27
july-august 2014
international
construction
REGIONAL REPORT
South African hope
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A
n illustration of how gloomy the South African
construction environment has become was given by
contractor Basil Read’s warning to warn shareholders that
it expected headline earnings per share for the six months to June
to fall some 270%. Other construction companies such as WG
Wearne and Esor have also reported weak results.
“There is still overcapacity in the market, capacity was built
leading up to the World Cup 2010,” said Stanlib Industrials
Analyst Anashrin Pillay. “There’s a lack of major projects
coming to the market, making the operating environment more
competitive - no new power stations, road projects etcetera.”
This, he says, left firms with limited pricing power as they
jostled for thin-on-the ground projects.
It doesn’t help that the biggest client of the South African
construction industry is collectively the government, and thanks
to the collusion scandal, the relationship between the public
and private sector is at an all-time low. Last year the country’s
Competition Commission found that construction contractors
had colluded on prices for the World Cup and levied a hefty
fine on 15 of the largest firms of ZAR 1.46-billion (US$ 136
million).
The biggest spenders are national power utility Eskom, state
logistics company Transnet, and the country’s road authority
SANRAL. Cheating your largest customer is not the wisest
strategy and construction companies are struggling to mend the
rift.
They have a strong incentive to do so. Last year the Treasury
approved a ZAR 845 billion (US$ 79 billion) package for public-
sector projects over the next three years, with ZAR 296 billion
(US$ 28 billion) in the energy sector and ZAR 262 billion (US$
24 billion) allocated to transport and logistics projects.
It’s been a horrible few years for South
Africa’s construction industry as it tries to
shake off a rolling collusion scandal and
the fall-off of business following the 2010
World Cup.
Gavin du Venage
reports.
South African hope
A drought of large-scale projects since
2010 has left the South African construction
industry struggling to maintain its order book
Construction firms have had to idle
their fleets while waiting for the
government to begin its long awaited
national infrastructure programme
