Construction sector sheds jobs as it faces late payments, community mafias
11th March 2020
By: Irma Venter
Creamer Media Senior Deputy Editor
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Around 90 000 formal jobs have been lost in the South African construction industry from June 2018 to September 2019, says construction market intelligence firm Industry Insight.
Employment in the sector now stands at around 600 000 people, says CEO Elsie Snyman.
The likelihood of a turnaround in employment is unlikely when considering where the industry is heading, she adds. In fact, Industry Insight expects more job losses, if looking at the trend in January and February.
“Within the industry, and here I include the unions and employers, we have to start working together to work towards the best case scenario,” says Snyman.
Consider the case of South African Airways – if a number of people are not retrenched, the business may have to close down, with everyone losing their jobs, she notes.
Snyman says the construction industry is under “immense pressure”.
South Africa’s gross fixed capital formation (GFCF) was R430-billion in 2018, or 19% of GDP and falling – far short, by about R600-billion, of the 30% targeted in the National Development Plan.
GFCF includes spending on land improvements; plant, machinery, and equipment purchases; the construction of roads, railways, private residential dwellings, as well as public- and private-use buildings.
“We expect this 19% to deteriorate over the next three years,” says Snyman. “It’s going to bite us going forward.”
She adds that industry challenges include poor economic growth; financial constraints within government; late payment by government; a lack of private sector confidence; corruption, which is further eroding funds; underspending of budgets; concerns over whether contacts are awarded to skilled contractors; the slow awarding of contracts, currently at around 12 to 18 months; and the rise of the construction mafia, with some ‘communities’ continuing to violently disrupt construction sites.
The corona virus is a new threat, says Snyman, with around 100 builders having closed their doors in China.
Locally, contractors have seen shortages developing in certain areas, such as air conditioning and the availability of certain international skills.
As for the construction mafia, Snyman says a conservative estimate is that 84 projects with a value of R42-billion have been affected.
“It’s probably much more, though.”
She adds that it is concerning that smaller contracts are also now being affected, such as a R6-million contract which has recently been disrupted by a community demanding 50% of the budget of the project.
Snyman believes that construction companies will have to start building security costs into the costing of their contracts.
However, she warns that the construction sector has “very little room to deal with shocks and disruptions on construction sites. When mafias get involved, contractors have very little room to move”.
This comes as profitability in the industry has fallen by 42% for the first nine months of 2019 compared with 2018.
As for late payments, Snyman says that in some provinces, such as the Free State, 89% of payments are more than 90 days overdue.
Looking at payments at municipalities, the trend is that more than 60% of payments are due for more than 90 days. In rand-terms this equates to R30-billion outstanding for more than 90 days in 2019, up from R5-billion outstanding for more than 90 days in 2013.
This comes despite government’s recent promise to make payments within 30 days