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Construction Summit

Background and Introduction

This summit follows others that are run annually and was held at the Gallagher Convention Centre, Midrand, and Johannesburg.

The summit was hosted by the Progressive Business Forum ("PBF") that invited strategic players and stakeholders from both the private and public sectors to view their opinion and listen to the challenges faced.

With the main objective of PBF being to promote an ongoing dialogue between the business community of South Africa that specialises in the construction sector and the African National Congress ("ANC") leaders in government. It is used as a platform for businesses to engage with the country’s policy makers to achieve common goals of economic growth and black empowerment.

Since the construction sector is considered the backbone of the economy, it makes sense that this sector should be a focal point. Given the likely planned infrastructure spend by government over the next three to five years will be significant, this sector can add material benefit to the ailing economy and provide jobs for many unemployed people.

Summary with opportunities and challenges

This report will be to summarise the general themes that came from all the respective presenters.

Salient Points extracted from the different presentations:

  • Government must ensure political stability;
    • With ethical leadership;
    • With the ability to ensure ease of business;
    • Ensure the rule of law – prevent construction type mafia;
    • Minimise internal conflict; and
    • Provide prompt payment and prevention of construction delays.
  • The R400 billion infrastructure investment programme offered by the Government must go to the correct people and be spent properly to ignite growth in the economy;
  • The existing procurement process needs refining as it is presently not effective and more a hindrance to ease of business. The new procurement policies should make specific reference to include black women;
  • There must be an increased focus on transformation and increasing black ownership in existing businesses and allowing for more black owned and run new businesses;
  • There must be a focus to support black owned contractors, big and small;
  • Considering the lack of funds available from National Treasury, existing spending that does go into expected infrastructure must be aimed at the small to medium sized black owned firms. And while there is mostly a focus on human settlements on the urban areas, the rural areas should not be forgotten;
  • There should be a focus on "people first" ;
  • Government must enable business to grow and ensure prompt payment as slow payment restricts growth;

Opportunities

    • Our neighbouring SADC countries who are focusing on their natural resources provide a growth opportunity and should be encouraged by Government
    • The new focus on renewable energy is good for the construction industry. It may require reskilling to satisfy the demand and prevent importing rare skills
    • The increased demand for green energy efficient buildings
    • The 4th industrial revolution will change the way we do things and requires reskilling of people
    • Some of the existing Metro and municipalities have underspent on their capital expenditure budget. With continued demand for increased services, this money will be spent

Challenges

    • Smaller firms are often side-lined with the larger companies being chosen as they are considered able to deliver the project
    • Late payment by many government departments and municipalities. This delay in cash flow hinders businesses who don’t have access to large working capital facilities
    • Macro-economic issues and slow growth, which include exogenous events
    • Tenders not awarded or delayed due to administrative delays
    • Lack of bridge financing and working capital facilities
    • Corruption from both sides
    • Red tape and compliance requirements cause delays and are costly
    • Compliance with the Broad-Based Black Economic Empowerment (B-BBEE) codes, especially if these change frequently

Government Appeal

The general appeal to all is to work together and not rely on Government for everything and encourage partnerships with those who have been successful before.

Business Appeal

Encourage transformation allowing for a broad base and women in the mix.

Conclusion

There should be a concerted effort to improve the relationship and trust factor between Government and business. There has been a breakdown in this relationship that has detrimental effects on the whole economy. This is often seen as one of the reasons for slow growth in the economy.

Detail from each of the respective sessions:

Opening Session

The Infrastructure sector is the backbone of the SA economy. With the struggling economy this sector has to be focused to kick start the economy and create much needed jobs, as this sector employs the second largest number of people in the country.

The Government’s Infrastructure investment programme that has ear-market R400 billion is part of the greater stimulus and recovery plan. Some of this must go towards the required bulk infrastructure and some towards the repair and maintenance of existing infrastructure. It goes without saying some of this money must go towards small and medium township and rural enterprises and co-operatives.

