A new empowerment model is key to rebuilding South Africas construction sector

Jul 25, 2019

South Africa is currently presented with a unique opportunity to rebuild the country’s construction sector in an inclusive way, enabling South Africa to successfully shift the dial on growth driven by a strong, diverse and globally competitive construction sector. 

Following South Africa’s 2019 elections, one of the key elements of the country’s new dawn is, “government’s intention to prioritise capital expenditure on infrastructure required to drive greater regional integration, trade and global export,” says Aadil Cajee, Head of Infrastructure for Standard Bank Group.

However, after more than a decade of limited government spending coupled with subdued economic growth, South Africa’s once vibrant and globally competitive construction sector faces ongoing challenges.

“A number of the historically large construction firms have divested from or are in the process of divesting from construction as a core focus, leaving one or two larger firms amongst a limited group of smaller enterprises,” says Mr Cajee.

In other words, South Africa today has an extremely limited list of contractors with globally competitive skills and world class mega-project management ability. Those who remain are currently concentrating efforts on global expansion given South Africa’s limited domestic project pipeline. There are also a number of smaller emerging construction players with great potential. Currently, however, these firms have, “limited balance sheet or insufficient operational capability to successfully take on and manage the mega-projects required for infrastructure development to shift the dial on either transformation or growth in South Africa,” says Mr Cajee.

The last decade has seen a significant ‘brain drain’ in South Africa’s construction sector. Once globally competitive South African construction majors have seen skills migrate abroad as large corporations right-sized their businesses or divested from them completely. At the same time new skills are not being developed fast enough in South Africa, “as the lack of focussed and structured infrastructure spend and policy has created little market or appetite to acquire, develop or retain these skills,” says Mr Cajee. 

With Chinese and European construction majors waiting in the wings to capitalise on South Africa’s much-anticipated recommitment to infrastructure development, “now is the right time to be asking what South Africa can do to re-build its domestic construction capability,” says Mr Cajee.

 Government policy holds the key.

Large construction companies operating in South Africa are faced with the challenge that, “in order to drive transformation in the construction sector government has broken up what would historically be large construction projects into mini-construction projects, handing out the smaller parcels of work to the country’s emerging construction players,” says Mr Cajee.

“The sector has been through various empowerment initiatives like sales of major stakes in larger players or mentoring smaller contractors, however those with BEE credentials don’t all necessarily have the required operational capacity,” he adds.   

While this is, potentially, a successful route to empowerment, “the challenge in this approach is that in South Africa the government has also tried to co-ordinate or manage the consortium of smaller emerging players itself,” says Mr Cajee. As a range of infrastructure projects have demonstrated this is an incredibly difficult and technically challenging task, and when things do not go according to plan these mega-projects can become a significant financial burden on the balance sheets on which they are held. “Importantly too, with government as the manager and co-ordinator of these mega-projects, smaller emerging construction firms in South Africa do not necessarily acquire skills and management expertise from what would, in other countries, be projects managed by large global majors, sharing their skills with local players,” says Mr Cajee.

As Standard Bank has observed across Africa, “smaller local construction companies partnering with a global construction major presents a very powerful development and skills transfer proposition for emerging domestic construction firms on the continent,” he says.  

As such, South African policy makers are in a uniquely powerful position to re-ignite the growth of the South African construction and infrastructure development sector. By allowing existing world-class domestic majors as well as global construction leaders to better partner with emerging black-owned contractors, “South Africa can rebuild skills and capacity in the domestic construction sector while driving transformation through the empowerment of emerging black-owned construction companies,” says Mr Cajee.

“A strong, able and globally competitive local construction sector governed by the appropriate policies will provide the country with the tools and skills to enable construction to play a meaningful role in driving growth, empowerment, employment and earnings in the broader downstream economy,” says Mr Cajee.

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