Increased risk of massive construction lay-offs in South Africa

Siseko Njobeni

Johannesburg - Embattled construction firms, which lost 38% of their aggregate market capitalisation in 2015, are facing more hard times, a survey showed on Thursday.

The latest PwC study on the construction industry has shown that the sector is taking strain as it battles lower revenue and profit, with fewer projects in the offering. In 2015 the market capitalisation of the companies fell to R25.9bn, from R41.6bn in 2014.

PwC’s third edition of SA Construction, which tracks trends in the construction industry, shows that eight of the nine heavy construction companies surveyed showed a drop in market capitalisation. The surveyed companies are WBHO [JSE:WBO], Murray & Roberts [JSE:MUR], Raubex [JSE:RBX], Calgro M3 [JSE:CGR], Group Five [JSE:GRF], Aveng [JSE:AEG], Stefanutti Stocks [JSE:SSK], Basil Read [JSE:BSR] and Esor [JSE:ESR]. Only Calgro M3 showed an increase in market capitalisation in 2015.

The study is based on the financial results of the JSE-listed companies for the financial year to end-June 2015.

For the first time in five years, the companies’ secured order book dropped by 4% compared to the previous year. The industry’s profits and revenue fell by 54% and 6%, respectively.

The unfavourable market conditions heighten the risk of massive retrenchments in the construction industry, PwC Assurance Partner Andries Rossouw said on Thursday. Staff costs represent 29% of operating costs, and this is slightly up from 28% in 2014.

High hopes from infrastructure

The industry’s hopes now hinge on infrastructure spend by the public sector. But public sector expenditure is behind forecast, PwC said. Eskom, Transnet and the SA National Roads Agency account for the bulk of the expenditure.

“The South African government’s ongoing National Development Plan (NDP) and its continued commitment to public infrastructure investment of R810bn over the next few years are still positive signs for future growth in the industry.

"The construction companies should develop their skills base and geographical diversification in order to take advantage of opportunities in South Africa and the rest of Africa," said Rossouw.