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Pretoria - Government's infrastructure programme, on which South Africa's hopes for economic recovery were based, is rapidly running out of steam.
The number of planned projects where tenders are being delayed has increased by 127% in the past year. This holds serious implications for the construction sector, and particularly for job creation in this labour-intensive industry.
Limited funding and difficult economic circumstances play a role, but many of the delays are attributed to the "crippling of the public sector".
The 127% increase in delays, which was disclosed by construction data service Industry Insight, underpins the litany of complaints from construction sector companies that recently announced financial results.
Mike Upton, chief executive of Group Five, says very few tenders have been awarded in the past six to eight months. He estimates the value of deferred tenders to be between R10bn and R15bn.
According to Industry Insight's database, 871 of the 3 300 tenders advertised in the first eight months of the year have been deferred.
About 35% of these deferrals are at municipal level, 38% at provincial level and 17% by national state departments and state enterprises.
Whereas some 3% of municipal tenders were deferred last year and the year before, in the first eight months of this year this figure shot up to 14%.
According to Industry Insight CEO, Elsie Snyman, it is expenditure on housing, transport and water infrastructure, especially, that is on the back burner at municipal level.
Provincial departments' expenditure on education and transport is being dragged out and 28.7% of all provincial tenders were postponed to the end of August. In 2007 and 2008 this figure was between 3% and 6%.
National departments and state enterprises have held up tenders for building offices and prisons. The SA National Roads Agency Ltd (Sanral), says Snyman, has also placed certain projects on ice, including a R100m road construction project in the Free State. About 27% of the tenders at this government level have been delayed, compared with 5% to 10% in the previous year.
Snyman says it is difficult accurately to estimate the financial impact of these delays because project values are seldom announced at the tender stage.
Major projects postponed include a R70m pipeline, various big housing projects, a new sewerage works worth R65m, a R294m training facility and the R150m upgrading of the Ingwavuma Prison.
Pierre Blaauw, a construction economist and operations manager for the SA Federation of Civil Engineering Contractors (Safcec), says the slowdown in government spending is not entirely unexpected.
Safcec's data shows that the value of contracts awarded in the second quarter was 30% down on that of the previous year.
He pointed out that the amounts announced in government's budget in many cases still have to be financed. In the current economic situation, money is scarce and expensive to buy.
Moreover, state enterprises like Transnet, Eskom and the airports company Acsa have to review the business fundamentals of their infrastructure plans following a decline in demand for their services.
"We believe current projects will be completed, but similar infrastructure projects will in future not necessarily enjoy the same priority," says Blaauw.
Various company chief executives have said that the general election in April paralysed decision-making in the government sector, which consequently delayed tenders. This paralysis still continues.
Blaauw reckons the number of tenders awarded always declines in an election year, but rises the year after. It's a cause for concern that the pace of awarding has not shown any recovery yet, possibly indicating deeper-seated problems.
The coming World Cup soccer tournament and the run-up to the municipal elections in 2011 could cause further disruption.
Blaauw says government could even slightly scale down its planned R787bn worth of infrastructure spending in the medium term in the next budget.
"One has to be realistic. The economic crisis has had an enormous effect on government revenue. There is no point in just continuing to throw money at problems."
Municipalities, for instance, are experiencing enormous maladministration as well as institutional problems.
Current economic conditions allow government no additional room to manoeuvre with regard to expenditure, and the institutional problems need to be resolved before more money can be entrusted to these entities.
The construction industry's order books before the financial crisis are currently being worked down, and the full impact of the economic crisis on the industry is expected to become evident only in the second half of next year, Blaauw says.
Safcec expects the industry could contract 5% to 10% next year. Recovery is expected in the second half of 2011 and in 2012.
Nevertheless Blaauw does not think the industry will return to its former very low levels of activity.
Certain infrastructure expenditure can quite simply not be neglected, although it could take place a year or two later.
According to Blaauw, from about 2013 to 2015 there could be a whole bunch of construction projects coming to market at the same time.
"We are heading for a quieter period, but we are not falling through the floorboards," he says.
- Sake24
