South Africa’s construction industry has experienced its share of uncertainty since the end of the public infrastructure investment bonanza leading up to the 2010 World Cup.
Public infrastructure spending has been stagnant since then, the home market has slumped, private sector investment is sluggish, and many of the listed construction groups are struggling.
However, with government planning to pump hundreds of billions into infrastructure as part of its economic stimulus plan, the tide may be turning. South Africa needs to make significant investment in roads, housing, renewable energy, schools and more if it is to build a sustainable future. This spells opportunity for small and emerging construction companies, but the industry still faces several challenges.
Here are four concerns keeping smaller construction contractors awake at night:
Industry representatives such as the Master Builders’ Association frequently express concern about how prolonged tendering and payment cycles affect the sustainability of large construction groups and smaller contractors. Government procurement moves slowly, which means construction groups often can’t pay their smaller sub-contractors on time.
That affects the sub-contractor’s ability to take on other projects and its ability to pay suppliers. At the same time, rising materials expenses – thanks to rand volatility – and higher labour costs because of a skills shortage mean construction companies need to carefully manage cash flow and margins to ensure sustainability into the future.
Tip: Industry engagement with the government will hopefully lead to faster payment cycles. In the meantime, smaller construction firms can use enterprise management solutions to track cash flow and project risks, so they can better predict and mitigate payment delays and other issues.
Construction companies face a range of rigorous compliance demands – from the same tax and labour laws with which all businesses must comply, to the black economic empowerment (BEE) code for the sector, tough health, safety and environment laws and regulations such as the Compensation for Occupational Injuries and Diseases Act. The red-tape, paperwork and certifications place a heavy burden on smaller contractors struggling to survive in a tight economy.
Tip: Where possible, automate back-office administration and capture electronic records. This will make it easier to compile documents such as payroll or income returns, and to access accurate data about the company’s performance in meeting demands such as quality standards or BEE targets.
Even if the South African government manages to mobilise funds for large-scale infrastructure investment, the construction industry will struggle to access the skills needed to service the demand. Civil engineers, architects, artisans, and supervisors are all in short supply. This has led to fierce competition for skills in the marketplace and could drive the wage and salary bill up for a sector already struggling to contain operating costs.
Tip: Putting a modern human resource management (HRM) solution in place can help a construction company get a firmer handle on workforce performance and planning. It can use rich reporting information to get insight into skills requirements, labour costs, employee turnover and worker performance. It can also use tools such as employee self-service to deliver a better workplace experience for employees scattered across multiple construction sites.
Preparing for emerging technologies
The building and construction sector is about to go through a radical transformation as technologies such as artificial intelligence (AI) and the Internet of Things mature. Just some examples of the disruptive technologies coming our way include:
- Wearables such as smart helmets and glasses using augmented reality, or safety vests with built-in GPS trackers and sensors
- 3D printing
- Ground-breaking building materials like self-healing concrete and new-age solar technology
- Driverless heavy vehicles
- Drones used for video and picture taking, tracking job progress and inspecting hard-to-reach places
- Building information modelling
South African construction groups may be slower to adopt some of these technologies than peers in Europe or North America because local labour costs are relatively low, but the picture will change as they come under pressure to drive higher productivity. Construction groups will face the challenge of reskilling their workforce for a digital age.
By Matthew Kibby, Vice-President, Enterprise, Africa & Middle East at Sage