Renewed calls for the establishment of state-owned construction companies

Construction industry associations have expressed serious doubts about the ability of a proposed state-owned construction company to eradicate the country’s infrastructure backlog.

This follows a debate in the National Council of Provinces (NCOP) last week on the “Creation of provincial and municipal owned-construction companies to eradicate infrastructure backlog and abolish tenders”.

Economic Freedom Front (EFF) chief whip Mmabatho Mokause said only a capable state can deliver sustainable infrastructure, even to the most remote areas of this country, without considering profit as the primary driver of development.

Mokause said the country loses billions of litres of water every single year in areas controlled by municipalities but instead of having internal capacity to detect and fix leaks, municipalities hire private companies at an exorbitant price.

“Had municipalities had their own internal capacity to deal with the entire water value chain, citizens would be in a much better position as far as their water needs are concerned and municipalities would be able to respond better and faster.

“The same applies to the issue of road maintenance,” she said.

Mokause said South Africa needs a centralised development planning process, which is state-led and which will be able to eliminate infrastructure backlogs faster and more efficiently.

She called for the establishment of a state construction company to ensure that all construction projects in the country, including the building of millions of houses for the homeless, is done by the state without prioritising profit as is the case with the private sector.

Mokause also called for the establishment of a state company that will be responsible for the manufacturing of building materials to ensure that the state does not pay excessive prices for these items.

She further called for the abolishment of tenders to allow the government to train thousands of people and employ them permanently in government departments and provincially- and municipally-owned construction companies.

Hildegard Boshoff of the Democratic Alliance (DA) said everyone is in agreement that South Africa’s economic recovery needs to be structured around infrastructure expenditure to stimulate the country’s economy but not through giving this sector to provincial and local governments to run.

“This is a disaster in the making,” she said.

Boshoff referred to the Auditor-General’s 2020/21 municipal audit outcomes report released in June this year, which reported that only 41 municipalities in South Africa received clean audits based on the financial statements of 230 municipalities and 18 municipal entities.

According to the Auditor-General, the situation is so dire that there is significant doubt as to whether 28% of South Africa’s municipalities will be able to continue operating, she said.

Boshoff said she did not see how combining failing municipalities with failing infrastructure can lead to a positive outcome.

“This will in all probability lead to another state-owned enterprise being bailed out. We have witnessed this for many years with the likes of Eskom, Denel and SAA to name but a few,” she said.

SA Forum of Civil Engineering Contractors (Safcec) CEO Webster Mfebe said the establishment of state construction companies has been mooted within certain quarters for quite some time.

Mfebe said this has been prompted by government spending billions annually on procuring public infrastructure and frustrations about the infrastructure backlog and its unaffordability, the non-inclusive nature of the construction industry in terms large contracts going to the established contractors and black contractors normally “picking up the crumbs and not the actual cake”.

Mfebe said legislators and policy makers have expressed frustration about public infrastructure failing to change the construction landscape and eradicate the backlog.

However, Mfebe stressed that construction is a technically complex and highly risky environment and it is extremely doubtful that most municipalities and provincial governments will have the required capacity, skills and financial resources to properly run competitive construction companies.

“The fact of the matter is that some municipalities currently have stock yards with some yellow plant rusting away in a state of disrepair while basic infrastructure has collapsed. For such municipalities to successfully run construction companies will be a mountain too high to climb,” he said.

Mfebe added that public procurement is constitutionally entrenched, which means there would have to be a Constitutional amendment to do away with public tenders altogether.

He said there is nothing constitutionally and legally prohibiting the state from creating its own internal capacity in terms of state-owned construction companies.

But Mfebe said there are doubts about whether state-owned construction companies could be truly competitive as their losses can simply be absorbed by the fiscus, as is the case with most of the state-owned enterprises.

Consulting Engineers South Africa (CESA) CEO Chris Campbell believes it is probably more important for the public sector to look at facilitating the delivery of infrastructure and to use the capacity in the private sector.

Campbell said assuming that a state-owned construction company can do all the things required to deliver infrastructure “is likely going to lead nowhere”.

He stressed that the criticism about the cost of infrastructure is mostly symptomatic of the inability to ensure that in appointing those service providers or contractors the state entity has considered the risk and the likely variability “through variation orders that may arise by simply gravitating towards the least cost”.

“So to assume it’s going to cost any less from within begs the question of where that capacity is going to come from? At the moment it hardly exists,” he said.

Campbell said there is no way the government would be able to replicate the capacity and skills required for a state-owned construction company and should instead be looking at a better way of procuring these services.

He said municipalities, many of which are dysfunctional and failing to provide basic services, should be concentrating on “getting the basics right”.

“That means getting at least a level of competent capacity in place to manage the affairs of those entities.

“To be looking at all §the other aspects around the delivery of these projects is likely a bridge too far and it ignores the fact that you have a huge industry that you could use constructively,” he said.

Campbell said the context of infrastructure development costs is important because, if for example the amount and type of rock a road contractor would encounter on a project is underestimated, it “blows costs out of the water”.

“The biggest problem is that people think that everything around infrastructure projects is something that you can just pull off the shelf, buy it and it’s ready-made.

“You are never buying anything that is completely ready-made. There are always aspects of risk that you may encounter,” he said.