Eric Vemer, CEO, Group Five: Interview

Interview: Eric Vemer

How would you rate the progress of the government’s strategic infrastructure projects (SIPs)?

ERIC VEMER: The National Development Plan (NDP), the associated Presidential Infrastructure Coordinating Commission and the targeted SIPs provide a sound framework for public and private sector engagement for the planning and implementation of nationally supported key infrastructure projects. To date, however, the pace of tangible progress towards final project scoping, detailed design and implementation has been slow, which in turn has affected the pace of large new infrastructure projects being put out to tender. This has impacted the availability of work, which has in turn put negative pressure on construction order books, particularly in the civil engineering and multidisciplinary project segments.

Significant capacity, will and motivation exist within the South African construction, engineering and consulting professions to accelerate efforts to develop our much-needed national infrastructure across all key sectors. The government should tap into this capacity, using a partnership approach to draw on private sector experience and expertise in formulating and implementing projects, with priorities guided by the framework of the NDP and government-set objectives for project roll-out.

To what extent is the domestic supply of affordable building materials sufficient?

VEMER: Building materials that relate to the core structure of an infrastructure project – cement, concrete, steel, bricks, timber, electric cable, piping, etc. – are all produced locally. There is enough local capacity to supply domestic needs in these areas; in fact the cement, steel, bricks, paint, roofing and cladding industries all have excess capacity and are contributing to African exports.

The liberalisation of imports should focus on finishing products, i.e. flooring, fixtures and fittings. For example, tiling is largely imported. In time, the increasing cost of manufacturing in South Africa will impact the country’s ability to manufacture basic building materials. The primary cost drivers are electricity and labour, and, growing by real percentages each year, these costs are not recovered through the weakening currency, effectively pushing the country further down the competitiveness scale. Further incentives, grants and tariff protection are required to protect the existing industries that supply affordable building materials.

What factors are impacting construction costs?

VEMER: A significant factor impacting construction input costs is the irregularity of work awards from the public and private sector. This makes it challenging to align overheads and operating capacity to the current level of order book secured. The inability of the industry to balance structural skills requirements to the current and near-term demand for construction work leads to inefficient cost structures that ultimately undermine margins. Greater public sector alignment is needed to smooth out the demand for large capital projects and create a solid base of stability in the construction industry.

How can larger operators be incentivised to subcontract and incorporate smaller emerging contractors in the supply chain?

VEMER: The development of emerging smaller contractors should be part of the corporate supply chain if it is to have a meaningful and sustainable impact. The development of smaller contractors could be accelerated through incentive programmes such as taxes, grants or other monetary incentives. Then again, an approach that awards major infrastructure projects with the well-defined goal of developing a sustainable micro, small and medium-sized enterprise sector around the project is also a viable option.