How black companies could fill SA's construction gap
The demise of construction companies that have operated in SA for decades could pave the way for a new group of black-owned groups, experts say.
These middle-tier companies, with order books of less than R1bn, could then play a large role in improving the country’s infrastructure for decades to come and partnerships among them could lead to new construction groups listing on the JSE, they believe.
In the past two months, two of the country’s nine listed construction companies — Basil Read and Esor — have entered business rescue, raising concerns about the balance sheet strength of remaining companies to take on large infrastructure projects. Business rescue is designed to help struggling companies restructure their debt and other affairs.
"We need a viable construction industry in the country. A number of large construction groups which have been institutions in SA have shrunk and are under pressure. They are competing among themselves for their share of what is a much smaller pie of available work than a decade ago," said Clive Rumsey, a construction law expert at Hogan Lovells.
"But there could be an exciting future for smaller constructors," he said.
"The optimistic approach is that a middle tier of mostly black-owned businesses will develop out of the disintegration of the older larger groups."
Gareth Cremen, a business rescue and insolvency law expert, said there was work in the sector and that fears that Chinese companies would take the majority of construction projects away from SA companies were overblown.
"Chinese contractors are not used to private tender processes which include local procurement elements. We tend to see Chinese companies doing work in Africa on a government-to-government basis.
"I think we could see Chinese groups taking control of some massive infrastructure projects in SA and then part funding those projects, but there will still be a need for many South African contractors and sub-contractors, especially as partners," he said.