Construction sector outlook promising following difficult 2017 – Bryte

The construction sector in South Africa faced an exceptionally challenging 2017, reaching 17-year lows; however, it remains one of the economic engines of the country.

The construction sector holds immense potential for advancement of the country’s general financial wellbeing, says Bryte Insurance specialized property division national head Juan-Pierre Holmes. Bryte publishes a yearly construction activity monitor, which analyses long-term insured construction projects data within the market and provides a high-level overview of activity within the sector.

It also measures, on a quarterly basis, the change in insured construction projects undertaken by small, medium-sized and large construction entities. Holmes explains that, in relation to gross domestic product, the National Treasury’s public-sector infrastructure spend – the greatest funder of construction activity in the country – continues to support economic expansion, diversification and competitiveness.

“The proposed budget of more than R800-billion allocated for public infrastructure development, including an additional 25% for power to the constrained current electricity grid, expansions in the public transportation sector and road upgrades and upcoming development of healthcare facilities and school projects, will ignite vital growth within the sector.”

However, four of the top six largest construction companies in South Africa lost between 50% and 70% of their share price value in 2017. Holmes attributed this to a lack of business confidence, which dropped to a record 30-year low, largely owing to political and policy uncertainty.

“To be more competitive and to maintain profitability, companies have [also] had to relook methodologies of construction and types of technologies they have had to use,” Holmes remarks. He adds that construction costs were also on the rise in 2017 driven by devaluation of the rand, the oil price, labour costs and labour unrest on site, as well socioeconomic stresses in South Africa.

“The policymakers were slow to respond; however, there has subsequently been an upbeat feel since President Cyril Ramaphosa’s appointment.” “Land reform talks could impact on foreign investment,” Holmes says. “The outlooks are positive, but everyone is waiting to see what happens.” Meanwhile, Holmes suggests uplifting the construction sector will involve meaningful integration of physical and digital technologies, while adopting enabling technologies for operational and cost efficiencies and should use risk management professionals to thoroughly map out exposures and present holistic solutions.

Additionally, Holmes says on-the-job training and other skills development opportunities need to become more widely available.”