Construction Industry Outlook for 2019
Although it remains a significant contributor to employment and economic growth, the industry has been in a slump since 2009 – and economic instability in 2018 didn’t help.
Nonetheless, the government’s plan to put billions into infrastructure is cause for hope.
Performance in 2018
In 2018, the industry as a whole didn’t quite deliver on its expected growth. Weak market conditions and a lack of government and private investment saw major construction companies struggling to stay afloat.
South African construction giant, Group Five, lost R1.3 billion on a bungled contract to build the independent gas- and oil-fired combined-cycle power plant in Ghana.
Also in 2018, German investment firm Aton tried to acquire Murray & Roberts at only R17 a share, which was significantly lower than the R22 a share M&R say is a fair value for their stock.
That said, some construction companies seemed unaffected by the mediocre conditions. WBHO’s revenue increased by 10% to R35 billion by June and their order book stood at a healthy R49 billion by mid-2018.
The construction industry in an election year
Industry Insight has pegged the outcome of the general election as the biggest risk the South African economy will face this year.
Without a decent majority, the ANC will not be able to implement the reforms that have given optimism to the construction industry. This could generate high levels of uncertainty that would be off-putting to investors.
The performance of state-owned enterprises (SOEs) also impacts on the construction industry, especially civil construction.
43% of the infrastructure budget is expected to be spent by SOEs over the next three years. Total infrastructure spending is expected to total R855 billion over the next 3 years, an increase of 2.5% from last year.
What to expect in 2019
Despite the conservative figure, this 2.5% increase is a welcome indicator of the construction industry’s projected growth in 2019.
Research firm Fitch Solutions expects the sector to finally emerge from recession this year as well. In their 2019 sub-Saharan Africa construction growth report, Fitch expects the industry to grow by 6.8% year on year.
Smaller and emerging construction companies also have cause for hope. Opportunities should be more readily available as the South African government makes significant investment into infrastructure as part of its economic stimulus plan.
New technologies for 2019 are also set to re-energise the construction industry. Among these are:
smart helmets and glasses using augmented reality
safety vests with built-in GPS trackers and sensors
ground-breaking building materials like self-healing concrete
drones used for video and picture taking, tracking job progress and inspecting hard-to-reach places.
Local construction groups might be slower to adopt some of these technologies due to cost and skills shortages. Once implemented, however, they’re likely to streamline many construction processes, leading to higher productivity.
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