Electricity + Control May 2016

LIGHT + CURRENT

Tough and tougher… says CESA

The Consulting Engineers SouthAfrica (CESA) Bi-annual Economic and Capacity Survey for the period July to December 2015, indicates that times are tough and getting tougher with industry confidence the lowest in 16 years. The report indicates that the consulting engineering industry will have to adapt to a low growth environ- ment as the outlook for infrastructure spending is hampered by poor economic growth, lower than expected revenue by govern- ment, international economic instability and price volatility, and low private sector confidence. Three key factors continue to influence the global outlook these are the gradual slowdown and rebalancing of the Chinese economy; lower prices for energy and other commodities; and the gradual tightening of US monetary policy. Chris Campbell, CESA Chief Executive Officer, believes, “Govern- ment needs a strong focus on the implementation of more of its strategic infrastructure projects as detailed in the National Devel- opment Plan in order to mitigate the decline in the economy and improve investor confidence.” He further reiterated that “Engineers in South Africa stand ready to partner with government in eradi- cating the leakage from the fiscus, not only through water which does not reach domestic households, but also through poorly spent monies or corrupt practices which have led to payment for poor quality and even non-existent services in the infrastructure space.” Probably the most critical concern, and most significant down- side risk to inflation and economic growth, for the domestic economy is the fear of a further sovereign credit rating downgrade and its effect on the industry. A lower credit rating means the cost of borrowing for the South African government will escalate, which means more tax payers money will be used to finance debt, with less available to spend on critical economic and social infrastructure. Currently government expects that 3,6% of GDP per annum will be used on interest expenditure, estimated at around R260 billion per year, equal to total public sector infrastructure allocations a year. Fee earnings – softer growth outlook Consulting Engineering fee earnings in the last six months of 2015 increased by around 6%, against an expected decrease of between 2% and 3%. Larger firms reported muted growth of 2% on aver- age for the last six months, while stronger growth was reported by medium and smaller firms (up by 31% and 11% respectively). Industry confidence levels – lowest in 16 years: Confidence levels fell to its lowest level in 16 years, and were significantly weaker in the last six months of 2015, compared to expectations in the June 2015 survey. Gross fixed capital formation slow in medium term: Gross Fixed Capital Formation (GFCF) as a percentage of GDP averaged at 20,7% in 2014, but slowed to 20,6% in the 1 st quarter of 2015, compared to an average of 21,1% in 2013.

Transformation of the industry: The appointment of Black executive staff (including Black, Asian and Coloured) increased and there has also been a steady improvement in the appointment of women at an executive level. I ndustry challenges – procurement the biggest challenge Regulation issues, including the procurement of consulting engi- neering services, are among the biggest challenges faced by the industry. Procurement is currently based on price and broad-based black economic empowerment (BBBEE) points, with functionality or quality having a minimum threshold, thus being largely price driven.This is affecting tender prices, as firms sometimes tender below cost in view of the diminished availability of projects. A further challenge to the industry is to find a way to standardise the procurement procedures applied by the different government departments. Procurement procedures should be standard for the country, or at least for the specific tier of government. Unrealistic tendering fees remain a concern for members; the quality of technical personnel is argued by some firms to have dete- riorated, putting greater risk on the built environment sector; skills shortage is regarded as one the most significant institutional chal- lenges; fraud and corruption is affecting the ethos of our society. CESA is aware that members are under pressure from contractors and corrupt officials, to certify payment for work not completed. Unlocking greater private sector participation is seen as a critical element to fast track delivery which will support engineering fees and as such engineering development in the industry

For a copy of the CESA Bi-annual Economic and Capacity Survey visit http://www.cesa.co.za/node/21

Enquiries: Dennis Ndaba.Tel. +27 (0) 11 463 2022 or email dennis@cesa.co.za

Chris Campbell, CESA Chief Executive Officer.

Electricity+Control May ‘16

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