Today: April 24, 2024

COVID-19 has ravaged South Africa’s construction industry, but it can recover

The fact that lockdown is still in place means stricter health and safety measures have been put into place meaning more costs for contractors who need to ensure that workers are in a safe environment and are adequately equipped with Personal Protective Equipment (PPE). While there is talk of cost sharing with clients, this is dependent on the type of contract in place for a project. On the positive side though, it is expected that adhering to stricter H&S measures should be easier for the industry as they already had stringent measures in place. Extra measures would include better sanitation, social distancing, constant handwashing and taking temperatures of workers on site.

A double-edged sword

So, the construction site is made safer; does that mean everything is back to normal? Unfortunately, exacerbating the situation further is the fact that limited people are allowed on site implying fewer construction workers to enable social distancing. This can lead to delays in the construction process as there are fewer hands to do the necessary work. Others have touted this as an opportunity to bring technology into the industry to improve efficiency. This solution is unfortunately double edged as while machines can improve the construction process, they can also literally take jobs away.  This is besides the fact that technology would not come cheap making it a solution for bigger projects (by implication higher grade contractors) that are able to handle the cost. Another touted solution is that of working round the clock; workers do the work in shifts to enable the work to move as quickly as required. This would obviously mean extra expenses such as lighting for working at night; but this cost could prove a small price to pay to ensure work progresses.

Implementation of these solutions though is for work going forward and does not address current implications of delays. As early as February, construction material shipments from China for example were already hit, with indefinite delays meaning contractors could not meet their obligations on time. In this case, again contracts play a major part in determining how the cost of delays will be shared between the contractor and the client. The crisis provides an avenue for standard contracts to be revised to prevent only one party, usually the contractor bearing the majority of risk. After this crisis, it is hoped that in the future such risks are anticipated, and adequate mitigation strategies determined. One issue that has come into focus in terms of import delays is that of local production. South Africa does have capacity to produce materials, it is hoped that local industry gets a boost as project materials are increasingly sourced locally.

The industry has already been facing reduced infrastructure spending and major companies such as Stefanutti have seen their share prices crashing to an unprecedented degree. Insurance companies have also been battling with clients, refusing to pay out on business interruption policies. On one hand these are the sort of emergencies when such policies should prove helpful, on the other, pay-outs to the large number of affected businesses could possibly bankrupt insurers. Class action suits are in motion over these issues though insurers have compromised by promising to do case by case reviews instead of blanket rejections.

Moving forward

In the face of such calamity, how does the industry move forward? What measures can be implemented to rescue the various affected stakeholders? What can possibly help ensure the revival of the Construction Industry without compromising the needs of other industries and the nation at large.

A look at what other countries are implementing gives some ideas on how to possibly proceed. Many countries have experienced a fallout from the pandemic, some with the same challenges the South African industry has faced. Examples are provided below of varied Covid effects and government strategies to improve the economy and the Industry from Fitch.

CountryCOVID-19 EffectCOVID-19 Effect
UruguayLimited impact as the government managed to control the spreadAcceleration of major PPP projects for existing economic recovery needs and spotlight on private developments
PhilippinesRestrictions resulted in affected manpower numbers and supply chain challengesGovernment likely to channel funds to immediate concerns such as the labour market and households
ColombiaEconomic devastation from the pandemic and extensive quarantinesImplementation of Compromiso Por Colombia Plan which will focus on accelerating private initiative and public-private partnership projects. Government will focus spending on economic support to businesses and individuals while relying on private investment as the driver of economic recovery
BrazilConstruction works were largely allowed to continue but faced supply chain disruptions, logistical challenges and a weakening of macroeconomic conditions
Residential and non-residential building expected to be impacted as builders slow down the launch of new projects, but infrastructure development will face reduced impact
While new projects could be limited, government is looking at the use of PPPs to help improve the industry
Implementation of Pró-Brasil – a new stimulus plan centred on infrastructure

Fitch also notes that developed markets and China will be at the forefront of infrastructure stimulus by increasing public infrastructure investment. This will be possible through the low borrowing rates afforded them. This prioritising of infrastructure development has already been observed in countries like Germany and China. While the United States has the potential for stimulus measures, these may be put on hold due to elections and difficulties agreeing to terms of stimulus.

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