Wednesday, 20 June 2018 20:51

Construction industry in a state of emergency, says Master Builders Association North

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The announcement on the 15 June 2018 that Basil Read Construction is applying for business rescue is a clear indication of the critical state of the construction industry, says Mohau Mphomela, Executive Director, Master Builders Association North.

 Mohau Mphomela of MBA North

“Basil Read is the second principal contractor to apply for business rescue since NMC Construction in December 2017. Others that have applied for debt-freezing agreements include Group 5 and LBC Lenco Construction, and indications are that there are still more to come,” he says. “The writing is on the wall unless we unite as an industry to discuss the challenges we all face and come up with solutions. There is no time to be lost – if we lose our big construction companies, we lose not only many jobs but also our national capacity to build the infrastructure a growing economy needs.”

Basil Read’s announcement comes in the wake of the news that the South African Gross Domestic Product (GDP), and more specifically the construction industry, declined during the past quarter. This is the fifth consecutive quarter in a row that the construction industry has declined, reducing its value from R110 billion to R108 billion.

The low investment by government in infrastructure development in the 2018/2019 budget means the sector is set for further decreases, Mphomela believes. He says that a wide range of factors have played a part in the industry’s decline, among them shrinking margins, increased penalties, and non-payment or delayed payment by clients (in both the private and public sectors).

In particular, Mphomela singles out the relentless pressure from professional teams representing clients who insist on continual cost reduction. “Contractors frequently give in to their demands in order to keep the business, but reduced margins and lower profits means they are never able to build up capital for investment or to survive lean periods,” he explains. “As a result, even the biggest companies are living from hand to mouth.”

A new challenge facing the industry is pressure from the so-called construction mafia – companies or individuals that, under the cover of local business forums, extort money from principal contractors involved in local infrastructure projects in the name of empowerment. Threats of violence and/ or disruption are used to force principal contractors to pay up. Contractors are typically not supported by their clients, who say it is up to them to resolve the issue. These demands have the effect of increasing the costs of doing business.

“When the larger construction companies come under pressure or are forced to close, not only do their employees lose their jobs – there is a knock-on effect across the industry. Smaller contractors are forced to wait for their money, and they too become vulnerable,” he concludes. “Urgent action is needed by all of us in the industry.”

Last modified on Wednesday, 20 June 2018 21:05

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