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Few could predict the impact of Covid-19 and it’s reach throughout every sector, population, and country. It has caused the rise and collapse of many businesses and the construction industry has not been the exception to this.
Now in a “post-pandemic” world the industry is still struggling with the virus, which has now reached endemic status. Even though the rules have been toned down there are still repercussions from countries where large proportions of the population remain unvaccinated, and they impact the construction industry.
Investor interests are still top of mind and decisions to cease unprofitable operations are still ongoing. While Covid-19 is in part to blame some business has just not been profitable for some time, resulting in the pandemic giving it the final nail in the coffin.
Is it only Covid-19 that’s to blame?
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Take ProBuild, for instance – the owners have this month admitted that the business should have been shut down years ago following its collapse.
It comes after parent company Wilson Bayly Holmes (WBHO) pulled the plug on its Australian unit wiping off R1bn in value. While some considered business down under would generate growth for the business, the harsh reality (along with Covid-19) was that it turned into a cash guzzler.
The industry is unlikely to see the last of such closures, but that could depend on the severity of the next waves. ‘Organisations deciding to pull out of certain countries are a symptom of the differing Covid-19 rules being applied by different countries. Starting and stopping construction sites is a costly and inefficient manner to operate and causes additional costs and uncertainty for both the contractor and the client.
‘Withdrawals from certain areas could continue to happen dependant on the severity of the next waves and the nature of the Covid-19 restrictions that are applied by different countries. Hopefully the next wave is mild and severe measures will not be required,’ says Mark Snow, audit partner at Mazars, South Africa.
Vaccination rates a factor
So should construction firms consider things like the success of vaccination schemes? It seems that, at this point, it’s not that simple. Snow points out: ‘The decision to stay in a country that has a number of unvaccinated staff will need to be taken on a country by country and company by company basis.
‘It will depend on the level of vaccinations in the individual companies as well as the status of the specific projects being worked on, i.e. if a project is virtually complete it may make sense to stay and finish it. There is no hard and fast rule.’
Of course, South Africa has its problems too. ‘The local industry was severely impacted by Covid-19. The hard lockdown caused a major portion of construction sites to shut down.
‘To shut a site down takes a few days as does a restart of a site which causes production disruptions, delays and the inevitable cost overruns. I think the industry has now managed to adapt to operating within the Covid-19 restrictions, but they are still hampering some aspects of construction activity,’ says Snow.
Shut downs are not the only result of the pandemic. Supply issues remain rife the world over. ‘I think the international construction sector has felt the same impacts as we did in South Africa. Cancelled or delayed projects, shortages of materials and loss of key staff,’ says Snow.
Black swan lessons and employment
So what lessons can be drawn from this? Snow says: ‘Covid-19 has highlighted the need to be even more risk-aware of those “black swan” events. Overall, I think the sector has learnt to live within the new parameters, but it could still take a while for the level of construction activity to fully recover to pre Covid-19 levels although some signs are encouraging.’
With lessons learnt there is some hope for a future recovery in the industry, but not if unemployment is not addressed. This week South Africa announced its highest ever official unemployment rate of 35.3%, the research of which was conducted by the Quarterly Labour Force Survey (QLFS) for the fourth quarter of 2021.
Solutions mooted by opposition party the Democratic Alliance (DA) have been to drop the red tape surrounding job creation and to help the SMME sector to meet the aims of the National Development Plan’s objectives. The construction industry could play its part in offering employment but even if it does recover and ups its recruitment this may still be a slow process.
Still, there are some green shoots of recovery. Snow adds: ‘I think with the local COVID-19 cases being more manageable and the Governments recent investment conference yielding good capital investment commitments, the sector could recover some of the lost momentum.
The South African construction sector was however in a very low economic phase before the pandemic so it will most likely be a slow recovery.’
