By: Dirk Gouws, National Group Manager, AC & E Group of Companies
The government is promising funds for infrastructure projects to stimulate the construction industry.
Great news for the country; infrastructure projects not only create jobs but also stimulate economic activity and contribute to long-term growth. The question government should be asking is how to make growth sustainable; dealing with underlying issues such as regulatory hurdles, skills shortages and corruption are crucial for sustained growth in the sector.
The construction industry was hard hit by the 2020 lockdown and whilst there has been growth since then it was hard earned considering the number of contractors which were liquidated; the projected growth will likely be sustained as construction is seen as a business which is accessible and financially viable for almost everyone, even if at a cost. Many new contractors will have next to no industry knowledge or experience, nor access to finance and will have some trouble surviving in a sector where the contractor is often forced to take responsibility for everyone else’s mistakes.
The non-inclusive procurement practices are decidedly negative and not good for the sector as a whole, but institutions such as the CIDB have created structures to develop contractors and to stabilise the industry.
The construction sector is facing some real challenges, which do not all need any further publicity, but some have to be addressed before the country descends into the abyss. One such challenge is the expanding threat of the “business forums” (construction mafia) phenomena which is negatively affecting growth.
The construction sector is also affected by poor governance in government institutions which results in contractors not being paid on time; ultimately this increases the cost of the contract and delays completion.
Finally, awarding contracts to foreign contractors, who are often subsidised by their governments, doesn’t benefit the local construction sector or the economy in general.
All things considered, for the foreseeable future contractors will continue to face serious challenges but there is always hope and reasons not to give up.
There is increased risk for insurers, because of the challenges the construction sector faces, and irresponsible underwriting could affect the stability of the engineering insurance market.
The construction insurance underwriters may be guided by the basic underwriting rules, that is:
- know your client and consider the nature of employer and professional team;
- consider the complexity and location of the contract works to be insured;
- prepare to be on being on risk for longer than in the expected contract period;
- expect the final contract value to increase;
- ensure that the terms match the risk.
….and to the construction sector, seize the opportunities and promote sustainable growth.