as it appears on paper and there does not appear to be a long-term strategy to create large black-owned businesses. The state must be fully capacitated to make economic freedom a reality and not serve as a stumbling block to its people’s liberation.

The views expressed are those of the author and do not necessarily reflect the official policy or position of the Mail & Guardian.