By Helgaard Müller, Executive Manager, Lombard Guarantee
Government’s recent promises to boost infrastructure spending are seen as a positive step forward. However, there are several hurdles that could slow down the much-needed recovery of the construction and engineering sector.
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Doubts linger about the government’s ability to fulfil its commitments, given past experiences of unmet promises. This uncertainty undermines confidence in the government’s capability to effectively execute infrastructure projects.
Financial constraints and a lack of technical expertise within government may hinder the efficient rollout of infrastructure projects. Limited budgets and insufficient know-how within Government and local authorities could impede the successful completion of construction projects.
Economic downturns also pose significant challenges for the construction sector, resulting in reduced investment, decreased consumer spending on real estate, and difficulties in securing financing for large-scale projects.
However, merely increasing spending may not be enough to resurrect the sector. Addressing the activities of construction mafias is crucial for rebuilding trust and integrity. There has however been a lack of political will to tackle this issue effectively, further undermining recovery efforts.
Power outages, which affect suppliers to the construction industry, add another layer of complexity to the sector’s challenges. Interruptions in power supply can disrupt construction schedules and inflate costs.
Since 2019, the South African construction sector has been severely impacted, with only a few players remaining. Rebuilding the sector’s capacity will require time and concerted effort, even with increased spending. Additionally, the sector faces shortages in skilled labor, which need to be addressed for long-term viability and growth.
Despite these challenges, increased spending and more construction projects could benefit contractors by improving margins and cash flow. However, the broader sector’s success depends on effective policy implementation and overcoming the challenges mentioned.
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While economic pressures can create challenges, they do not necessarily lead to lower construction standards and increased risk. Reputable contractors with adequate resources are likely to prioritize quality and adhere to standards, looking to maintain high standards to protect their reputations.
How is the insurance industry supporting the construction sector?
The insurance sector actively combats corruption by only guaranteeing contractors who adhere to ethical practices and contribute positively to the communities they work in.
It also aids skill enhancement by supporting emerging contractors and enabling their growth within the market.
Additionally, the insurance sector provides guarantees that offer sufficient protection to contractors, balancing the dynamic of contract guarantees favouring clients.