NEWS: Road construction demand set to increase over next three years

The South African road construction sector, which has declined in size in recent years owing to the absence of public sector spending, rising material costs and declining profit margins, is expected to see an increase in demand for contractors during the next two to three years says an  advisory firm

The increase in road construction will be driven by the South African National Roads Agency Limited (Sanral) as it is expected to continue making "positive strides in awarding tenders", says advisory firm Frost and Sullivan Africa consultant Yaa Agyare-Dwomoh.

In August 2020, Sanral had indicated that 278 maintenance, operations and construction projects worth R30.2-billion had been advertised for the 2020/21 financial year.

As of late August, 136 of the 287 projects to the value of R7.3-billion had already been awarded, states Frost & Sullivan.

By November 2020, it was estimated that Sanral had awarded between R12-billion and R14-billion of the R30.2-billion worth of road construction projects, Agyare-Dwomoh says.

Sanral manages about 3.6% of South Africa’s national proclaimed road network, which amounts to more than 22 000 km of road. Although the entity manages less than 4% of the national proclaimed road network, it manages the roads that carry about 34.5% of all vehicle kilometres travelled and more than 70% of long-distance road freight.

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"With 93.6% of Sanral’s road pavement condition ranging from very good to fair, Sanral’s principal activities are the financing, management, development, maintenance and rehabilitation of South Africa’s proclaimed national road network.

"However, 6.4%, or 1 421 km, of Sanral’s road network is in poor to very poor condition, with 75% of Sanral’s paved network older than the original 20-year design life span. This results in major capital expenditure investment required to strengthen the road network," notes Agyare-Dwomoh.

The market is likely to see some ‘green shoots’ from government’s massive infrastructure investment drive as gazetted by President Cyril Ramaphosa in October 2020, which states that "as part of reconstruction and recovery of the South African economy, government will in the coming months expedite the implementation of at least 50 infrastructure projects with a total investment value of more than R340-billion.”

About R47-billion of the R340-billion is expected to be allocated to road construction over the next three years. With Sanral spearheading the revitalisation of the road construction industry, the market is optimistic of Sanral’s ability to perform and award tenders, says Agyare-Dwomoh.

"The South African road construction sector has experienced numerous challenges in recent years, which have resulted in the general decline in its market size, marked by medium-sized and large construction firms entering into business rescue or facing financial difficulty and resulting in having to sell certain segments in their companies."

Some construction companies have had to sell their road construction divisions, while others have looked to private concessionaires to sustain the volume of work in the absence of public sector spending. In addition to a decline in government capital expenditure, the industry decline has been exacerbated by rising material costs, a decline in profit margin, the weakening currency, poor business confidence and broken industry operating models that are no longer fit for purpose.

"Consequently, the roads construction sector has continued to experience a lack of work resulting in weak trading conditions while still carrying some excess capacity, which is required for the current volume of work on hand," she says.

As the industry was already at its melting point, the Covid-19 pandemic further exacerbated cascading corporate failures, leaving the industry in dire need for revitalisation and increased public spending.

As the national lockdown regulations were eased, the industry displayed a rapid recovery by June 2020. This was partly owing to the resumption of construction activities, the South African government’s commitment to increasing public spending and Sanral’s commitment to awarding tenders.

"The increase public spending and the number of tenders awarded were done with the expectation of providing some relief to South Africa’s struggling construction industry."

Sanral is regarded as the largest contributor and generator of road construction and maintenance work in the public sector, and is likely to remain as such as its road network expands to 25 000 km in the long term, Agyare-Dwomoh concludes.

Source: Engineering News