SA construction sector upbeat over growth prospects

Despite the slow rollout of projects under the government’s proposed multimillion-rand infrastructure plan, there is optimism in the construction sector as companies diversify to reduce their dependence on government spending.

This is according to the head of underwriting at SHA Risk Specialists Koketso Shabalala, who told Business Day on Wednesday clients and brokers in the sector are more positive.

SHA Risk Specialists, a division of Santam, is the largest specialist casualty underwriting manager in Africa, with more than 30 years of experience in the liability, professional indemnity, financial lines, personal accident and motor fleet insurance markets.

“In discussions with the brokers of clients in the sector there is a lot of optimism and spirits are high in the construction sector, as it will be at the centre of rebuilding the country’s infrastructure and ultimately the economy, too,” Shabalala said.

“These are the guys who have been taking strain during the lockdowns and if they are saying there is a light at the end of the tunnel, then that tells us we are turning the corner.”

On an expected state investment injection, he said “we are seeing some very aggressive growth targets on our client’s behalf”.

After taking a hit during the hard lockdowns, the construction sector recovered amid the DIY boom that followed. At the beginning of 2022, many pundits projected enormous recovery growth in the local industry.

This was boosted by President Cyril Ramaphosa’s February announcement that as part of the R100bn infrastructure fund earmarked for economic recovery, the government would make an initial investment of R1.8bn in bulk infrastructure aimed at unlocking seven private sector projects valued at R133bn.

But the rollout of projects has been at a snail’s pace. The latest data by the Afrimat Construction index (ACI) revealed that SA’s construction sector increased the value it added to the economy by 4.1% in real terms during the second quarter of 2022, up from 2.4% in the first quarter.

This is in contrast to the double-digit growth expected from the industry.

In the interim, SA’s construction companies are diversifying their offerings to access low-hanging fruit such as the rehabilitation of roads and water infrastructure, Shabalala said, which are areas being neglected by the state.

“What I’ve noticed now is that a lot of companies are going into pothole repair space because insurance companies are getting nailed with pothole claims and damage as a result of the state of our roads,” Shabalala said.

“I’ve seen quite a few private hospitals coming across my desk, where private doctors and individuals are getting investment into building their own private hospitals in rural areas,” he added.

The last big injection into the construction sector by the government was in the build-up to the 2010 Fifa World Cup.

Local construction groups including Aveng, Murray & Roberts and Wilson Bayly Holmes-Ovcon (WBHO) have all dipped their toes into foreign markets such as those in the Asia Pacific region, in a bid to escape the benign local growth. But it has not been smooth sailing, and WBHO recently announcing its exit from the Australian market.

Shabalala said the government should adopt a culture of infrastructure maintenance rather than fixing things only once they are broken. He warned that the sector was experiencing a skills exodus as many qualified engineers emigrate.

He said considering the energy challenges the country is facing, the government needs to give the construction sector an update on where infrastructure spending has been channelled in the first half of the year and what projects will be prioritised for the rest of the year.

What they need to know “mainly is how alternative power projects will be prioritised and expedited in order to boost the economy and the construction industry”, he said.

Multiple studies have shown that local construction in recent years has been supported mainly by private entities rather than by the government.

gumedemi@businesslive.co.za