Builders face an uncertain post-COVID-19 future
The national lockdown has highlighted serious cracks in South Africa’s built environment industry15th Apr 2020
With construction not categorised as an essential service, all projects are suspended under the national COVID-19 lockdown – leaving the sector facing a deeply uncertain future.
A bad situation made worse
This is not a good time to be a builder. The suspension of work has halted payments (which are linked to project milestones), and the break in cash flow is hitting everyone up and down the value chain. Mohau Mphomela, Executive Director of the Master Builders Association North (which represents Gauteng, North West, Mpumalanga and Limpopo), warns that because margins are so thin, and work so limited, it is safe to say that nobody in that value chain – including contractors, subcontractors and labourers – has much in the way of financial reserves to call on.
‘Although the contractors will get extensions on project timelines when contractual procedures are followed properly, the extension of these timelines will most likely be granted without adjustment of the contract value,’ adds Christelle Brown, President of the Association of South African Quantity Surveyors (ASAQS). ‘The extension of timelines will also pose a problem for developers with deadlines for completion of projects to open for trade and/or renting. This will have a big impact on the postponement of investments and repayment of borrowed capital.’
As in many other industries and aspects of life, the COVID-19 crisis has served to make the built environment sector’s bad situation even worse. ‘Many contractors and construction companies have been liquidated, and now they’re also in this situation where the few projects they still have left cannot move forward – thus making cash flow an even bigger problem,’ says Brown. ‘Once again, this will have a ripple effect on everybody else in the industry.’
Mphomela paints an even gloomier picture. ‘In the first quarter of 2019, construction shed 142,000 jobs,’ he says. ‘I shudder to think what this year’s figures will look like. Nobody anticipated COVID-19, and certainly not the extent of the response. We are a highly labour-intensive industry with a high proportion of temporary workers, so employment is exceptionally fragile as it is linked to specific projects.’
However, the industry as a collective knows that it cannot afford to waste such a good crisis. The enforced lockdown/shutdown, combined with the economic crash (not caused by, but made worse by, COVID-19), has highlighted a few areas in the industry where radical change was long overdue.
South Africa is now seeing the effect of the country’s massive housing imbalances, and the urgent need for affordable housing. It’s one thing for the President to tell South Africans to stay at home, but what does that mean to the homeless? And how can anyone living in overpopulated informal settlements or cramped housing blocks be expected to practise social distancing?
Related to that, the construction industry is now facing the reality of its massive temporary (or piecemeal) workforce. ‘Temporary workers do not enjoy the same protection as permanent employees under labour law, and these individuals are likely to be severely hit by the industry shutdown,’ says Mphomela. ‘In any event, the industry’s lack of reserves makes it unlikely that even permanent employees will receive full pay over the lockdown period. The President has called on employers to help their employees, but when the means to do so are not there, then we have a problem.’
Industry insiders also fear the post-COVID-19 rise of the infamous ‘Construction Mafia’. As Brown warns: ‘We can also expect renewed and even more aggressive claims from the so-called Business Forums after the lockdown, as various communities will also feel the economic impact of the lockdown.’
Mphomela, meanwhile, argues that the industry will have to come together to hammer out a common plan to survive the fallout of the crisis, and to change the way it does business. ‘The industry has long been plagued by non-adherence to standard contract terms,’ he says. ‘A key issue is that clients – and government is a particular offender – are extremely tardy with payments, and this affects the timeous payment of everybody down the line, despite the fact that the particular milestone has been met. Based on meetings with main contractors and subcontractors, it appears that one problem is that the project managers employed by the client to oversee the project are unregulated, and thus can impose their will unchecked on everybody else. As a result, payment terms slip, and many contractors and subcontractors say that 90 days is now common.’
Room for optimism
So what’s next for the building trade? Brown expects the dark clouds to linger for some time. ‘Earlier this year, government budgeted for huge infrastructure development in the coming financial year, but I am afraid that the cost of managing the COVID-19 crisis will chip away at these budgets that were proposed,’ she says.
She’s still putting on a brave face, though. ‘Although I am painting a very pessimistic picture here, my optimistic and positive side does strongly believe that we as South Africans will overcome this crisis,’ she says. ‘Together we will rebuild a stronger and better industry!’
Opportunities will surely arise once the dust of the COVID-19 crisis settles, but it’s clear that the building industry will need serious reconstruction.