Despite a slowdown in investment by government and general economic conditions not facilitating growth, expectations as reflected in the consulting engineering industry’s confidence levels for the first six months of this year remain positive, reports Consulting Engineers South Africa (Cesa).

Releasing the results of its biannual Economic and Capacity Survey for the June to December 2017 period, Cesa said the year had got off to a relatively good start, following Cyril Ramaphosa’s swearing in as President of the country.

In the December 2015 survey, Cesa CEO Christopher Campbell noted that industry confidence levels had fallen to their lowest level in 16 years.

“Since then, there has been good improvement, with the net satisfaction rate improving to 96.3% in the first six months of 2017 and falling significantly to 54.4% in the December 2017 survey, but signs are positive for 2018, with the net satisfication rate rising to 92.6% for the last six months of 2017,” he noted.

This, Campbell added, is despite employment in the industry decreasing by an average of 12% in the last six months of 2017, one of the biggest declines since the inception of the survey.

Gross fixed capital formation (GFCF) fell by 3.9% in December 2017, the third consecutive contraction, following contractions of 2.1% and 3.9% in the second and third quarters of 2017 respectively.

GFCF as a percentage of the gross domestic product (GDP) averaged 9.5% in 2017 and was 9.3% in the fourth quarter.

The National Development Plan (NDP) has what Campbell says may seem to be a somewhat unachievable target of 30% contribution of GFCF to GDP by 2030.

“All economic indicators currently suggest that investment in relation to GDP is likely to slow over the medium term, owing to slower government spending, financial constraints experienced by State-owned enterprises and continued weak private-sector confidence.”

However, Campbell cautioned that regulatory issues, including the procurement of consulting engineering services, remained one of the biggest challenges faced by the industry.

Procurement is currently based on price and broad-based black economic empowerment points, with functionality or quality having a minimum threshold and thus being largely price driven.

This was affecting tender prices, he explained, as firms sometimes tendered below cost in view of the diminished availability of projects.

A further challenge to the industry was to find a way to standardise the procurement procedures applied by the different government departments.

“Unlocking greater private-sector participation is seen as a critical element to fast-track delivery, which will support engineering fees and, as such, engineering development in the industry.

Government must create an environment for the private sector to play a much bigger role in infrastructure delivery. Many of the projects highlighted in the NDP can be carried out by the private sector through public–private partnerships,” he averred.

Service delivery, especially at municipal level, remained a critical burning issue.

The consulting engineering industry was also threatened by incapacitated local and provincial governments, Campbell noted.

“As major clients to the industry, it is important that these institutions become more effective, more proactive in identifying needs and priorities and more efficient in project implementation and management.”

Fee earnings in the last six months of 2017 increased by 2%, compared with the first six months of 2017, which was relatively unchanged, compared with the same period in 2016.

The increase, Campbell said, was better than the expected 0.4% increase reported by firms in the previous survey with regard to the outlook for the last six months of 2017.

Larger firms reported an increase of 4%, while earnings for medium-size firms were 27% lower. Smaller firms saw the biggest increase, 17%, but microenterprises saw a decrease of 4.1%.

Earnings, Campbell said, were expected to decrease in the first half of this year, with firms of all size expecting a decrease of some sort.

He added that outstanding payments remained a serious issue, having a broad-based effect on firms operating in the industry.

After having shown some improvement in the December 2015 survey, fees outstanding for longer than 90 days as a percentage of total estimated income (including late payments) deteriorated to an average of 25% in the last six months of 2017.

It was estimated that about R6.6-billion in earnings was currently outstanding after the 90-day period, the survey found.

In terms of industry transformation, Campbell stated that the appointment of black executive staff measured by the contribution of black executive directors, nonexecutive directors, members and partners as a percentage of total executive staff increased slightly to 41.5% from 37.4% and 45.7% in the previous two surveys.

The appointment of women at executive level decreased to 11.9% from 12.8%, and remains below the 13.6% in the June 2016 survey.