Concern that DBSA will divert infrastructure funds to SAA

Concern has been expressed by Consulting Engineers South Africa (Cesa) about the R3.5 billion bailout to South African Airways (SAA) by the Development Bank of Southern Africa (DBSA).

Read: SAA receives R3.5bn from DBSA

Cesa’s newly-elected president Sugen Pillay said on Wednesday there is very little detail about the bailout at the moment, but it does concern Cesa that some of the funding that may have been earmarked for infrastructure development “may now be diverted for this bailout”.

Trade union Uasa (formerly United Association of SA) is one of several other entities critical of the DBSA’s bailout.

Uasa spokesperson Stanford Mazhindu stressed that state-owned DBSA, in its own words, is responsible for infrastructure development in Southern African Development Community countries and its funds are not meant to rescue failed state-owned entities (SOEs).

“We are disappointed that instead of focusing their attention on something that could help the majority of Africans, such as building a hospital or improving current hospitals and roads, the DBSA would rather put that money in a failing SOE with little to no chance of getting a return on their investment,” he said.

However, Pillay said Cesa is cautiously optimistic that the Infrastructure Fund will start to gear into action so that funding for project preparation can be unlocked.

He said Cesa has had initial discussions with Dr Sean Phillips, who heads up the fund, and continues to engage with Phillips’s office so that as an industry they contribute to unlocking this fund.

“We’re calling for an environment to be created so these projects start to flow,” he said.

President Cyril Ramaphosa announced the establishment of a National Infrastructure Fund in September 2018 as part of the government’s economic stimulus and recovery plan.

Read: Ramaphosa’s infrastructure fund must be geared through project finance

The DBSA has been given responsibility for implementing the fund.

Read: Cosatu want private pensions to fund infrastructure

A cabinet statement in October last year reported that government has set aside R100 billion over 10 years for the fund and is looking forward to working with private investors and international financial institutions to leverage finance for the country’s infrastructure development.

Pillay said the key issue that has led to the decimation of the construction sector is the lack of opportunities, with delayed payments to contractors and consulting engineers for completed and accepted work compounding the problem.

He said this has resulted in the market capitalisation of related listed companies falling to an all-time low, with most currently in business rescue, while medium-sized and smaller contractors are not faring any better.

Pillay said the reason that so many contractors find themselves in financial distress is that a project pipeline has not been forthcoming.

“If one analyses the construction value chain, the contractors as the implementers are the first group to be affected. The next group that are already being impacted are the suppliers of materials and the plant and equipment suppliers.

“The next group in the value chain that are also already being affected will be the consulting engineers and other built environment professionals.

“Thus, if this decline in the construction value chain is not arrested as a matter of urgency, the entire value chain will be decimated within a very short space of time.

“The consequences for the economy and country will be catastrophic,” he said.

Construction market intelligence firm Industry Insight reported last week there has been a notable increase in tender activity during the last few quarters, despite awards for higher-value projects remaining sluggish in the fourth quarter of 2019.

David Metelerkamp, a senior economist at Industry Insight, said this provides some hope for improved levels of activity in 2020.

Metelerkamp said overall tender activity for Grade 9 projects, the highest value projects, increased by 38% year on year in the fourth quarter of last year and an encouraging 65% for 2019 compared with 2018.

He said overall nominal estimated tender values increased by 15% in the fourth quarter compared with the previous quarter and up by an encouraging 66.1% year on year.

“This more robust increase follows a similar annual increase in the second and third quarters of 2019 and a moderate increase of 1.8% year on year in the first quarter,” he said.

Metelerkamp said the value of road tenders increased by 32% and for water projects by 17%.

He said the rise in tender activity in the water sector is encouraging, provided these projects filter through to execution “but is not near enough to effectively deal with the growing water crisis in the country, which could make the electricity crisis seem small”.

Chris Campbell, CEO of Cesa, confirmed that demand from the SA National Road Agency (Sanral) has definitely started picking up.

While it’s nowhere near Sanral’s own Vision 2030, Campbell said it is certainly higher than the year before.

“But you must bear in mind a lot of those tenders are in the maintenance side and not capital projects. Some of the capital projects have ground to a halt, and there are others on the cards,” he said.

The increase in Sanral tender activity is in line with the agency’s announcement in August last year that it will issue major road construction tenders to the value of more than R40 billion to the construction sector over the next two to three years.