Has Cyril provided a Boost for Construction
Key message: Some specific comments bode well for the Construction sector, although the overall message is typical in grand plans with little detail or timelines.
- Cyril Ramaphosa delivered South Africa’s Economic and Restructuring Plan this afternoon.
- A number of announcements relate to the construction and construction material sectors – we highlight these and comment of the potential to catalyse growth in the sector.
- South Africans are well past being immune to grand infrastructure plans by government and the myriad of growth plans (the NDP is still in force if you had forgotten).
- While still short of details and timelines, the President was more targeted on certain sectors and activities. The involvement of the private sector (through NEDLAC) in the economic plans is welcome and there does seem to be a subtle shift in sentiment in the ruling party to private sector participation in some infrastructure sectors.
- As always, there is a long list of projects that are shovel-ready (these were gazetted in July 2020 – 276 catalytic projects, 50 strategic integrated projects and 12 special projects). This list tends to be a cobbled together list of possible (not necessarily probable) projects that fall under the “infrastructure” banner – for government to claim them as new projects catalysed by government is a stretch.
- However, some important logjams for construction may be addressed through this plan.
- We highlight some passages from the speech and make comment:
- “Those that are already in construction will see the future phases brought earlier for implementation, including some human settlements projects, which have already received bulk financing to unlock them.”
- Low cost housing supported a number of successful private companies in the past, particularly where the public sector enabled land purchases and funded bulk infrastructure. This has been lacking now for a number of years, to the detriment of companies like Calgro-M3 who had a business model bult around the public assistance in bulk affordable housing.
- The Mooikloof project in Pretoria, being developed by Balwin, has the bulk infrastructure support. This indicates that government support for these projects is back – good news for low-cost residential developers.
- “We are exploring the use of credit enhancing instruments to unlock bulk water infrastructure and national roads improvement projects.”
- This indicates assistance to SANRAL, afflicted by the lack of payment for e-Tolls and struggling to finance the planned national road upgrades.
- This would be good news for Raubex and WBHO – potential bid winners of a number of tendered road projects where award has been delayed.
- Construction material company Afrimat would also benefit.
- “The Risk Mitigation Power Procurement Programme will unlock a further 2,000 MW of emergency supply within twelve months.”
- Power procurement programs look to be accelerated. The Risk Mitigation programme is likely to involve gas – the only energy source likely to satisfy the dispatchable requirement in this tender in the short-term. We do see this programme as likely to occur given the importance to the stability of the grid. Construction opportunities for WBHO may be present.
- “The process to implement bid window 5 of the renewable energy programme has begun. We are taking further steps to enable power generation for own-use.”
- Window 5 of the renewable energy program may be subject to Eskom’s balance sheet restructuring and is prove to further delays. Raubex and WBHO have benefitted from the previous rounds.
- “Together with business and labour, we will soon be publishing localisation targets for goods in areas like agro-processing, health care, basic consumer goods, industrial equipment, construction materials and transport rolling stock.”
- Barloworld’s newly acquired Starch business could get some localisation support. Cement producers should be included under Construction Materials – the impact of imports has been substantial on the industry and any protection would provide immediate relief. PPC and Sephaku would benefit.
- We will enforce government policies to ensure that all public infrastructure projects use locally-made materials, including steel products, cement, bricks and other components.
- Strangely cement has not been a local content requirement for public infrastructure projects up to now. Including it on the list would be beneficial to PPC and Sephaku.
- “Criminal elements in our country have taken to the illegal occupation of construction sites and soliciting protection money from businesses.
- To combat these practices, a Joint Rapid Response Team at a national and provincial level will respond to the problem of violent disruptions at construction sites and other business activities.”
- The impact of these “business or community forums” has been substantial on the cost and risk of construction projects. It is encouraging that government is addressing this issue – SANRAL had passed the risk to contractors in recent tenders. The delays caused by these interruptions play havoc on already low margins – let alone the safety risk for employees. This will be a relief for the large contractors like Raubex and WBHO.
- “We are working to clamp down on the illegal economy and illicit financial flows, including transfer pricing abuse, profit shifting, VAT and customs duty fraud, under-invoicing of manufactured imports, corruption and other illegal schemes.”
- Imported competition is not a bad thing, unless the playing fields are not level. We suspect that cement imports do not follow all the legal channels – clamping down on these practices will help competitive local industry against “unfair” imports.