LISTED CONTRACTORS FEELING THE PINCH AS CONSTRUCTION SECTOR DYNAMICS CHANGETO PL

Listed contractors feeling the pinch as construction sector dynamics changeTo pl

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Industry Insight senior economist David Metelerkamp discusses the state of South Africa’s construction industry. Video and editing: Darlene Creamer.

18th July 2018

By: Natasha Odendaal
Creamer Media Senior Deputy Editor

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A change in dynamics within the construction industry over the past few years is leading to the demise of the “big contractor” in South Africa.

With the first potential “casualty” possibly being seen in the downward spiral of Basil Read, Industry Insight senior economist David Metelerkamp on Wednesday said the past few years had seen the grip of South Africa’s large, listed construction firms on the construction market steadily eroding in a sector that was already facing tough times.

With nearly 70% of the market value of the listed giants lost over the last ten years, the higher-end of the sector is feeling the most pain, he said during an AfriSam stakeholders breakfast session.

Discussing the state of the South African construction sector, he explained that post the massive boom in the early 2000s and subsequent double-digit growth year after year, the dynamics in the industry started to change as a clear downward trajectory in the industry emerged.

“From about 2011 to present, we saw quite the demise of the big contractor,” Metelerkamp highlighted, noting a significant increase in small and medium-sized contractors taking up the work that the bigger contractors were traditionally awarded.

The smaller contractors “basically replaced” the larger players, growing their contributions to the industry from 16% in 2012 to 40% currently, while the contributions from the major players fell from a reported 60% contribution in 2012 to 40% or 45% now, leading to a loss of about 15% of market share.

This came as government started breaking up the big projects into smaller pieces, owing to a slower pace of transformation than government would have liked, in addition to the collusion in the building of the 2010 FIFA World Cup stadiums and the loss of trust in the industry by government – the sector’s largest client.

The pressure faced by large contractors is compounded by the disarray of the overall sector, particularly the civil sector, which is at recessionary levels and is facing a particularly tough year ahead.

In addition, it is believed that there are “just too many” listed construction companies in South Africa, compared with global trends, Metelerkamp said, noting that China and Australia, for example, had only three to four listed construction firms, compared with South Africa’s nine