State slow spend puts squeeze on construction

Posted On Tuesday, 01 February 2011 02:00 Published by Commercial Property News
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The government’s poor investment in infrastructure is hurting the construction sector, and analysts warn that further delays in spending will frustrate job creation across the economy.

Paul Stuiver PPCThe government’s poor investment in infrastructure is hurting the construction sector, and analysts warn that further delays in spending will frustrate job creation across the economy.

In its most recent fixed investment outlook, Investec warned that the government had been tardy in meeting investment targets, which would impede service delivery and economic growth.

"The poor spending performance of government in infrastructure is an area where the New Growth Path can really provide value, without significant and inward industrialisation SA cannot regenerate its manufacturing sector," Investec wrote.

"Now more than ever, government and parastatals must not fail or delay in spending all moneys earmarked for fixed investment. This is vitally necessary for job creation," the outlook reads.

While the Soccer World Cup last year saw huge state investment in fixed capital, the government has been slow since then to issue new tenders and tardy in paying for work done. The private sector is complaining bitterly.

In an outlook report published yesterday, Fitch Ratings said overall levels of economic activity in SA could improve this year, if there was spending by key state- owned enterprises.

Yesterday Pretoria Portland Cement (PPC) warned in its trading update for the December quarter that sales were continuing to decline, which bodes ill for building and construction.

"National, provincial and municipal government has a huge backlog in tenders, somebody please award a tender," said PPC CE Paul Stuiver. "Government needs to spend R400bn over the next seven years to keep us going."

The Treasury reported recently that there was a 25,3% decline in capital spending last year compared with 2009. "This weakness is broad-based across parastatals, government and the private sector," Investec wrote.

The Department of Human Settlements planned to disburse nearly R14bn this fiscal year, but the Treasury said the Free State, KwaZulu-Natal and the Western Cape had spent less than 35% of their grants by the middle of the financial year.

PPC said cement sales fell 5% in the latest quarter, after a 7% drop in sales for the year to September. It blamed a construction sector slowdown in the second half of last year, and low activity in housing. Housing and associated infrastructure make up about 50% of the building and construction market in SA.

"I think it is now the worst (market) in 40 years, we are into the fourth year of decline," Mr Stuiver said. "Even if it turned around tomorrow, it would take a number of years to get out of it."

Murray & Roberts said on Friday conditions in South African markets had become tougher , and it had not been paid for public projects. Delays in payment for work on the Gautrain and Eskom’s Medupi and Kusile power stations were straining its profits.

"It doesn’t look good at the moment, work is scarce and margins are tight, and with Murray & Roberts the big issue is getting paid," Michael Canterbury, an analyst at Sanlam Investment Management, said yesterday.

"All (building and construction) companies are facing the same difficulties to a greater or lesser degree." Mr Canterbury said SA was artificially buoyed by the World Cup, when building and construction elsewhere in the world was tanking.

Mr Stuiver said problems with low-cost housing delivery were mostly caused by a failure to identify and service appropriate land. Municipalities had no budgets or capacity to install water, sewerage and electricity connections.

Part of the problem was that the government was giving tenders to smaller firms that could not manage, instead of using the capacity of established firms.

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