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Is there a light at the end of the tunnel for SA’s construction sector?
On Monday this week we saw the collapse of industry giant Group Five as it was put into business rescue with its stock being suspended after it filed for bankruptcy protection. There has been a significant decline of South African construction businesses and for more analysis on the construction industry CNBC Africa is joined by Jason Wilmot, former President of Master Builders Association North and Serfaas Badenhorst, Portfolio Manager at Momentum Securities.
Thu, 14 Mar 2019 10:53:03 GMT
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AI Generated Summary
- The collapse of Group Five and other construction firms has highlighted the deep-rooted challenges facing the industry in South Africa, with widespread economic and social implications.
- The cyclical nature of the construction sector and the lack of infrastructure investment from the government have exacerbated financial woes for companies, emphasizing the need for diversification and local focus.
- The funding issues, high costs of capital, and corruption concerns have further strained the industry, necessitating a collaborative approach between public and private sectors to drive recovery and prevent further company collapses.
The collapse of industry giant Group Five and the subsequent suspension of its stock after filing for bankruptcy protection has sent shockwaves throughout the construction sector in South Africa. The construction industry in the country has been facing a significant decline, with various companies like Basil Reed, LaViro, NMC, and others following suit in financial distress. In a recent interview on CNBC Africa, Jason Wilmot, former President of Master Builders Association North, and Serfaas Badenhorst, Portfolio Manager at Momentum Securities, provided insights into the challenges and potential solutions for the industry.
Wilmot expressed the gravity of the situation, emphasizing the long-standing presence of companies like Group Five and their substantial contributions to the country over almost five decades. He highlighted that the current crisis extends beyond Group Five to encompass several other construction firms, painting a grim picture of the industry's state. The collapse of these companies has not only economic but social implications, as thousands of subcontractors and employees are at risk.
Badenhorst shed light on the cyclical nature of the construction industry, noting that the prolonged downturn has squeezed margins and posed significant challenges for companies without robust balance sheets. He cited the struggles faced by firms like Group Five, which lacked the financial resilience to weather the ongoing storm. The lack of timely investment and stalled projects, particularly in the wake of unmet promises from the government, has exacerbated the industry's woes.
The conversation turned to the importance of diversification and survival strategies for construction companies. Badenhorst underscored the necessity for local focus amidst global market pursuits, urging a closer look at the stagnant National Development Plan and the urgent need for infrastructure investment. With poor growth rates and a substantial workforce dependent on the construction sector, the call for concerted efforts from both public and private sectors became even more pressing.
Addressing the funding and monetary aspects, both Wilmot and Badenhorst emphasized the critical role of positive sentiment and government action in driving industry recovery. The impact of corruption and misallocated funds on infrastructure spending was a point of contention, with concerns raised about the escalating costs of construction due to potential reliance on foreign firms for projects.
Despite the challenges and the grim outlook portrayed by the FTSI GSE Africa Construction and Materials Index, which has seen a significant decline, Badenhorst pointed to the potential for a turnaround. Citing examples like Murray and Roberts, which diversified into underground mining and oil and gas sectors with positive outcomes, there was a glimmer of hope for the industry.
The interview concluded on a somber note, with Wilmot cautioning that the current crisis is not a future risk but a present reality. The urgency to address the systemic issues plaguing the construction sector was clear, with the need for collaborative efforts and decisive actions from all stakeholders to prevent further company collapses and structural damage to the industry.
In light of the recent setbacks and the looming uncertainty, South Africa's construction sector stands at a crossroads, facing challenges that require immediate attention and strategic interventions to pave the way for a sustainable and resilient future.
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