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The Construction Trends in South Africa 2021

Marthinus Havenga | South Africa | 30 November 2021

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Report Coverage

This report focuses on trends in the overall South African construction industry. It includes information on the key trends, success factors and pain points relevant to the industry, whilst analysing in depth such issues as local growth trends, current confidence levels, employment movements, rising input costs and the overall health of the industry. The rationale for South African companies to internationalise is investigated, premised on a clear analysis of the drivers of the African construction industry.

Introduction

The construction industry contributed R134.bn in gross value added at current prices to the South African economy in 2020 (2.7% share of the total GDP). The value added is a direct function of the level of investment in the industry as measured by the gross fixed capital formation (GFCF) in construction. In 2020, total GFCF in the industry stood at R308.2bn in current prices. The industry is a driver of socio-economic development and a key employment multiplier, yet despite its strategic importance, the last few years have not been kind to the South African construction industry, with a persistently sluggish economy, disruption on construction sites and the ever- present shadow of corruption. Furthermore, infrastructure expenditure has declined and a number of public sector projects have been mothballed over the past decade, leaving the industry substantially weakened. With COVID-19 having dealt a crushing blow to an industry already in distress, role players warn that thousands of jobsin the construction sector and its value chain are at risk. As part of its plan to revive an economy devastated by COVID-19, the South African government has announced a massive infrastructure development programme. Stakeholders say that urgent implementation is critical if the economy and the construction sector are to recover.

Selected Highlights

Key Success Factors
Internationalisation • Construction companies tend to increase their footprint globally (Africa and the Rest of the World) in order to take advantage of growth opportunities elsewhere, to reduce their dependency on local markets (especially if local markets are small and growth is pedestrian), to reduce concentration (diversification) and to earn hard currency. Rightsizing labour • It is crucial for construction companies to increase and decrease their labour force in line with their output. Not doing so, can materially hurt the company financially. Most companies would therefore only employee workers on the basis of a firm order book (in addition to its core staff and management) Upskilling the work force. • The number of projects across building and civil engineering are not always synchronised. It is therefore important to upskill workers within these broad disciplines to such a level that they can be interchangeable between these two lines of business. Worker sh

Outlook

The local industry will in all likelihood face further disruptions and challenges going forward, including obstacles to recovery such as a stagnant economy, ratings downgrades, failing SOE’s, labour shortages, load shedding and even civil unrest. Different sub-sectors of the industry will be impacted differently by each of these issues. As fewer projects are divided among construction players, competition may intensify. However, the growth prospects of the industry in the medium- to longer-term remains positive. Whilst the impact of COVID-19 was severe, the effects of the pandemic will eventually be worked out of the system. It may even leave the industry with better, more sound business practises. With gradual national and global recovery will come new investment – and construction projects that generate jobs and boost the industry. Despite South Africa’s economic woes, the underlying need for infrastructure remains and Government has committed to using infrastructure projects to drive post- COVID-19 economic recovery. The recent gazetting of the amendments to schedule 2 of the Energy Regulation Act, further progress toward developing renewable energy projects through the IPP programme and the draft version of the National Infrastructure Plan are welcomed. Private residential projects will continue to be lucrative, driven by local and foreign investors who are not impacted by scarce Government resources.

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The Construction Trends in South Africa 2021

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Table of Contents

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PAGE
1. INTRODUCTION 1
2. DESCRIPTION OF THE INDUSTRY 1
2.1 Industry Value Chain 2
2.2 Size of the Industry 4
2.3 Key Success Factors and Pain Points 6
2.4 Key Trends 7
3. LOCAL 9
3.1 Local Growth Trends 9
3.2 Current Confidence Levels in the Industry 13
3.3 Labour 14
3.4 Rising Input Costs 16
3.5 Building Plans Passed and Buildings Completed 17
4. AFRICA 18
5. INFLUENCING FACTORS 22
5.1 COVID-19 22
5.3 Investment (Gross Fixed Capital Formation) 25
6. OUTLOOK 26
7. INDUSTRY ASSOCIATIONS 27
8. REFERENCES 27
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