The SA Construction Industry
In 2008, the SA government estimated that upgrading the country’s road network would cost R72bn. Furthermore, the government estimated that 82% of SA’s roads were older than their designed lifespan of 20 years, while 40% of all tarred roads, totalling 120,000km, would reach the end of their structural life within ten years. As a result, the government allocated R5.2bn for maintenance and upgrading, falling well short of the estimated R72bn. Moreover, the government approved R24bn for the Gauteng Freeway Improvement Project (GFIP) to reduce traffic congestion.
Fast forward to 2016, when the Organisation Undoing Tax Abuse (OUTA) alleged that the South African National Roads Agency SOC Ltd (SANRAL) overpaid for the GFIP by 321%. Moreover, the Competition Commission reported collusion in some GFIP tenders three years ago. At this point, how much responsibility does the private sector bear for our abysmal roads? If SANRAL had not overpaid by c. R11bn for the GFIP, the e-tolling system would not exist, according to a 2016 OUTA report. In the end, SANRAL claimed c. R760mn in damages from seven firms involved in the GFIP.
In 2017, the National Treasury (Treasury) introduced its new infrastructure procurement and delivery management standard. The new standard aimed to enhance the value for money offered by professional service providers. However, although noble, the new standard was unenforceable due to a lack of capacity at Treasury. In total, the ructions between SANRAL and Treasury resulted in c. R5.1bn in budgeted SANRAL tenders going unawarded between 2016 and 2017.
In a 2020 decision that some saw as passing the buck of civil unrest, SANRAL changed the clause on which contractors rely when dealing with unforeseen and unavoidable disruptions at construction sites. As a result, a joint venture (JV) made up of infrastructure and resources group Aveng and Austria’s Strabag International (JV) terminated a contract to an R1.65bn bridge in the Eastern Cape. The JV cited fears over violent protests on site. According to the SA Forum of Civil Engineering Contractors (SAFCEC), the total value of projects disrupted by criminals across the country stood at R25.5bn by March 2019.
SANRAL gives and takes. In 2022, the transport minister endorsed SANRAL’s decision to cancel road improvement and construction tenders worth R17bn, sighting procurement irregularities. As a result, the SANRAL board halted at least five key projects. Withdrawing these tenders might indicate that the state is taking a more aggressive stance against corruption in public procurement, which is a welcome development. However, the SA construction industry, which is already in an abysmal state, had almost started invoicing on the contracts already awarded. As a result, some contractors likely issued painful credit notes.
During the first week of November 2022, SANRAL announced awarding four of its five crucial road improvement and construction projects valued at c. R17bn. However, SANRAL awarded up to R6.65bn in tenders to foreign, specifically Chinese, contractors. Consequently, SANRAL has come under fire from the SA construction industry as it searches for answers behind the multibillion-rand tendering process that ultimately selected Chinese contractors when the local construction industry is in dire straits. There is a long history of Chinese construction companies building sub-standard infrastructure across Africa. We are reminded of the old Afrikaans adage “Goedkoop is duur koop”, which loosely translated means that if you pay the lowest prices, you will be paying more in the long run.
One can understand that government is probably once bitten, twice shy, following the collusion amongst some SA construction firms in the GFIP. However, we would argue that the average South African is perhaps growing frustrated with the government’s inaction and the awarding of tenders to foreign companies by SANRAL. Infrastructure projects are low-hanging fruit that SA must take advantage of to help kick-start our economy. The multiplier effect of keeping the rand compounding within the local economy makes SANRAL’s decision even more challenging to understand.
At Anchor, our clients come first. Our dedicated Anchor team of investment professionals are experts in devising investment strategies and generating financial wealth for our clients by offering a broad range of local and global investment solutions and structures to build your financial portfolio. These investment solutions also include asset management, access to hedge funds, personal share portfolios, unit trusts, and pension fund products. In addition, our skillset provides our clients with access to various local and global investment solutions. Please provide your contact details here, and one of our trusted financial advisors will contact you.
