‘Government has failed on its infrastructure delivery promises’

The government has failed on its infrastructure delivery promises, according to construction market intelligence firm Industry Insight.

Its latest construction industry forecast report highlights that in July 2020, Minister of Public Works and Infrastructure Patricia De Lille unveiled 62 mega construction projects that were going to be “fast-tracked” that are “shovel-ready” and “bankable”.

It said these projects, with a combined value of R360 billion, are more than the entire size of the South African construction industry in an average year.

“And while government 18 months later says that these projects are at various stages of development, the reality is that the roll out of these projects has been excruciatingly slow, with no evidence to show any meaningful uptick in construction activity over the last 12 to 18 months,” it said.

“Reality shows a further decline in various indicators, such as the value of civil tenders awarded and gross value added at production level in 2021 compared to 2020.

“While we are given examples of specific projects that are underway, these appear to be anecdotal examples and it is apparent that the various departments of infrastructure don’t seem to have any sort of meaningful system to monitor the rollout of these projects.”

Industry Insight said its data and other official data released by Statistics SA indicates that “there has been no documented improvement in civil investment”.

The report refers to comments by WBHO CEO Wolfgang Neff, saying he has been following a total of 26 of the 62 mega projects since their announcement but so far only two have been awarded.

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It also refers to:

• The South African National Roads Agency (Sanral) announcing delays to multibillion rand road projects collectively valued at R31.7 billion, involving 258 tenders, being rolled over into the next financial year; and
• Transnet suspending broad-based economic criteria from its tenders in March following a National Treasury directive earlier that month in reaction to a Constitutional Court ruling.

It said many state-owned enterprises (SOEs) will more than likely be following in Transnet’s footsteps to temporarily withhold tenders while it seeks clarity on the new amendments, which will add further unfortunate delays in tenders and subsequent infrastructure investment.

But Industry Insight stressed that it is not all bad news.

Provincial departments showing promise

The firm said there is anecdotal evidence that provincial departments are taking more assertive steps to improve infrastructure investment.

“While lack of funding remains a serious constraint, if budgetary allocations are effectively spent, that will already go a long way in improving the future of the sector, while giving the much-needed impetus to the private sector to unlock investment,” it said.

However, Industry Insight said the core of the problem remains within the municipal departments through which a large chunk of infrastructure grants are channelled.

It said municipalities require urgent assistance to improve infrastructure planning, procurement and delivery.

“Metropolitan areas have failed to spend budgetary allocations, with billions being rolled over year after year.

“With R34 billion being rolled over during the 2018/19 – 2020/21 [three-year] financial period, metros are in dire need of intervention – and if metros fail to spend budgets, smaller municipalities are even more likely to struggle,” it said.

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Bold words

Industry Insight said hopes for the construction sector were raised by many outspoken announcements regarding infrastructure investment and various development programmes as the catalyst to restore economic growth and aid economic recovery.

“The lacklustre approach to infrastructure budgetary allocations is therefore disappointing,” it said.

Industry Insight said there are however glimmers of hope of an imminent recovery.

The strong rise in tender values issued during 2021, combined with a more robust increase in economic infrastructural allocations announced in the 2022 Budget “may just set the scene for higher levels of investment”.

“This entirely depends on government’s earnest commitment to expedite expenditure in line with budgetary commitments, reduce wasteful expenditure, eliminate corruption, and ensure procurement is done in such a way that project implementation is not unnecessarily delayed.

“A more effective government spending regime may very well create the much-needed and sought-after private sector investment appetite, and this could catapult the sector into a much higher growth and recovery path, swiftly,” it said.

Industry Insight said it is yet to see any sustainable bounceback in residential investment since 2021, while the non-residential segment is also expected to come under increased pressure over the next 12 to 18 months because of big cuts to public spending together with a severe lack of demand for commercial buildings and excess supply.

Industry left waiting

Master Builders South Africa (MBSA) executive director Roy Mnisi said sections of the association’s membership are seeing some improvement in their areas of work but other sections are not seeing any improvement.

Mnisi said there does not seem to be any improvement in public sector spending.

“There have been some complaints and challenges that there is not enough work coming from the public sector despite the fact there are quite a number of projects that have been announced.

“There are a lot of things that are happening that should be propelling us to see a lot of spending from government, for example the July 2021 insurrection and currently with the devastation of property by the recent floods,” he said.

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Where is the urgency?

Peregrine Capital executive chair David Fraser does not see any real bright spots on the construction horizon except perhaps from mining investment because of underinvestment over the past few years and the Covid-19 pandemic.

Fraser said this will involve largely civil work, such as opening new pits, dams and access roads, because the mine owners want to run their mines properly and “bank the really good commodity prices at the moment”.

He questioned when Sanral expects to release its backlog of tender awards.

“It’s clear there does not seem to be any urgency,” he said.

“Sanral could be a catalyst and it’s failing in its duty and its mandate.”

Fraser added that as tragic as the floods in KwaZulu-Natal are, the situation does provide an opportunity for some rehabilitation work.

This article originally appeared on Moneyweb and has been republished with permission.