Sparkling skylines belie the dire state of SA construction
An industry with too much capacity fights over a shrinking pie, leading to paper-thin margins
The sight of construction cranes towering over Rosebank and Sandton in Johannesburg make the talk of a struggling construction industry baffling. If the industry is on its last legs, who is picking up the contracts?
Some of the country’s construction companies are in business rescue and have experienced significant reductions in their market capitalisations.
It turns out, as Basil Read CEO Khathutshelo Mapasa confirmed last week, the industry chose to keep its capacity, which was mainly built up ahead of the 2010 Fifa World Cup.
When the work dried up, the construction firms, especially those focused on the SA market, had a choice to make – cut your cloth according to your coat or maintain the same level of capacity in the hope that things would turn around.
Some chose the latter and lived to regret the decision as government’s infrastructure spending and work from the private sector has remained depressed.
Today, you have an industry with too much capacity fighting over a shrinking pie. This has resulted in paper-thin margins. How long can a company survive on low margins? We have seen the results of the ploy to undercut each other just to secure work even if the margins cannot support the business.