The Building Research Strategy Consulting Unit of business consultancy BMI estimates that investment in construction and building in South Africa in 2011 was R320-billion. However, construction demand from both the public and private sectors has slumped, on the back of global and local economic uncertainty.
The construction boom that preceded the slump saw many new construction companies entering the market. This has resulted in a situation of overcapacity in the current environment of reduced demand for construction services. Further, with fewer major contracts on offer, competition in the construction sector has become increasingly intense. Aggressive pricing, in an effort to secure contracts, has resulted in pressure on company margins, with several of the major participants in the market reporting margin erosion.
However, the South African government’s strong policy focus on infrastructure is positive and should eventually begin translating into orders, as well as help rebalance many South African construction companies’ order books, which are currently heavily weighted towards private sector contracts, with many construction companies in fact seeking out business in markets beyond South Africa’s borders.