There must be a clear policy with action items with accountability to ensure successful implementation.
The National Infrastructure Plan has 18 Strategic Integrated Projects (SIPS) that together monitor, integrate and coordinate over 300 infrastructure projects. This illustrates the importance, size and role of the programme. There will be a requirement for coordination and cooperation between the public and private sector. For this the Presidential Infrastructure Coordinating Commission (PICC) strives to ensure the 300 large infrastructure projects across the 18 SIPS come to fruition.

Transformation - In the Construction Settlement Agreement various parties agreed on the best way to implement transformation that is crucial to the economy. The Tirisano Construction fund has a mandate directed at social and economic development and transformation. It Focuses on enterprise development programmes for small, black owned firms; bursaries for engineers and artisans; improving maths and science at schools; welfare projects like rural bridges, student accommodation, clinics, schools and sports fields; and building capacity in the engineering and infrastructure services.

The National Development plan requires a back to basics approach. With so many municipalities not functional, the focus to repair them has a 5 pillared approach:

  • People First;
  • Basic Service delivery – with a safe environment for all;
  • Sound financial management;
  • Good governance; and
  • Strong institutions.

In addition to the above:

With state of rapid urbanisation there must be integrated urban development plan.

One of the delegates stated that with coordination between private and public entities there would be organised business.

Together there must be a focus on reversing the last 10 years of state capture. This will be achieved by fighting corruption and rebuilding the reputation of State Owned Companies by improving governance.

With the infrastructure sector in deep trouble, the priority spending should be on Social Infrastructure. This can be done by creating an enabling environment. This will result in sustainable businesses that ultimately create more jobs.

There are success stories like that of the Private Public Partnership (PPP) process undertaken when the Renewable Energy Independent Power Producer Procurement Programme (REI4P) (South Africa’s flagship programme for moving towards increasing renewable energy in our energy mix), was implemented.

This blue print can be used elsewhere.

If business is too difficult in SA, businesses will move off-shore and across to our neighbouring countries, employing them instead.

By enabling ease of business in SA, we will bring some of these companies back home.

One delegate proposed policy changes to ensure that transformation is speeded up even more. The proposals are:

  • Use the likes of SANRAL as a test case to only deal with black empowered companies (>51% ownership);
  • They should deal with businesses across the spectrum from small to large;
  • Public Procurement Bill allows for 80/20 and 90/10 split. This should be changed to promote awarding business to more black owned companies;
  • Treasury should give payment guarantees similar to performance guarantees. This ensures payment by the state who often pay late. This guarantee has value and can be discounted;
  • The construction redevelopment fund should be made available to small and medium contractors to get paid for work already done, reducing the time of delayed payments; and
  • The R400M stimulus package must be managed by a black asset management firm that can use the fund to leverage other investments via PPP’s.

Session 1

There is an existing Mega Projects plan for bulk infrastructure spending in water and sanitation on items like dams, sewerage plants and managing the water resources. While there is a focus on new projects the maintenance of existing infrastructure is equally important.

Part of this plan is to empower small to medium black companies with a focus on women owned and run businesses.

Part of this plan will to be supply local and rural municipalities with bulk water and sewage treatment works as water and sanitation gives dignity to the people.

PPP’s have 22 successful projects that have recently been ignored. The best example of PPP is the Gautrain project. This process can be copied to many other projects in order for Government to leverage private capital and skills.

Certain large existing projects have been delayed due to poorly defined scope and lack of contractor involvement in the early planning stages.

Political stability and ethical leadership will allow for a non-racial pursuit of a national unity environment that will enable growth in the economy.

There are Government institutions like the Independent Development Trust (IDT) who are an implementing agency for Public Works that focus on Social Infrastructure.

Their main role is to try and encourage self-funding and self-reliance of projects, ensuring developmental transformation and empowerment, not forgetting the youth, women and BBEEE.

Challenges encountered by IDT are that many projects don’t get delivered on time or on budget. This is often due to Government not having the money to implement properly due to poor planning and project management.

