As the South African construction sector navigates various challenges, such as high interest rates and a lack of infrastructure maintenance, various steps need to be taken for South Africa to advance a critical infrastructure expansion and refurbishment programme.

During Creamer Media’s Construction webinar, held on November 12, economist Dr Roelof Botha said South Africa’s construction sector was in trouble and had been in trouble for some time.

He argued that the decision to change South Africa’s inflation target to 3% – as confirmed by Finance Minister Enoch Godongwana in his Medium-Term Budget Policy Statement, on November 12 – from the previous target range of 3% to 6%, would have a detrimental impact on the local construction sector.

He noted, however, that the upshot of this decision would be a prime overdraft rate between the current 10.5% and perhaps even reverting back to the historical high of 11.75%.

“It should be stopped in its tracks,” he said of the new inflation target.

He asserted that the sector could recover, “as long as we have the right policies and one of the right policies would be an interest rate that doesn't inhibit capital formation,” he added, calling for policies that supported the construction sector, such as lower interest rates and better infrastructure.

“We must really . . . create an environment that is conducive to construction.”

Adding to the discussion, other panellists included Consulting Engineers South Africa (Cesa) CEO Chris Campbell, Shell Lubricants South Africa technical and services manager Mpho Mokwena, Standard Bank Corporate & Investment Banking infrastructure sector executive VP Phakama Mbikwana and MDA Attorneys director Michelle Kerr.

Campbell argued that infrastructure development and policy certainty were necessary to advance the critical infrastructure expansion and refurbishment programme and would subsequently stimulate economic growth.

Additionally, he noted the importance of removing risk elements, such as corruption and the construction mafia, to make the economy more investor-friendly and to encourage investment into the construction sector.

He noted the importance of developing water, energy and roads infrastructure, highlighting a lack of infrastructure maintenance across various municipalities.

“We have a plethora of projects and infrastructure that needs attention and then we can start also looking at what more do we need that will help grow our economy? Right now, we need to look at the infrastructure that can just sustain our economy as it is.”

Meanwhile, Mbikwana, from a financial perspective, argued that, while there were sufficient systems to fund infrastructure, there were delays in getting construction projects from concept stage to execution and financial close.

“It's not a money element or a money problem. The problem is the time it takes and the resources that are deployed to ensure these projects move from announcement to market and to delivery,” she said, highlighting that a lack of clarity could lead to the capital pool from the private sector drying up.

“The challenge really . . . in my view, is not a lack of innovation where financial instruments or know-how in the country is concerned, it's really things like mobilising project preparation sufficiently, making sure there's sufficient certainty for that project preparation to come through and things of that nature.”

Mbikwana emphasised the importance of aligning on the definition of public-private partnerships (PPPs), explaining that a PPP was not the same as privatisation.

“Government is not losing ownership by crowding in private investment and private operational capability to deliver where government is somewhat challenged,” she stated.

Mbikwana also highlighted the importance of procurement transparency and clear mechanisms for private investors.