Construction may pick up in 2010

Johannesburg - Business advisory group Ernst & Young said on Tuesday that the future for large, generally listed construction companies in South Africa was good, but it was less optimistic about smaller companies in the sector.

Business development director at Ernst & Young John Wetton said: "How much longer and how much deeper?" referring to the industry's capability to handle the current economic downturn.

He said the meltdown hadn't affected South Africa as much as many other countries, but he added that the local market was "quite stressed", particularly medium to small companies.

For bigger construction companies which had good order books and a backlog of long-term projects, Wetton said that that it would be easier for them to ride out the current storm.

"The construction industry is expected to pick up at the back end of next year," Wetton forecast.

Ernst & Young tax director Rob Stretch said: "Medium and small companies are hurting. They don't have the long-term projects and rely on work coming in all the time.

For the larger companies, Stretch said that although margins would be smaller over the current period, they would not lose money, and current infrastructure development made South Africa a good place over the next five years.

Assurance director at Ernst & Young Ebrahim Dhorat noted that governments and the private sector had already picked up that the level and timing of an upswing in economic growth would be dependent on infrastructure investment.

Mergers and acquisitions advisory director at Ernst & Young, Sifiso Shongwe, added that it was a natural hedge that during a downturn, government stimulated the economy through infrastructure spend, however he also noted that banks, although still cash rich, were less trusting about financing projects.

He said that the backlog of projects on the continent meant that these projects still needed to go-ahead.

- I-Net Bridge