The Construction industry in South Africa 2022

Introduction

The construction sector contributed R141bn in gross value added, or 2.7% of GDP, in 2021,

The largest contributor to gross fixed capital formation was construction works/civil engineering, followed by residential buildings and non-residential buildings. Although there are still headwinds, role players say there are “green shoots in the form of shovel-ready projects”.

Industry players welcomed government’s February 2022 announcement of infrastructure investment of more than R810bn over the next three years, but said rapid implementation is critical as the industry cannot afford further delays.

Opportunities

3D printing of building materials and structures.

Government has prioritised infrastructure development and is aiming to attract higher levels of private sector investment. Projects focusing on sustainability and green building, including off-the-grid living. The creation of micro-living solutions. The development of affordable housing. The development of drone services for the autonomous handling of materials on construction sites. The development of smart cities. The rollout of infrastructure development projects in South Africa, on the African continent and in other regions. The supply of modular structures for low-cost housing, healthcare facilities, etc. Urban renewal and the repurposing and conversion of vacant commercial and industrial buildings into residential units.

Outlook

Floods and droughts have highlighted the importance of sustainable infrastructure development and the need for weather-resilient buildings. Cabinet’s approval of the National Infrastructure Plan 2050 in March 2022 provides a long-term road-map for infrastructure development. Local construction activity is gradually recovering, project pipelines are stabilising and there are opportunities in the energy sector, specifically in renewables. Domestic market conditions remain extremely challenging. Given the sector’s weak growth prospects, large players are expected to continue to pursue opportunities in high growth African markets and other regions.

Report Coverage

This report on the construction industry in South Africa includes comprehensive information on the size and state of the sector including number of registered contractors and projects and other indicators, infrastructure development, notable players, major developments and corporate actions, and regulatory and environmental issues affecting the sector.

There are profiles of 55 companies including well-known contractors such as Concor, Grinaker LTA, Raubex, Stefanutti Stocks and Wilson Bayly Holmes-Ovcon, state-owned players such as the South African National Roads Agency and specialist companies including Viva Formwork and Scaffolding, SA Scaffold Manufacturing and Kwikspace Modular Buildings.

Selected Highlights

Backward integration Whilst it is general practice for construction companies to focus on its core business, it does make sense for some companies to backwardly integrate into their respective value chains, especially as it relates to critical raw materials (e. g. re-enforcing steel products)

Internationalisation Construction companies tend to increase their footprint globally (Africa and the Rest of the World) in order to take advantage of growth opportunities elsewhere, to reduce their dependency on local markets (especially if local markets are small and growth is pedestrian), to reduce concentration (diversification) and to earn hard currency.

Rightsizing labour It is crucial for construction companies to increase and decrease their labour force in line with their output. Not doing so, can materially hurt the company financially. Most companies would therefore only employee workers on the basis of a firm order book (in addition to its core staff and management)Upskilling the work force The number of projects across building and civil engineering are not always synchronised. It is therefore important to upskill workers within these broad disciplines to such a level that they can be interchangeable between these two lines of business.

Worker shortages in civil projects can be augmented by surpluses in building projects, and vice versaStrengths

Barriers to entry for small and micro-sized companies are low.

Construction is a key driver of socio-economic development. Government has prioritised the development of SMEs and companies owned by historically disadvantaged people. The construction industry is a strategic sector serving all sectors of the economy. The industry is one of the country’s largest creators of employment. There is a relatively high level of innovation. There is a strong culture of small business development.

Threats

Climate change-related shocks, notably floods, coastal surges, rising sea levels, wildfires and droughts.

Economic pressures, rising inflation and variables such as exchange rate fluctuations and the volatility of raw material prices. Policy uncertainty on land expropriation and land restitution. The impact of the Russia-Ukraine war on global security, energy prices and food security. The pandemic presents an ongoing risk, with the threat of new variants and the continued disruption of global supply chains. The threat of political instability and further eruptions of civil unrest.

Weaknesses

Construction sites are inherently hazardous workplaces. Contracts undertaken by smaller contractors are often poorly executed, project delays are common and quality control is often substandard. Corruption is endemic. Profit margins are narrow and projects are commonly over budget. The industry is male-dominated, there is a shortage of skilled labour and it is often difficult to retain professionals with specialist skills. There is a high level of reliance on the public sector for large projects. There is generally a low level of regulatory compliance.