These escalations in cost and time delays affects many of the people who were going to derive a benefit from the project. To prevent this the way forward will be:

  • New businesses small and large to deliver;
  • Better planning;
  • Renewed focus on PPP’s;
  • Ethical leadership;
  • Improvement of existing poor procurement process; and
  • Prevention of bribery and corruption. To be awarded a job there must be no strings attached.

Session 2

With the right attitude, small to medium businesses can flourish in this sector if they put people first and have the passion and urgency to perform the required tasks.

Within the construction sector there will be certain sectors like the energy sector that will offer huge opportunities.

The Government also have an Integrated Resources Plan (IRP) http://www.energy.gov.za/files/irp_frame.html that has been put in place for the roll out of electrification infrastructure, reduction of electricity demand and the development of Independent Power Producers (IPP’s) with the focus nowadays being on renewable, green energy offering many opportunities in the sector.

REI4P resulted in 27 signed off-take agreements. Despite the delay, this is a strong move towards the new renewable goals.

In addition to the above, our neighbouring countries have found gas and oil reserves that SA can benefit from.

Following on from the above, the development of such entities as the Green Building Council of South Africa, encourage property developers to build environmentally friendly buildings. While the construction industry will have to adapt to the new building requirements, this can offer opportunities.

Institutions like the South African Women in Construction (SAWIC) prove that there is a strong move to integrate women into all sectors. In the construction sector, there is a very low representation of women, especially black women. All parties and stakeholders need to make a concerted effort to remedy this situation.  It must be noted though that there are 19 women owned construction companies that contribute to the infrastructure development of the country.

Session 3

Again there was a call for a need to speed up transformation in this sector. Taking the human settlement vision of 2030, black people can and must contribute to this vision and benefit from the capital spend budgeted. While the large listed companies take the lions’ share of most of this business, there has to be a move to the smaller and medium black owned enterprises, not forgetting the women owned and run businesses as well.

Delegates are of the opinion that several changes are required, such as:

  • Broad-Based Black Economic Empowerment (B-BBEE);
  • Health and Safety;
  • Industrial action;
  • Capacity constraints on local authorities;
  • Misconception that SMME’s are not able to deliver on projects, hence these go the large firms;
  • Lack of innovation;and
  • Lack of skills, especially in the black community.

Some of the views from the honourable Minister of Rural Development and Land Reform. Ms Maite Nkoana-Mashabane were as follows:

There must be drive to build communities as that will build a nation; as the community begins to improve so will it improve the lives of ordinary people. If we want to transform SA into a construction site, we will have to do it ourselves. There is an appeal to all in SA not to wait for the Government or anyone else to have to give what is needed, but to work together and do it ourselves. There has to be collaboration and the different parties should feel like partners pulling in the same direction to achieve a common goal.

There are many good plans and strategies and there is now a need for action on those strategies. There are 92 projects that are ready for implementation. There must be a push to use these projects as a way to kick-start the economy and reduce unemployment.

The property sector requires massive transformation and this will be driven by Public Works. The SA Property Sector is worth about R5.8 trillion, and can be a massive employer especially in the housing sector. There is a demand for 100 000 houses annually. It is estimated that the total demand for housing presently is 2.6 million, however the challenges are similar to other sectors like strict compliance that requires red tape, is time consuming and results in an increase in costs. This needs to be improved.

Some initiative to improve the housing shortage are:

  • Establishment of a Human Settlement bank;
  • Initiates to support smaller SMME’s (entrepreneurs);
  • Establishment of pre-approved contractors etc;
  • Strategic land and building sites identified;
  • Establish more PPP partnerships;
  • Use alternative building techniques;
  • Reduce barriers to entry for procurement and transaction costs; and
  • New funding or finance mechanisms.

Comments from other delegates were that Government are good at making laws and regulations but poor at implementation and enforcement.
The new procurement policies should make specific reference to include black women.

The under-spend by the metros and municipalities implies there are missed opportunities not only to improve the infrastructure that is lacking, for but allowing smaller BBBEE entities to participate in the economy.

 

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