By Wolfgang Neff
This year’s opening of Parliament occurred in a difficult economic climate. Just last week, the International Monetary Fund downgraded its economic outlook for South Africa.
Given that the outlook was only 1.8% growth to begin with, the possibly of even slower growth (just 1%) should concern us all as we strive to build a more inclusive economy that significantly addresses unemployment, poverty and inequality.
In this context, the work of Parliament carries even more weight, with a greater responsibility to safeguard critical industries. Nowhere is this truer than in the construction sector.
The South African construction industry is a critical economic contributor. It makes up 3% of the national gross domestic product, to the value of more than R30 billion, provides much-needed employment to some 1.3 million people while improving the public and private infrastructure in the country.
Construction is also the largest employer of unskilled workers and one of the biggest employers of youth in South Africa. This makes it a major driver of economic upliftment and an integral flywheel for economic recovery and growth.
More importantly, the construction sector’s work brings immediate and tangible benefits to communities across the country, from roads and bridges to schools and hospitals. This is especially true in rural communities. In the process of delivering the important projects, the construction sector also offers a direct and rapid economic injection to communities who often need it most in the form of jobs.
In recent years, the sector has faced many headwinds, having been badly impacted by the stagnating economy, a decline in government infrastructure expenditure, the Covid-19 national lockdowns and the growth of the construction Mafia, all of which resulted in reduced revenue and job losses.
There has, however, been a notable recovery in the construction sector over the past year, with many construction firms reporting stronger financial results than was previously experienced. Wilson Bayly Holmes-Ovcon (WBHO), which employs 9 413 people, provides a good example of this recovery.
WBHO has been responsible for some of the biggest building construction, civil engineering and roads and earthworks projects across the continent. Although also impacted by the downturn of the past few years,
WBHO’s recent results for the financial year ended June 30, 2023 show operating profit from continuing operations having increased by 30% with African operations contributing R995 million from R701m in the previous year.
Furthermore, WBHO’s order book levels have increased to R33bn, a growth of 47% when compared to the previous year. This stronger financial performance has led to the empowerment of thousands of South African beneficiaries.
WBHO, for example, has invested heavily in transferring a large percentage of its shareholding to permanent black employees over the past few years through its Akani Broad Based Incentive Share Scheme programme while spending hundreds of millions of rand on skills development and enterprise development programmes aimed at benefiting black employees and black-owned businesses in the sector.
To illustrate the point, WBHO has invested more than R480m in skills development over the past decade as well as nearly R150m to develop black-owned businesses in the sector. In many ways, WBHO is doing something unprecedented – the company is investing resources to grow its own competition.
From an operational perspective, WBHO’s executives own less than 1% of the business while more than 20% is owned by largely black permanent employees. During the first phase of WBHO’s employee share initiative, more than 2 966 employees received shares in the company, worth approximately R110m.
It is in this context that the Public Procurement Bill was passed by the National Assembly in December with minor changes, and is being considered by the National Council of Provinces. While the imperative to accelerate and advance transformation is widely recognised, it is also important that legislation passed for this purpose does not undermine the significant progress made in transforming the construction sector.
There was considerable criticism of the Public Procurement Bill when it was tabled in the National Assembly. This criticism varied from procedural issues – a short notice period, rushing the legislative process and rendering it impractical – to more substantive issues which identified specific long-term consequences such as the impracticalities of implementing the Public Procurement Bill in its unamended form as well the negative impact of Bill on the Constitutional considerations of fairness, equity, transparency, cost-effectiveness and competitiveness to the bidding process.
The issues create reasonable grounds on which to question the constitutionality of the bill. The bill would also impede the ability of municipalities and provinces to determine their own procurement criteria. If passed in its unamended form, it seems clear it will invite lengthy and costly legal challenges.
The construction sector operates under the 2017 Amended Construction Codes (ACSC). The preferential procurement element of the ACSC’s scorecard has specific targets aimed at advancing businesses owned by black South Africans, women and black youth, as well as disabled and rural South Africans. Within this framework, the sector has seen tremendous efforts to not only meet, but also exceed expectations.
In addition to requiring new infrastructure, South Africa needs a thriving construction sector to help rebuild and repair critical infrastructure that has suffered as a result of insufficient and delayed maintenance.
This is required in various parts of the country impacted upon by crises including social unrest and climate-related incidents. Now more than ever, our priority as a nation must be to safeguard the skills and investment necessary to build and maintain globally competitive infrastructure that keeps apace with global trends and technological innovation.
South Africa’s construction sector was once globally respected, and it can be again. But to achieve this, we must narrow our focus to policy and legislative changes that support the growth of the economy more broadly and the construction sector in particular.
We need to recognise those who lead in transformation instead of burdening them with further requirements that hamper further transformative contributions and sap the economy of its vitality.
Parliament must revisit the Public Procurement Bill and what its impact on the economy will be. In this watershed moment, mistakes can be costly, setting back the critical recovery the country so desperately needs.
Wolfgang Neff is CEO of Wilson Bayly Holmes-Ovcon.
BUSINESS REPORT