NEWS: Is SA heading toward life without a construction sector?

The Covid -19 pandemic has brought forward by at least 2 to 3 years the problems the South African construction industry will have to confront.

The decimation of South Africa’s listed construction sector is continuing, with construction and engineering company Esor confirming that it will be delisting from the JSE.

The announcement by Esor’s business rescue practitioners (BRPs) on Wednesday follows former construction heavyweight Group Five reporting last week that its listing on the JSE will be removed on June 15 and property and memorial park developer Calgro M3 confirming this week its decision to close its construction division, resulting in the retrenchment of about 150 employees.

Esor’s listing on the JSE is scheduled to be removed on June 22.

Basil Read

The future of Basil Read, another former JSE construction sector heavyweight, is also uncertain. It went into business rescue in June 2018, shortly after reporting a net loss after tax of R1 billion for its 2017 financial year.

In an update to the business rescue proceedings issued in January this year, the BRPs said the effect of the implementation of the plan at group level remains uncertain until it’s completed. “Therefore, the [JSE] suspension will remain in place until the implementation is complete and the effects on the group can be determined,” they said.

However, the BRPs anticipate that more than 2 600 Basil Read employees will be retrenched but these employees will receive their full retrenchment packages.

Other players

Murray & Roberts (M&R) in March 2017 transferred its JSE listing to the general industrials sector from the construction & materials: heavy construction subsector. This followed M&R selling its southern African infrastructure and building business to the Southern Palace Group for R314 million in 2016.

Of the remaining companies listed in the construction sector, Aveng sold its Southern African construction and engineering business Grinaker-LTA to Laula Consortium late in 2019 and Stefanutti Stocks has experienced financial and other difficulties.

This has arguably left WBHO and Raubex as the only remaining companies in the heavy construction sector with the ability to undertake major infrastructure projects.

David Metelerkamp, senior economist at construction market intelligence firm Industry Insight, said on Wednesday there is not a lot left of the listed construction sector.

Listed contractors overall have lost more than 80% of their value over the past 10 to 12 years, adds Metelerkamp. Most of the remaining companies in the sector earn more than half of their earnings outside of South Africa.

‘Future problems’ have presented now

“The future of South African construction is so limited, especially because of the Covid-19 pandemic. It has sped up, to now, the problems that we were going to be facing in two to three years’ time,” he said.

President Cyril Ramaphosa, in announcing a R500 billion social relief and economic package last month, said: “Central to the economic recovery strategy will be the measures we will embark upon to stimulate demand and supply through interventions such as a substantial infrastructure build programme, the speedy implementation of economic reforms, the transformation of our economy and embarking on all other steps that will ignite inclusive economic growth.

“We will outline this in coming days,” he said at the time (April 21).

However, Metelerkamp said nothing further has been heard about this package since then.

He says the trend globally is that it’s a good thing for governments to invest in infrastructure, to play a countercyclical role and limit the damage of the Covid-19 pandemic “and the economic hiatus it has closed us into”.

A different world

Metelerkamp believes there is still sufficient capacity in the construction sector to undertake and deliver the infrastructure build programme – but the quality of the infrastructure built will not be as good as in the past.

He said the major companies that have expertise in building the highest quality infrastructure are much smaller than they were, and other Construction Industry Development Board Grade 9 contractors do not have the same experience and expertise in building mega projects.


Source: Moneyweb