Construction World June 2018

The golden age of South African construction. This age left most major South African construction companies top heavy and severe rightsizing followed. Now it seems that industry will never be the same again.

Some of the biggest listed construction companies in South Africa – Aveng, Murray & Roberts and WBHO – now derive most of their revenues and profits from abroad. This is in stark contrast to when South Africa was preparing to host the World Cup in 2010 and work was plentiful, the market buoyant and local sentiment good. This change in business-as-usual is the direct result of a weak economic environment in South Africa and the resultant fierce tender competition, bad management and even poor project execution. In this climate margins of between 3 and 5% are considered normal. To make things worse, this is an industry that attracts corruption – especially with infrastructure projects. The fact that this industry, and its main players, were slapped with massive collusion charges post-2010 certainly did not help. Just when everyone thought that Cyril Ramaphosa’s election would lead to economic recovery and growth, the expropriation of land issue dashed this. The longer the matter drags on, the longer companies will bleed and the industry will suffer. It is an exciting time though. Infrastructure is vital for South African growth – without it the country cannot grow. Whether it is improving the dire unemployment rate, dealing with rapid urbanisation or improving the growth rate, construction is part and parcel of this. The construction industry executing this will look very different though. Wilhelm du Plessis Editor manufacturing and steel assets as volatile conditions post 2010 continue to escalate.

COMMENT

One could even refer to the current period as an existential crisis for these companies. Most recently, Group Five announced drastic restructuring that will see it severely cutting construction activity and eventually selling the majority stake in its construction business. Aveng, which has been worst affected, has seen its annual turnover more than halve from 2014’s R53-billion to 2018’s R23,5-billion. It elected to sell some 40% of its domestic civils and building operations to black empowerment partners, but the sale of its Grinaker-LTA subsidiary was cancelled – largely due to the underperformance of Grinaker-LTA. Murray & Roberts elected to sell 100% of its construction and civil engineering business in South Africa to a black-owned consortium led by the Southern Palace Group. In addition to its South African projects, this company, Concor, (formerly Murray & Roberts Construction) as part of its strategic plan, aims to focus on cross-border projects. Murray & Roberts said that it was not exiting South Africa, but a sector. However, companies such as Murray & Roberts, Aveng and Group Five have also tried to rid themselves of

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EDITOR & DEPUTY PUBLISHER Wilhelm du Plessis constr@crown.co.za ADVERTISING MANAGER Erna Oosthuizen ernao@crown.co.za LAYOUT & DESIGN Lesley Testa CIRCULATION Karen Smith

PUBLISHER Karen Grant PUBLISHED MONTHLY BY Crown Publications cc P O Box 140 BEDFORDVIEW, 2008 Tel: 27 11-622-4770 • Fax: 27 11-615-6108

TOTAL CIRCULATION: (First Quarter '18) 5 470

The views expressed in this publication are not necessarily those of the editor or the publisher. PRINTED BY Tandym Cape

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CONSTRUCTION WORLD JUNE 2018