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Construction’s bittersweet return

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Monday will be a bitter-sweet day for the construction industry as workers are finally permitted to pick up their tools and restart their equipment after two months.

They will do so while bearing in mind the number of construction enterprises that have had to shut their doors following financial loss during the national lockdown which was implemented at the end of March. Even those that survived will have to overcome many setbacks and challenges brought about by the two-month lockdown.

This period has been “very difficult” for the industry, says John Matthews, president of Master Builders South Africa. “The industry has suffered huge losses during lockdown. Many active sites were left without any form of security resulting in loss of material and building equipment.

“Many small, medium and macro enterprises have had to shut down their operations due to lack of cash flow.” He says construction has very low profit margins which require constant cash flow. In addition, Deon van Zyl, chair of the Western Cape Property Development Forum, says many businesses attempted to support their permanent staff during the lockdown period through various grants and cash reserves but that these, by now, would be depleted.

“Far more concerning, however, is the sub-contracting industry and labour teams that probably did not have surplus cash to see through the lockdown period and who would by now be in dire straits.

“We expect that many of these small businesses will have to close down unless the construction industry is able to mobilise very quickly from June 1.”

While company bosses are hopeful that the sector will weather the storm caused by the lockdown – depending on the support received from government relief funds and infrastructure development projects – Matthews says the true picture of the extent of damage will only emerge as the industry rolls up its sleeves and gets back to work.

“National Treasury projects a national GDP contraction of up to 16% in 2020 and we expect the construction industry contraction to be much higher than that because of the nature of demand for construction work, which is highly elastic in its response to spending patterns.”

Van Zyl says the only way to overcome the losses experienced is for the industry to build itself out of the crisis. This requires that public and private sector projects start soon and that new work is released by both public and private sectors.

Many firms will open limping and some might open just to shut down one final time, notes David Sedgwick, managing director of Horizon Capital. “This is the unfortunate consequence of what lies ahead and only construction firms that are strongly capitalised and have had good balance sheet discipline will probably survive.”

One of the biggest challenges that lies ahead is going to be preserving the safety of the workers, the safety of the sites and business continuity. “We are under no illusions that the rate of infection is increasing and with that the likelihood of a worker contracting Covid-19.

“This will no doubt cause an interruption in the availability and supply of materials at all levels and the ability to continue working on site with unplanned shut-downs of sites possible at any moment,” Sedgwick says.

Matthews says additional hurdles that contractors and professionals have to clear include contractual issues in relation to delays, renegotiation of contracts and payment terms. Above and beyond that, cash flow will be a major challenge especially for SMMEs with limited credit profiles. “We are calling on the government to support us.

“We are also hopeful that financial institutions, such as banks and other lending houses, will assist the sector during these difficult times.” He says medium-term challenges relate to securing work for contractors to prevent job losses and to secure household incomes for employees in the sector.

The long-term challenge is to ensure that the industry remains sustainable and competitive even at a global scale. Ensuring productivity within the “new normal” of social distancing, smaller work teams and shift work will prove to be challenging, Van Zyl says.

“We also look to see how well the suppliers are able to mobilise to get production levels up again. Materials that are imported will have to be cleared at ports as soon as possible…” Clients will need to proactively pay their invoices or issue payment certificates so that main contractors can pay subcontractors.

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