The construction sector in South Africa continues to perform dismally since the global economic crisis, reveals a report by Global Consultancy firm PwC.
The report was based on dismal performance of construction companies in South Africa at the JSE construction index in the main market. Five out of the nine biggest listed construction companies reviewed had market capitalisations below their net asset value.
Project challenges, delays, Competition Commission referrals and structural collapses are the biggest setback in the industry.
Delays in energy-related works such as Kusile and Eskom’s Medupi power stations have left the industry in stagnation.
There has been a decline of 4% in the total order book for the year since PwC started publishing the report. This comes as the Bureau for Economic Research’s business confidence index registered a five-year low, as weak demand weighed on company volumes and profits.
While presenting the report PwC’s Energy and Mining assurance partner Andries Rossouw said there is no confidence in the industry at the moment.
He said that public spending on large infrastructure projects had dropped in the year owing to the inflation in the cost of construction materials.
“Huge public expenditure is not happening in line with expectations. However, a current shift in public sector spending towards housing, schools, water reticulation and clinics has kept some smaller JSE-listed construction companies ticking over nicely,” Mr Rossouw said.
Mr Rossouw said the largest construction and engineering stocks have recorded dismal performance as they dig in for more lucrative, but risky, infrastructure work in Africa and Australasia.
He said there had been significant demand for building, but this would not recur going forward. The increased risks of losses for construction firms as execution of projects had to be perfect.
A portfolio manager at Cratos Capital, Ron Klipin said that government funds were “very tight”, hence the slowdown in the economy.
Klipin said construction pundits will remain under pressure for some time to come.