Vague promises remain as the construction industry suffers

Despite promises made a year ago about more than R800 billion to be spent on infrastructure, the construction industry is still in decline. Consulting engineers are blaming the lack of technical staff and inadequate procurement procedures in the government and municipal departments for the trickle of projects that are coming through.

When President Jacob Zuma delivered his State of the Nation Address on 10 February, many people expected him to provide more detail about the R846-billion allocation in the 2010 Budget for infrastructure, which was supposed to be spent over a period of three years.

It is a year later, and very little of this spend seems to have materialised.

At least, that was the view of Zulch Lötter, president, and Graham Pirie, chief executive officer of Consulting Engineers South Africa (CESA), when they addressed a media breakfast gathering a week before the South African president spoke.

By saying this, Lötter referred to statements by Minister of Finance Pravin Gordhan, that many billions had not been spent by the public sector.

The reported R12bn of unspent budget by municipalities equated to a “loss” of 100 000 jobs, “a situation that cannot be tolerated in a country with the highest unemployment and below-average growth rate even in Africa,” Lötter said.

“We are all aware that there is a crying need to implement new, and to maintain existing infrastructure.

“The reason for underspending can be ascribed to the inability of public sector officials to procure the necessary professional or contracting services, as a result of not having the capacity or due to the utilisation of inappropriate procurement models,” he added.

“As CESA has repeatedly stated during 2010, the key overriding issue in the public sector is the lack of skills and technical human resources. The number of technical professionals in government has shrunk from 5 500 to fewer than 1 800 over the last 10 years.”

Lötter commended the industry for the role it played in the build-up to the 2010 Fifa Soccer World Cup, which was “unquestionably the largest event that our country has successfully staged,” he said.

“Our members were actively involved in the successful implementation and timeous completion of a variety of major infrastructure projects surrounding this event.”

But instead of seeing more projects coming through as promised, the industry had seen a decline in work instead, a decline that started in 2009 and continued well into 2010. This fact was well demonstrated in graphs that Lötter produced.

As a result, he said, a number of consulting firms had to reduce staff levels, particularly contract staff. A Management Information Survey, conducted by CESA among its members, showed that staff utilisation levels had dropped from almost 100% to 80%.

“Tender pricing among consultants has become highly competitive, to the extent that we are probably back at pre-2008 levels.

These pricing regimes are not sustainable and, in our opinion, served as a measure to prevent or rather delay retrenchments in the hope that infrastructure expenditure will recover soon,” noted Lötter.

He said that in order to diversify, an increasing number of South African consulting engineers were aiming their sights toward the north of Africa.

“However, with increased competition from international consultants and the strengthening of the rand, competition in Africa is fierce. It was inevitable that international consultants, particularly from the West, arrived in South Africa on reconnaissance visits, looking for projects and joint venture partners,” Lötter added.

He said many recent projects were entered into the annual CESA Glenrand MIB Engineering Excellence Awards, which featured an array of prestigious projects seldom seen in the country’s history e.g. Soccer City, which was the largest soccer stadium ever built.

“Apart from technological innovation, very important lessons have been learnt, not least of which is the need for proper upfront capital planning,” said Lötter.

“The Department of Sport and Recreation is finalising a comprehensive report detailing the lessons learnt during, and legacies left by the World Cup.”

He said CESA believed these lessons learnt and experiences gained should be embraced by all departments in the various spheres of government responsible for capital project implementation.

Road map

Lötter said that fundamental in terms of a framework or road map for the way forward was the need to professionalise the public service, remove political deployees from technical positions where they were not qualified, and employ skilled officials who could develop careers in the public service.

But this would take time, he added.

“Public authorities... cannot abdicate their responsibility for proper infrastructure planning. For example, unless co-ordination and joint planning between development planners and the suppliers of bulk infrastructure (water, sewerage, roads and electricity) is greatly enhanced in 2011, the development of human settlements will not happen – causing potential further serious social instability,” explained Lötter. “CESA members are experienced to assist the public sector departments in this regard.

“The National Planning Commission will hopefully provide a broad national vision and guideline, but we cannot wait until this is finalised. There is too much to be done. Proper capital project planning must be done by all departments as was done for the Soccer World Cup.

“Until the appropriate in-house skills have been developed, planning experts will have to be contracted into the various departments to assist,” he added.

Lötter said proper procurement practices had to be employed. “It is very important for all clients to realise that the biggest impact on cost, which is innovation, happens in the early part of projects. Use must be made of the recently developed cidb [Construction Industry Development Board] guidelines, based on local and international experience, to select appropriate construction procurement strategies.”

He explained that much of the service delivery failure could be ascribed to the notion of sticking to traditional, often inappropriate, ‘one-size-fits-all’ construction procurement models that often led to a plethora of client/consultant/contractor relationships that had to be managed by overburdened and inexperienced staff.

