International banking and wealth management group Investec is prepared to support the local construction industry – which has been experiencing a decline in activity for a number of years – by helping local companies find funding solutions for their required capital equipment investments.

Investec provides asset finance services for the local industry – on a lease or rental basis – to help companies buy new or used assets on repayment plans that match the company’s cash flow.

Investec typically funds moveable, income-generating assets and capital equipment that operates in the earth-moving, mining, construction, logistics, fleet rental, manufacturing, engineering and alternative energy industries.

Investec asset finance account executive Brett Kessel states that the local construction industry has been in a “depressed state” for the past few years, particularly as previously major construction companies, such as Basil Read and Group 5, have gone into business rescue.

Statistics, released by government agency Statistics South Africa last month, show that, in 2022, there was a 32% increase in liquidations in the construction sector.

“This sector is really dependent on government’s spending on infrastructure, which we’ve all been waiting for a long time. There are, however, things that need to get done and some projects are ongoing. There are a lot of road infrastructure projects taking place, so we’re hoping this also leads to more development down the line. There are also a lot of growth opportunities for companies in the maintenance space.”

Further, he points out that President Cyril Ramaphosa stated in his State of the Nation Address last month that a lot of infrastructure projects going forward would be focusing on water and electricity, including renewable-energy projects pertaining to wind and solar energy generation.

Such projects, if correctly funded and implemented, could result in an uptick in activity that the local construction industry can capitalise on, Kessel notes.

These are in addition to construction and rebuild projects in KwaZulu-Natal – following the riots and floods of last year – which will also provide more opportunities for construction projects.

Investor-friendly Projects

Kessel points out that a lot of capital equipment that is used in the construction industry, if well maintained and looked after, can last for up to ten years or more.

This allows for flexibility in terms of Investec’s customer base in deciding which construction projects to become involved with.

“If our equipment supplier and contractor customers need to move equipment from one site to another because the current project has become unprofitable or another new site is a more profitable project, they can do this. In recent times, our customers haven’t been committing to long-term contracts, preferring to stick to 12- to 24-month contracts and price their services accordingly.”

Investec has a “very strong, loyal customer base”, which the company assists with favourable funding solutions in a flexible manner, Kessel adds.

He adds that historically, local capital equipment in the construction market has been an active market for Investec, particularly with regard to asset finance for lease and rental options.

Investec’s involvement in the industry also ranges from the initial stages of construction projects, particularly those involved with earthworks activities, to the final stages of a construction project, including the building of warehouses.

Kessel adds that it was a key focus area for Investec before the downturn in the local construction industry.

As a result of this downturn, Investec prefers to conduct “careful” assessments of projects and customers involved in those projects to determine whether investment is merited.

Cash flow budgeting has also become crucial in the way in which the company assesses projects and its customers going forward.

“As projects progress, we assess them on an ongoing basis, and touch base with our clients often to see how they and their projects are progressing and making revenue. We have seen an uptick for companies that have a large asset base and need to support these assets, and that are looking for a variety of projects in Africa, which has proven quite lucrative for them,” he concludes.