By Chris Charlton, MD, Consort
A common test of concrete strength in the engineering profession is known as the cube test. This is where a sample of concrete is cast into a standard cube mould, allowed to cure and then subjected to compressive forces until it fails. The force applied at the point of failure is taken as the compressive strength of the cast concrete. An earlier than expected failure would identify a defect in the tested sample. There are many parallels that can be drawn with the cube test and the past period that the South African engineering and construction market has gone through over the recent years. The market has been subjected to extreme compressive forces over the last period. Subdued economic activity, inflation, public services insecurity and increased interest rates have all contributed to the pressure applied to the market – however, failure of the market has not occurred which points to the resilience of the engineering and construction market in South Africa, being free of major defect (although we got close). The alternative consequence is difficult to consider as it would have resulted in a challenging road to recovery.
If the recent data and forecasts are accurate, the pressure that the market has been under is easing somewhat, but not completely removed. Contraction of around 0.5% is still expected to continue for the short term whilst the pipeline of future projects grow, government infrastructure spend matures and business confidence continues to rise. An overall, rebound and growth of 3.5% is then expected to be realised in 2026. This recovery is being driven by a budget allocation of R1.03 trillion by government on infrastructure development as well as a focused and well funded approach to clean energy transition. The government has also clearly indicated it’s other focus areas of water and sanitation projects and logistics in achieving its National Development Plan goals. The infrastructure spend proposed by government is an important aspect that will contribute to the economic recovery as it not only provides the private sector with access to services, but it also builds business confidence in the economy and stimulates spending by the private sector.
As the underlying engineering and construction market begins its journey of recovery, the need for sustainable support services like insurance becomes a priority. A vulnerable market will be disproportionally disadvantaged by a misaligned insurance market. It is therefore very important, at a time such as now, that the insurance value chain equips itself, refines its products, and positions itself to best align itself with the underlying markets context and needs. The role of the broker becomes key as economic activity increases and new risks emerge. The clients rely on the broker to advise on the best products to protect their hard-earned gains. It therefore becomes very important for the broker to educate and familiarise themselves with the various risk transfer mechanisms offered to the market. Partnerships between brokers and specialist engineering insurance providers become very valuable as the collective can more easily craft the right solutions that best fit the client’s specialist needs. The broker and insurance provider should really spend the time understanding the risks faced by their clients before presenting possible solutions.
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Along with the traditional material damage risk transfer products being offered by the insurance sector, there is an emergence of new risks that need to be considered. The recovery of the South African engineering and construction market comes at an interesting time with the growing influence of the Fourth Industrial Revolution. The Fourth Industrial Revolution is essentially characterised by the merging of the digital and physical worlds. The construction and engineering market has been heavily influenced by a digital transformation trend. The value of data in the sector has increased exponentially with project management platforms, digital IP and digital supply chain management all being adopted by the industry. Cyber Risks are therefore now a real consideration that needs to be addressed when presenting a holistic risk management and transfer strategy to the underlying market. Brokers should familiarise themselves with the emergence of cyber as a risk to the engineering and construction industry.
Overall, the message around the South African Engineering and Construction sector is positive, with a lot of potential. Considering where we are as a nation, it couldn’t have come at a better time. The subdued economic climate and public services failures have taken its toll on the collective psyche. We look forward to the uptick in activity and the opportunity to assist, along with our broker partners, in building a sustainable engineering and construction industry in South Africa. The market has had its strength tested, and has been found to be solid and ready to contribute to the development of our country.
Editor’s Thoughts:
In this insightful piece, Chris Charlton draws a powerful parallel between the engineering cube test and the South African engineering and construction market, both subjected to immense pressure, yet resilient and unbroken. As the sector shows early signs of recovery, driven by significant infrastructure investment and a shift towards digital integration, the role of insurance as a stabilising force comes sharply into focus. Chris challenges us to think beyond traditional models and calls for adaptive partnerships between insurers, brokers, and the construction industry. The strength test may not be over, but the results so far show promise.
Is the South African insurance industry doing enough to anticipate and support the evolving risks in engineering and construction—or are we still reacting to change rather than preparing for it?