The state of SA’s civil construction industry — as shown by the fourth-quarter FNB/BER civil confidence index — is so dire that a rise of four index points to 19 out of a maximum of 100 lifted the index from the 17-year low in the third quarter of 2017.
The subindex measuring employment growth reached its worst level since mid-2011. Despite a slight uptick in confidence, growth in construction activity also slowed further in the quarter.
It is time to apportion blame for this and the associated demise of the steel industry.
SA’s big listed construction companies did not change after 1994. Instead, their corrosive arrogance caused them to be fined altogether R1.46bn for collusion and, more recently, agreeing to pay R1.5bn more towards industry transformation. SA’s largest steel producer, ArcelorMittal SA, also harboured monopolistic attitudes and was fined R1.5bn for price fixing.
As the government has moved most of its infrastructure spending to rural areas, large listed construction companies found themselves severely overweight amid promises of huge continuing infrastructure spend after the 2010 World Cup. The government has also starved the mainstream industry of funding while punishing it for collusive behaviour.
Commodity and currency volatility has hampered operations of such companies. But they have been further blighted by the politics of state capture and blunt policy prescriptions
CEOs tell of little public spending on major infrastructure projects, ranging from dams to large water and sanitation networks. These have been replaced by many much smaller projects in distant places, amid fierce competition for tenders. This is necessary, especially as these companies have operated within cartels and rural areas have severely lacked infrastructure. But from a skills and organisational point of view and in terms of gross economic mismanagement under President Jacob Zuma the core domestic construction industry has nearly bled to death.
Aveng, once the largest construction group by turnover, has along with large writedowns and losses fallen to about R1.50 a share. Revenues have plunged from above R50bn a year in 2013 to less than R24bn. Like Murray & Roberts, Group Five and Wilson Bayly Holmes-Ovcon (WBHO), Aveng now draws substantial revenues from abroad. The Asia-Pacific most recently made up 51% of Aveng’s order book, while Australia makes up about 70% of WBHO’s.
Commodity and currency volatility has hampered operations of such companies. But they have been further blighted by the politics of state capture and blunt policy prescriptions. Amid looting at public enterprises, the state has tied corporate SA into a bureaucratic knot. Meanwhile, under Zuma, economic and social transformation morphed into the miasma of "radical economic transformation".
This means SA’s steel and construction industries have ended 2017 with a whimper. Construction in SA generally uses more than half of the country’s steel production. The rhetoric of the "National Democratic Revolution" is far from the National Development Plan and the New Growth Path, which, though they differ in their visions, do not countenance outright thieving.
Allied to the Industrial Policy Action Plan, the nine-point action plan and a plethora of other plans lost in the mists of time, SA’s future remains almost entirely mandated by the government. Private sector input is merely reactive to the rapid-fire policy making of ministers, including Rob Davies and Ebrahim Patel, whose red tape suffocates the steel and construction industries.
While public-sector losses in the economy have recently been dwarfed by likely losses related to Steinhoff, state-owned entities are being bled by corruption — aided and abetted by private sector interests. It is clear that little is being done to resuscitate the country, further damaged by the R50bn hole in tax collection.
Despite a "settlement agreement" between the government and seven construction companies to rapidly transform the industry, an empowerment deal between Aveng and a prospective empowerment partner for 51% of its African infrastructure arm, Aveng Grinaker-LTA, has now fallen by the wayside.
Aveng says black women-owned Kutana Construction, now known as Singabakhi Holdings, cannot raise R20m in upfront payment for the transaction. The empowerment group, however, says Aveng Grinaker-LTA has underperformed on expectations and Aveng is not committed to the subsidiary.
The transaction was given the green light despite the Competition Commission noting that Kutana Construction was a "newly established entity" that did not have any activities or investments in construction and engineering.
The heavy hand of the state has taken over from the "invisible hand" of a largely free market economy. While transformation is critically important, charters and economic prescriptions with arbitrary timelines and hefty financial penalties will not bring SA back from the brink.
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