“In determining the appropriate model, it is necessary to analyse project work flows carefully,” Lötter added.

Commenting on the New Growth Plan, which sets an ambitious target to deliver 30 000 engineers per annum by 2014, he said that about 2 500 engineers graduated annually from South African universities.

“Assuming that graduate technicians and technologists are included in the minister’s target, the annual figure is around 6 000,” Lötter noted.

“Approximately 60% of first-year entrants do not graduate. If the pass rate could be increased to, say, 80% – by raising the quality and numbers of educators – the number of annual graduates could be upped to, say, 12 000.”

CESA’s view was that the strongest ‘pulling’ power to increase the number of engineers had historically been investment in infrastructure from the government and the private sector.

Lötter said that: if the economy grew; if a sustainable programme of infrastructure spend were maintained; if technical positions were created in technical public sector departments; and if qualified engineers were employed in technical positions in the government – the private sector would respond by sponsoring and training engineering students. Graduates would be able to find suitable career opportunities, which currently was not that easy.

“Otherwise, if the infrastructure spend by the public and private sector does not increase adequately, South Africa will be producing a surplus of engineers – that is, if students can be lured to study engineering in an underperforming market,” he added.

Municipal

In 2010, CESA identified service delivery in the public sector in general, but specifically in the municipal sphere, as a “burning bridge”.

Despite the identification and acknowledgement of the numerous deficiencies and the well-known Turnaround Strategy document produced by the Department of Co-operative Governance and Traditional Affairs (CoGTA), service delivery still appeared to be a major issue in numerous municipalities and departments.

“The ship has not yet turned around! To date, initiatives like the special purpose vehicle or the Adopt-a-Town mooted by CoGTA have not come to fruition,” said Lötter.

He said the numerous well-intended ad hoc and uncoordinated interventions at municipal level had had very limited impact and lacked continuity.

CESA members (the country, for that matter) still do not know what the R864bn allocated to projects consists of and when these projects would come through.

President Zuma announced R9bn in jobs funds over the next three years and R20bn in tax allowances, or tax breaks, to promote the manufacturing industry, which is one of the six sectors targeted for job creation – the others being infrastructure, agriculture, mining and beneficiation, the green economy and tourism.

For a project to qualify, the minimum investment had to be R200m for a new project and R20m for expansion as well as upgrades.

The programme would provide an allowance of up to R900m in tax deductible allowances for new investors and R550m for upgrades and expansions, President Zuma stated.

Referring to South Africa’s infrastructure development programme, he talked about expanding access to basic services including projects for the provision of water, electricity and housing, saying the construction industry was a known driver for work opportunities and that there were 1.2 million households living in the country’s 2 700 informal settlements.

“By the year 2014, 400 000 of the said households should have security of tenure and access to basic services,” President Zuma said.

The government would spend R2.6bn on water services this year. Among the priority areas were the provinces of Limpopo, KwaZulu-Natal and the Eastern Cape, where there were still high numbers of people without safe drinking water.

The Expanded Public Works Programme aimed to create 4.5 million work opportunities, with Phase 2 focusing on the repairs of road networks.

“We will develop infrastructure that will boost our agricultural sector, while also helping to create jobs. Water reservoirs, windmills and irrigation schemes will be rehabilitated. Crops, livestock as well as grazing will be protected with the installation of fences,” said President Zuma.

But he stayed clear of details, saying the ministers would announce their jobs targets and more specific details per sector, in their forthcoming Budget Vote speeches.

On the procurement issue, however, President Zuma did mention that the Multi-Agency Working Group on procurement – led by the National Treasury, the South African Revenue Service and the Financial Intelligence Centre – was reviewing the entire state procurement system “to ensure better value for money from state spending.”

Meanwhile, CESA has noted “with interest” the appointment of the 25-member National Planning Commission (NPC) in April last year, to be chaired by the Minister for National Planning Trevor Manuel.

“We expect the NPC is still busy researching prevailing conditions that will affect the country’s planning for the future. One would hope a process of public involvement will be included in their preparations for such a plan because our members may have valuable contributions to make, especially in regard to urbanisation and infrastructure needs, for example,” said CESA.

“We would like to be able to participate in identifying and prioritising, inter alia, many issues relevant to our industry during the course of 2011.”

CESA said 2011 is the year it aims to become recognised as the “centre of excellence” and a trusted adviser to the government to collectively address the challenges.

“The recent successes of the World Cup demonstrate that the engineering fraternity in South Africa can meet these challenges successfully,” it added.

CESA has a “cautiously optimistic outlook” for the local industry in 2011, but it is tempered by the uncertainty of the coming municipal elections.

“During previous elections, impacts on our industry have generally been negative.

“There is, however, presently such a strong outcry and focus on service delivery and economic growth that it is possible that, at least in the run-up to (May), investment in infrastructure could accelerate,” it said. 

Udo Rypstra