Construction mafia part of ‘toxic cocktail’ affecting cement industry

Industry body Cement & Concrete South Africa (CCSA) says the entire local sector is in crisis, due to a “toxic cocktail of factors” including the construction mafia threat.

“The fact is that it [the construction mafia] is having an effect on the construction industry. Tenders are purposefully being delayed; projects are also being delayed or halted as a result,” CCSA CEO Bryan Perrie tells Moneyweb.

“When tenders or projects are delayed or halted, the service providers – in our case, the cement and concrete sector – suffers significantly. Many plants are located in deep rural areas and that means because the work has been delayed, workers and their families are affected.”

Chartered accountant and analyst Khaya Sithole explains that the construction mafia, who present themselves as members of the communities they operate in, requires 30% of the economic value of contracts from small, medium and micro enterprises (SMMEs). He says the entities have been legitimised by communities and [unofficially??] through the 30% state procurement preferential procurement regulation introduced in 2015.

“This mafia has been existing before 2017. It has been traced back to Inanda and KwaMashu, as seen with the Bridge City shopping centre and road upgrade issues,” Sithole adds.

“How it works is that whoever wins the tender must pay 30% of the contract’s value in order to be protected by said mafia groups. If a business wants to operate without interruption, that 30% must be paid.”

Meanwhile, South African National Roads Agency (Sanral) on Wednesday said that the opinion of foreign companies coming into the country to do construction work because “it is almost impossible” for South African contractors to work in the country due the construction mafia, is not helpful.

This follows Sanral awarding the bulk of four contracts valued at R17.4 billion, that it had cancelled earlier this year, to foreign companies – specifically Chinese firms.

Sanral further noted that in the last financial year, it provided over 1 000 SMMEs with work on construction, rehabilitation, and maintenance projects. It says the total amount earned through these contracts was over R2.3 billion.

Meanwhile, the CCSA warns that the cement and concrete industry is being threatened by other challenges, including those of economic decline, cheap imports and environmental issues.

“In addition to the general economic downturn and decline in investor confidence, the sector was hit hard by the Covid-19 pandemic lockdown.”

Read: PPC laments lack of cement sales growth from SA infrastructure programme

The association adds that the local cement production, which is usually around 20 million tons, has dropped to 12 million tons. Adding to the pressure is the fact that more than one million tons of cement imports, the equivalent of an entire cement plant, enters South Africa’s markets annually.

Overall this crisis threatens 35 000 local jobs in the sector, along with billions of rands in investments in the sector’s value chains, according to the CCSA.

Perrie says that with so much at stake, the sector is in discussions with the South African International Trade Administration Commission (Itac) and the Department of Trade Industry and Competition to take “positive action” to prioritise the local cement industry.

Read: Imported cement continues to flow into the country

He says that while the industry remains hopeful of a boost from the Sustainable Infrastructure Development Symposium (Sids), it has not yet materialised.

“More is required to secure the sustainability of a sector impacted by both the global pandemic and a decade-long slowdown in South Africa’s planned infrastructure build out,” he adds.

Net zero challenge

The CCSA says a global challenge faced by the sector is its significant carbon footprint. It notes that the climate change challenge to the industry’s sustainability lies in its manufacturing process which emits significant quantities of greenhouse gases.

This, it admits, impacts South Africa’s decarbonisation commitments towards net zero emissions, within the Just Energy Transition investment plan.

Perrie says the local cement sector has committed itself to “Vision: Net Zero Carbon by 2050”.

“This includes an undertaking to decarbonise in accordance with the 1.5˚C global temperature increase pathway in the Paris Agreement and re-enforced at COP26 held in Glasgow last year,” he adds.

“The local cement and concrete sector has set key milestones for 2030 in accordance with South Africa’s Technical Reporting Guidelines and in line with the Intergovernmental Panel on Climate Change reporting framework.”

Nondumiso Lehutso is a Moneyweb intern.