Robust infrastructure plays a critical role in a country’s economic growth and guarantees sustainability of jobs. The construction sector forms a big part of infrastructure development, but what happens to the growth of the economy when the construction sector faces drawbacks?
ESI Africa spoke with Monty Ditibane, director of DBI Consulting Engineers, to grasp the enormity of the challenges and future direction of this sector in providing a solid economic rock that supports job creation.
What is the current state of the construction sector?
The construction sector is in trouble and an industry on its knees. We’ve seen a decline over the last 10 years to its recent record low levels and increasingly we are seeing companies being liquidated or going into business rescue. In the second quarter of 2018, the construction sector recorded positive growth of 2,3%, according to Statistics South Africa. This was after the sector experienced its fifth consecutive quarter of decline in the first quarter, with the industry losing R1,7 billion in value since the fourth quarter of 2016, falling from R110 billion to R108 billion in the first quarter of 2018. Despite the uptick in the second quarter off a low base, the sector is going to struggle for the foreseeable future due to low economic growth and lack of infrastructure spending.
However, there is a glimmer of hope, and in October’s Medium Term Budget Policy Statement, the new finance minister, Tito Mboweni, made it clear that the government would like to rebuild confidence in the economy and unlock private capital and investment, referring to the need for greater policy certainty. Government will also allocate R15.9 billion to infrastructure programmes. These are steps in the right direction to get the sector, and the economy, going again.
Briefly explain the important role of energy infrastructure in boosting the economy
What constitutes the core of the Integrated Resource Plan (IRP) is that all of the industries involved are highly labour-intensive, which creates longterm work. To build these assets and infrastructure as per the IRP it will take 20 to 30 years. This timeframe will result in a long-term value chain affecting and bringing in all types of players. It can be confidently said that the industry can be kick-started with this IRP plan, which will also create small businesses on the periphery of these projects – this means jobs, and more people with more jobs means more money being spent in the economy.
Higher infrastructure spending creates more jobs and leads to higher economic growth; more regional partnerships and cooperation, which can lead to all-important skills transfer between countries, as well as the up-skilling of the labour force.
However, we need to ask ourselves what type of skills we currently have for the different energy proposals in the mix and do they match what is needed in future. Local skillsets and up-skilling of the young workforce is critical.
What opportunities does the gas-to-power programme provide for the South African economy and the rest of the region?
The gas-to-power has one enormous benefit – the cost advantage. Relative to other resources, gas is a cheap commodity and South Africa therefore needs to establish its gas-to-power programme sooner rather than later. But for the programme to happen we need the infrastructure, aligned labour force skills and the capital.
In terms of the IRP, new installed capacity to 2030 will include 8,100MW of gas. A vast opportunity exists for the independent power production sector to participate in state procurement, which is particularly relevant for emerging black businesses to enter and grow in various markets. The Renewable Energy Independent Power Producer Procurement Programme for South Africa also presents opportunities for the construction and engineering sector.
One issue in South Africa is the timeframe for policy formation, which is a long-winded consultation process. We need to speed that up and be more efficient, and all stakeholders and departments need to talk to each other and work towards the same goals – for this we need decisive leadership. Our problem is over consultation and over analysis, and no implementation and very little action. We have various instances where we don’t have alignment, such as between regulators and ministerial departments. These issues hinder the good intent of the policies.
Regarding the importance of strategic partnerships, does South Africa have the local skills and technology necessary for development projects?
Because of slow growth and a depressed capital environment, realignment is needed in the form of strategic partnerships. Construction companies, engineering companies and consulting companies should partner with those that share a vision and values, to start integrating and growing together. This will lead to skills transfer within the market as well as from established players to up and coming companies to grow the economy and sector inclusively. The ultimate goal is the establishment of local skills and knowledge to build this much needed infrastructure and projects into the future.
We need leadership to drive these partnerships. Of late, sector challenges have led to people realising that these partnerships are indeed necessary. One problem is that skilled people are ‘greying’ – they are facing retrenchment or retirement, and the skills are not transferred to the newer generation. Unfortunately, these types of artisanal work are also seen as unfashionable by the younger generation. It is our responsibility to make people excited about this type of work again and to attract skills to these sectors through regulation and educational initiatives. ESI