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Infrastructure projects hit roadblocks

Feb 12 2013 11:10 Agnieszka Flak, Xola Potelwa - Reuters

A truck rumbles along a Lephalale street. Construction vehicles are a common sight there. Picture: Lucky Nxumalo/City Press

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MURRAY & ROBERTS HOLDINGS LIMITED [JSE:MUR]

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Johannesburg - When President Jacob Zuma said last year South Africa would spend $95bn on roads, ports and railways before 2015, domestic construction firms such as Sanyati should have been celebrating.

But the company's bosses were too busy trying to stave off bankruptcy because they said the government had failed to pay $6m for an earlier contract to build and repair roads.

The government says Sanyati, which folded with the loss of 2 500 jobs, was also to blame for entering illegal building contracts with a provincial administration.

Whatever the reason, its collapse exposes the myriad problems South Africa faces in trying to roll out a multi-billion dollar infrastructure plan - from bad planning and skills shortages to contract problems and corruption.

"We would like to see the government put their money where their mouth is," said Norman Milne, president of the South African Federation of Civil Engineering Contractors. "We shouldn't fool ourselves thinking that this will just flow."

No one doubts that the plans are what South Africa, a key exporter of commodities, needs.

Last year, Zuma said the government would spend $450bn over 15 years - including $95bn in the first three - to give Africa's biggest economy a much-needed shot in the arm.

Ratings agency Moody's has said infrastructure constraints are a key reason why the resource-rich country missed out on the global commodity boom over the last decade.

The Treasury made funds available in its 2012 budget, but a year later construction bosses say tenders have yet to go out, and with the industry still in a post-2010 World Cup slump, many are getting nervous about sparse order books.

Earnings at South Africa's biggest construction group, Aveng, fell 58% in the 12 months to June last year, reflecting industry-wide doldrums.

"Despite ambitious plans announced by government ... we have not seen this impact on our order book and only expect this to impact results in the next 18-24 months," chief executive Roger Jardine said in September.

In a presentation given shortly after Zuma's announcement, the government conceded it had neither the skills nor "capacity" to make projects happen - shortages it said it would rectify.

However, several government departments did not respond to requests for comment or updates on progress of reforms.

"Where the problems are is getting the plan implemented in terms of initiating the contracts," said Kevin Lings, an economist at Stanlib. "You've got to cut through the bureaucracy and get stuff implemented. It's absolutely urgent now."

Backlog

The massive construction work for the 2010 soccer World Cup  proved South Africa can deliver on big infrastructure, but since then large tenders have been scarce.

Just two-thirds of the public infrastructure budget was spent in 2011, according to the finance ministry.

The government also has a $170bn "infrastructure backlog" - things that should have been built and upgraded but weren't - largely because departments fail to spend the money they were allocated.

The country has a poor track record executing projects on time and on budget: a fuel pipeline launched by state-controlled logistics group Transnet from Durban to Johannesburg cost twice as much as initial estimates.

Two coal-fired power stations contracted by state-owned utility Eskom have been delayed by several years and costs are already running tens of billions of rand over budget.

Expensive tenders

South Africa has a large domestic construction sector, led by players such as Murray & Roberts Holdings [JSE:MUR], Group Five [JSE:GBF], Basil Read [JSE:BSR], Aveng [JSE:AEG], Wilson Bayley Holmes - Ovcon [JSE:WBO] and Stefanutti Stocks [JSE:SFP].

But getting them to bid for government projects can be difficult.

Much of the work takes place at provincial level, where the shortage of skilled public officials is at its most pronounced. Public offices are hampered by bureaucracy, slow approval of projects and inadequate cost, quality and safety controls, according to the government's own self-assessment.

Companies are loathe to spend millions of rand tendering for projects that are shelved or given to unqualified competitors.

In 2008, the prisons department put out a tender to build four new prisons, and after companies spent months lining up bids, a new minister came in and cancelled the project.

Consulting engineers Mackenzie Hoy say they have given up looking for work with the central government, and all local authorities save for the opposition-controlled Cape Town.

"It's because of the enormous time-wasted effort, with no prospect of success due to political interference and corruption," Terry Mackenzie-Hoy, head of the Cape Town based firm, said.

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sa economy  |  construction  |  infrastructure
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