When it comes to driving Africa’s infrastructure development agenda, the construction sector is possibly the most important sector. Absa has long been a strategic banking partner to the sector. Our unique expertise has allowed us to partner with the sector to develop core civil infrastructure, real estate and industrial assets across the continent. Absa works with you to develop tailored solutions that meet you growth ambitions in this sector.
Thoughts from our leaders
“When the music changes, so does the dance”
While the South African construction sector faced significant headwinds in 2017, it ends the year with a resilience and focus needed to see it successfully through 2018 and beyond.
The construction sector is an important contributor in driving the country’s developmental agenda, employing thousands. However, low economic growth, coupled with ratings downgrades, has impacted business confidence and investment in infrastructure.
Against this backdrop, and an evolving regulatory landscape, the industry has been faced with a more complex operating environment, marked by increasing competition and lower margins. This has put pressure on revenue and profitability.
The market capitalisation of the top x JSE listed construction companies has fallen from Rxxbn on 1 January 2017 to Ryyybn on 12 December 2017, suggestive of the generally subdued industry financial performance.
The African proverb “when the music changes, so does the dance”, is symbolic of the change playing out in the industry, and the need for companies to adapt and innovate in order to grow sustainably into the future.
This has given rise to the following key themes playing out in the market:
- Diversification of revenues to reduce the historic heavy reliance on traditional buildings and civil infrastructure construction activities, in to related industries/activities.
- Rationalisation, reorganisation and possible disposal of assets to improve efficiencies.
- Heightened focus on risk management, cost discipline and timely execution on projects to reduce operational losses.
- Pursuit of growth opportunities in the rest of Africa, but also offshore - especially in Australasia, the EU and the UK; where South African companies are employing a combination of acquisition-led and organic growth-driven strategies.
- Some management changes and a greater emphasis on developing management bench strength and succession.
- Implementation of various black economic empowerment initiatives (particularly around shareholding, employment equity and enterprise development), following the signing of the Voluntary Rebuild Programme in the final quarter of 2016, the ongoing discussions in respect of the revamped construction sector codes, and revised procurement policies within various public sector entities.
- The use of technology-driven innovation in the broader construction value chain, to improve health and safety on sites, enable more accurate design, reduce errors or regarding the use of camera and drone footage for hard-to-reach areas.
As the industry has changed (and continues to change), the listed South African construction companies have needed to review their strategic focus areas, balancing the need grow in to new markets with the need to solidify successes in existing businesses where they enjoy a competitive advantage and proven track record. The transition and evolution of the industry will be unpleasant at times. Resilience, agility and strong management are needed to perform in these turbulent times. Companies not only need to adjust their dance moves in response to the new market tunes, but play an active role in creating the new music to which the industry dances.