China’s gross domestic product (GDP) growth has flatlined, stagnating at 6.7% for 2016 and 2017. However, India’s GDP has increased from 6.8% to 7.2% for the same period, which bodes well for the offtake of South Africa’s commodities market.
This is according to the ‘Bi-yearly Economic Capacity Survey’ (Becs) survey, which provides an overview of national and international trends regarding the economic climate, published last month by industry body Consulting Engineers South Africa (Cesa) for the January to June 2017 cycle.
The survey is open to participation by Cesa’s 540 consulting engineering member companies and provides an outlook relevant to industry. Becs is meant to help companies prepare for challenges, and highlights which markets to pursue while recommending where companies may need to specialise or diversify.
Cesa CEO Chris Campbell notes that South Africa’s GDP growth decreased from 2% in 2015 to 0.3% in a technical recession in 2016, rising to 1% in 2017, owing to good rains boosting the agriculture sector. Nonetheless, he says, the outlook for the country’s GDP growth is still not as positive as it needs to be, owing to political uncertainty weakening consumer and business confidence.
The Becs survey further points out that prevailing conditions in the consulting industry include a 5% fee earnings increase for the latest cycle, compared with the June 2016 to December 2016 cycle, and Campbell predicts this to remain stable throughout the next cycle.
The survey also investigated the percentage of outsourcing undertaken by Cesa’s member companies. “We have seen a higher percentage of their turnover allocated to the procurement of products and services from black-owned companies and transformation to meet broad-based black economic-empowerment (BBBEE) scorecards.”
Campbell adds that some large companies have increased outsourcing to black-owned enterprises from about 14.3% to about 18.9% since the previous cycle.
Meanwhile, there has been a delay in the promulgation of South Africa’s construction sector legislative codes. Campbell says Cesa expected the codes to be promulgated by February this year, since the commentary period had closed late last year. “There is a concern on why there seems to be little enthusiasm to promulgate a protransformation set of codes that has been negotiated and agreed on within industry by trade unions and government.”
People in Numbers
The Becs survey finds a 4% increase in demand for people skilled in engineering, which Campbell says is not easy to definitively break down in terms of specific engineering disciplines, since the industry is multidisciplinary. Some segments need expertise, while others require downsizing, owing to a lack of demand and projects.
Further, training cost as a percentage of the wage bill is pegged at 0.6%, which is the same as 2016, but still an improvement on 2015, which was at 0.4%.
The survey also finds that, of the 24 200 technical and support staff among Cesa’s member firms, the consulting engineering industry consists of 68% men and 32% women. Professionally registered staff within the industry consist of 93% men and 7% women, prompting Campbell to point out that, “certainly [there is] a challenge in terms of gender equity in our industry, which all stakeholders should focus on addressing, if we hope to attain a better balance”.
In terms of racial profiling, the industry comprises 51% white technical and support staff, with the balance including black, coloured and Asian staff. Professionally registered staff are 84% white, with the balance comprising black, coloured and Asian professional staff.
“That finding is symptomatic of what the challenge in the industry is and indicative of where we need to start working harder, not only in the industry but also in terms of the pipeline that feeds the industry, starting with the education system,” Campbell points out.
South Africa needs to encourage greater emphasis on mathematics and science at school level, and make it possible for more people to aspire to pursue engineering as a career, otherwise the racial mix of professional registered people in the industry will not change for some time and efforts to drive quantity at the expense of quality will be destructive to the profession and the public, he adds.
The Becs survey finds the net profitability of Cesa member firms for the period under review at about 11.6%, down from the average of 12.7% in 2016, which Campbell attributes to companies possibly being so desperate for work that they often reduce the cost of their services to sustain cash flow. The survey notes a big increase in the fierceness of competition, with fees having been discounted by as much as 30% to 35%. Although Cesa does not prescribe what member firms should charge, it does express concern when companies price so aggressively because it may compromise the quality of services delivered.
“Something’s got to give with the significant discounting on tenders. It may diminish the attraction to the industry for future generations of engineers and consultants, and it puts companies at risk of running at a loss and shutting their doors, which, ultimately, will lead to South Africa needing to import services from overseas at quadruple the cost,” explains Campbell.
He advises that South Africa does not have a mature enough market to leave pricing guidelines to market forces alone.
Moreover, another prevailing challenge within the consulting engineering industry is that of outstanding payments. The Becs survey finds that 56% of the R6.3-billion in outstanding payments is attributed to foreign clients, 22% to the local private sector and 22% to local public sector.
Campbell believes that this is the result of clients trying to emulate “a pick-and-pay model”, where companies with outstanding payments hold on to the cash as long as possible to generate interest, at the expense of their professional service providers, which is bad business practice.
Moreover, the survey determined that, though confidence levels in the consulting engineering industry had risen from a low in 2015 at 40%, it is doubtful that the same optimism recorded in 2016, at 87%, and 96% in first six months of 2017, will continue across the next cycle.