IF SOUTH Africa's surviving emerging construction companies
were a patient, the ambience in the hospital ward would be intensely uptight.
These companies are facing a financial crisis of sorts as
local and provincial governments in some provinces allegedly continue to fail
to pay them timeously for commissioned work.
Small and medium-sized construction companies depend on
government projects for survival.
Late last month one of these companies, Sanyati, said it
would be liquidated as it was owed millions of rands by the Free State and
Limpopo provinces. It said 2 500 employees would lose their jobs.
There are many other small construction companies that are
closing down for the same reasons. Their cases are not as well publicised
because they are privately owned.
Sanyati's case became headline news because the medium-sized
construction company is listed on the JSE, making it a public company.
The late payment for completed work is adding insult to
injury to these small and medium-sized construction firms, which are already
feeling the pinch as the entire sector is in the doldrums.
According to Industry Insight, a construction think-tank,
the number of contracts awarded for construction sagged by 12% in June this
year. Civil contracts have seen a 13% contraction during the period.
The construction industry is still at a lower turning point
of what was hoped to have been the start of a recovery period.
The current slow pace at which contracts are awarded
suggests difficult times will remain for longer than may have been anticipated.
Unfortunately this, together with slowing overall economic
activity, makes me think that the sector should expect even greater numbers of
payment defaults in the months ahead, with further potential company closures.
This means the number of voluntary liquidations in the
construction industry in particular could surge as activity in this sector
fails to take off.
And local and provincial governments keep assigning work to
these contractors, and allegedly failing to pay them on time.
The voluntary liquidation of emerging companies in this
sector has been an ongoing thing in this and other sectors. I first learnt
about this problem when I was a Johannesburg-based construction correspondent
13 years ago.
Since then, however, each effort by homegrown South African
boffins to heal the bug of government's failure to pay up for work done on time
has always generated no more than a brief remedy.
Even more nerve-wracking is the fact that the relapses after
each treatment are happening sooner and sooner.
The emerging construction sector's chances of avoiding
intensive care are receding to near vanishing point.
This will also affect the national government's most
important priority, job creation. Employment in construction has sagged by 4.4%
year-on-year in first quarter of this year to 986 000.
It was down 6.7% compared to the fourth quarter of last
year. And the outlook for construction employment remains bleak, given the
The government will get a rude awakening when one of the big
four construction companies collapses in a heap. The global financial crisis
has taught us that no company is too big fail.
Fin24 on Facebook,
Twitter and Google+.