South Africa’s construction and engineering sector has taken such a beating that its index is now trading 69% lower than at the peak of the global economic crisis.
According to a report by BDLive the gloomy picture, revealed in a South African construction report by global consultancy PwC, is so dismal that it is not clear what will rescue an industry that has seen “effective growth” from 2010 to 2014 of only 2.3% per annum, not even beating inflation.
The report released on Thursday showed the JSE construction index had hugely underperformed the main market.
In September, the index was 69% below September 2009 levels, when global markets were at one of their lowest ebbs.
This means five of the nine biggest listed construction firms surveyed had market capitalisations below their net asset value. In aggregate, the nine saw their market cap fall 38% to R26 billion from the end of June last year to the end of June this year.
Industry revenue down by 6%
Along with structural collapses, Competition Commission referrals and “large-scale project challenges and delays”, industry revenue was down 6% in the year, as overall profits nose-dived 54%, despite a 13% rise in operating cashflows.
Poor state infrastructure spend on large projects and long delays in energy-related works, such as Eskom’s Medupi and Kusile power stations, have left the industry in the doldrums.
“There is a clear lack of confidence in the industry at the moment,” Andries Rossouw, energy and mining assurance partner at PwC, said on Thursday in presenting the report.
He said that along with inflation in the cost of construction materials, public spending on large infrastructure projects had dropped in the year, mainly as Eskom progressed projects, but also because Transnet spending was predominantly focused on rolling stock.
“That won’t impact or support the construction industry at all,” Rossouw said.
Public expenditure not in line with expectations
“(Public sector) expenditure is not really happening in line with expectations. Meanwhile, a recent shift in public sector spending towards social infrastructure such as housing and associated schools, clinics and water reticulation, along with spending by the South African National Roads Agency, has kept some smaller JSE-listed construction companies ticking over nicely,” he said.
Roussow said ” the largest construction and engineering stocks have found themselves out in the cold as they scrabble for more lucrative, but risky, infrastructure work in Africa and Australasia”.