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Friday, 04 December 2015 15:13

Construction expectations: economic rebalancing in 2016

04 December 2015, Johannesburg, South Africa, Construction trends for 2016 reveal economic rebalancing, with activity fading in the mining sector, but picking up in home building, says Frans Pienaar, Chairman of Inyatsi Construction.
“Even though construction in the transport, energy and power sectors is of critical importance for long-term economic growth, they will remain under pressure as other infrastructure areas will receive higher priority. This will happen because it will be more politically advantageous to address low-hanging fruit to gain political support, while rather postponing investment in the transport sector.”

Energy will remain a strong growth area and opportunities will be available, although these will be slow as the lead times on these projects are very long. Associated industries will benefit more than the construction industry, as the biggest chunk of investment in the energy and power sectors will be in manufacturing and mechanical and electrical supply investment, rather than in construction itself. “For example, the civil engineering construction portion of a power station is a small fraction of the mechanical and electrical manufacturing components,” Pienaar explains.

The mining sector will probably also remain constrained in 2016, because commodities prices will remain under pressure - although a stronger dollar will counteract this. “We already see significant investments from mining houses in preparation for the next up-cycle in resources. The visionary organisations will use this time to prepare for the upswing to be able to fully unlock opportunity when it comes.” However, some rationalisation is expected in the South African mining sector.

The market for housing projects is expected to grow in 2016. Studies show urbanisation will drive a large portion of construction growth in the next decade. “This will ensure a huge demand for housing, which will put infrastructure under pressure. The housing shortfall across Africa is increasing and this trend will continue for some time. Innovation in this area can be a major growth factor in the industry.

“With infrastructure under significant pressure, many of Africa’s cities cannot maintain their current levels of population and economic growth without enhancing their infrastructure. The demands for infrastructure vary from city to city based on stage of development, priorities and affordability. The basic needs for power, water and sanitation, transport and logistics, housing and ICT top the list for most.”

While economic rebalancing is forecast for 2016, Studies show while it will have an influence on the construction industry, it will probably not be enough. “Very few companies are really serious about transformation and often approach it in the wrong way. There is too much window dressing and too many entities come up with solutions that satisfy scrutiny, but do not offer real change.“

He thinks if client bodies were really serious about transformation, they would engage businesses that are prepared to make radical changes to make transformation profitable. “The major players in the industry are still beyond bringing real change. As long as they have a stranglehold on the industry, there will be no change.”

The small and growing contractors are strangled by a history and systems that benefit the more established companies. The General Conditions of Contract law? benefits the larger and more established companies and excludes new entrants, Studies show.

“In addition, it reduces the profitability of smaller entities, as financial services are more expensive for smaller entities and sometimes these mechanisms are not even available to them. This remains an area on which we must focus to help new entrants to the industry. It is not easy and remains a challenge. Studies show infrastructure fulfils a key role in economic growth and reducing poverty, having a 5%-25% per annum return on investment as an economic multiplier.”

Pienaar warns that society is more than ever tired of money being misspent. “In 2016 society and the authorities will emphasise quality and delivery as a priority. Transparency will increase and it will become increasingly difficult to hide poor service delivery. Social media have opened a whole new platform and information can go viral in seconds. The challenge remains to improve business efficiencies to survive in the competitiveness of the business environment. The important issue in construction for 2016 is to build sound structures and not just structures.”

Ends

About Inyatsi Construction:
Inyatsi Construction Ltd was first registered in Swaziland in 1982 and Inyatsi Construction Group Holdings (Pty) Ltd (ICGH) was formed in 2007 as the holding company of Inyatsi and its regional subsidiaries. The company has operations in Swaziland, South Africa, Zambia and Mozambique, as well as registered companies in Botswana and Namibia. Inyatsi and all its subsidiaries are ISO 9001:2008 certified and completed the NOSA 5 Star Audit and has been awarded four Platinum Stars.

The company’s growth accelerated after restrategising and diversifying four years ago. After focusing mainly on roads and earthworks, Inyatsi Construction widened its focus to include civil work, bridge construction, buildings and township infrastructure and high quality, fast-track houses at new mines for example.

The company is named after the Swazi word for buffalo to capture the indigenous and hard-working heart of the company.

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