Construction industry contraction paints worrying picture

2019-07-23T15:24:24+00:00July 23rd, 2019|News|

South Africa has suffered its worst decline in economic activity in a decade, in the first quarter of 2019. One of the sectors contributing to this decline is the construction industry, witnessed by some long-established industry-stalwarts and household names being liquidated or placed in business rescue.

The worrying figures posted after the 1st quarter’s economic activity data released in May, do not paint an encouraging picture at this moment, particularly with regard to the construction sector. The construction industry has added to the country’s unemployment woes, by shedding some 142 000 jobs between Q4 2018 and Q1 2019.

Allen Bodill, executive director of the Master Builders’ Association Western Cape (MBAWC), says that despite these challenges, a concerted effort by both government and the private sector could turn the industry around. “Obviously we are very concerned about the number of liquidations and business rescues we are seeing in the industry. Our own members are also acutely affected by the prevailing difficult circumstances.”

A general dearth in government spending and infrastructure projects, coupled with political uncertainty and its resultant effect on investor confidence, has seen many industry players of all sizes, being brought to their knees.

“There is no doubt that, as some of the bigger firms have collapsed, it has opened up new opportunities for smaller, more agile contractors, but some unfortunate contract practices have evolved that prejudice the financial security of participants of all sizes in the industry,” says Bodill.

One unwelcome practice that has evolved, he says, involves the amendments of standard contract documentation, which serves to unfairly shift the balance of risk among participants in the supply chain. This is especially prevalent under the current market conditions, leading to main contractors and subcontractors accepting more onerous contract conditions, simply because they are desperate for work.

“At the MBAWC we also frequently see the effects of delayed and non-payment of contractors, and this is directly affecting the viability of many businesses. While there has been significant job losses, due to some larger firms going into business rescue or being placed in liquidation, the erratic and late payment practices that are becoming a widespread phenomenon in the industry are threatening the continued existence of contractors, subbies and suppliers of all sizes and descriptions. The smaller, labour-only type subcontractors who now carry out a significant portion of the work on projects, due to the ongoing fragmentation of the industry, are particularly at risk. The livelihoods of many families are directly dependent on smaller contractors, who operate in this space, being paid fairly and timeously,” Bodill explains.