Consulting Engineers South Africa’s (Cesa’s) latest biannual Economic and Capacity Survey for the period July 2013 to December 2013 has revealed that market conditions continue to surprise firms on the upside, with most reporting a “better than expected” trading environment.

The confidence index for the last six months was revised from an expected level of 85 to 98.1, as market conditions exceeded expectations.

This sentiment regarding this year is also upbeat, averaging 98.3 for the first six months of 2014 and 98.5 for the last six months of 2014. The current level is at its best since 2008/9.

Real gross fixed-capital formation (GFCF) increased by 4.7% year-on-year in 2013, from 4.4% in 2012, exceeding original forecasts, which were estimated at 3.2%, as a modest improvement in investment by private business enterprises was offset by lower growth in public corporations and general government.

Investment growth is expected to continue to surpass gross domestic product (GDP) growth and increase by between 4% and 5% over the next two years.
 

GFCF as a percentage of GDP increased to an average of 22.9% in 2013, from 22.3% in 2012, mainly owing to an improvement in investment in machinery and equipment, which increased by 10% in 2013, and transport equipment, which increased by 2%.

The National Development Plan has set a target of a 30% contribution of GFCF to GDP by 2030.

Fee earnings have accelerated at a faster-than-expected pace over the period, up 9% in the last six months of 2013, compared with earnings in the first six months of 2013, against an expected “flat growth”, or “no change”, scenario.

Fee income increased to R22.3-billion by the end of December 2013.

Following the 9% nominal increase in earnings, real growth has increased by 10.3% – reflecting the strongest real growth in earnings since the 44% earnings increase reported in the last six months of 2008.

Firms further expect growth in earnings to accelerate by 11% in the first six months of 2014, compared with the last six months of 2013, translating into a 14% increase on the first six months of 2013.

“A concern is that about 23% of fee earnings were outstanding for longer than 90 days, including income outstanding from foreign clients, compared with 9.9% in the June 2013 survey and 8.3% in December 2012. This translates into an estimated R5-billion outstanding in fee earnings,” comments Cesa.

Compared with the same period in 2012, employment in general is up by 26%, reflecting an increase of 5 122 people.

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 to 35.8% from 35.5% in the previous survey.

“This shows significant progress in terms of industry transformation. The employment of black professional engineers fell by 1.6% in December 2013, compared with the first six months of 2013, but, compared with the same period in 2012, increased by 21%,” noted Cesa.

Capacity levels have stabilised at 91% over the last two surveys, after deteriorating to a level of 87% in 2012.
A level of 91% is, thus, by far the highest level reported by participating firms since the December 2008 survey, when it reached 95%.
Some 15% of firms, compared with 27% in the previous survey, expect to further increase capacity.

Unrealistic tendering fees remained a concern for members, Cesa says, while the extended time it takes to finalise a proposal is affecting profitability in the industry.

“In addition, the quality of technical personnel is argued by some firms to have deteriorated, putting greater risk on the built-environment sector,” it notes.

The organisation adds that fraud and corruption are affecting the “ethos of our society, with a lot of talk and little action accompanying the growing evidence of corruption”.

Cesa CEO Lefadi Makibinyane noted in a statement last week that Cesa understood that it had to be a trusted partner to its clients, with clear recognition that infrastructure delivery could be further delayed by issues of tender irregularities that were fought in court in protracted litigation suits.

“We are also engaging with the National Treasury to include the concept of an ‘integrity’ pact into the Public Finance Management Act and the Municipal Finance Management Act.

“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. Private-sector participation in this context refers to involvement on a more technical level to improve municipal capacity and efficiency,” he stated.

Service delivery, Makibinyane added, remained a critical issue, especially at municipal level, as the consulting engineering industry was threatened by incapacitated local and provincial governments.

“The public sector and these two tiers of government, in particular, as major clients to the consulting engineering industry, are called upon to become more effective, more proactive in identifying the needs and priorities, and more efficient in project implementation and management,” he maintained.

The involvement of non-Cesa members in government tenders and procurement continued to threaten the standard and performance of the industry, with Cesa claiming that nonmembers “did not seem to comply” with the same standards and principles as those firms that were members of the industry body.

“Firms from across South African borders are tendering at rates that are not competitive for local firms. Complaints have been received of some of these firms not producing proper drawings and not attending site visits.

“Clients need to be more vigilant [and] request a high standard, in line with Cesa, and ensure that proper procurement processes are followed to eliminate the risk of awarding contracts to unscrupulous firms,” Makibinyane said.

The organisation further identifies the lack of attention to the maintenance of infrastructure as posing a “serious problem” for the industry.

“Not only is it much more costly to build new infrastructure, but dilapidated infrastructure hampers economic growth potential. In many cases, infrastructure is left to deteriorate to such a state that maintenance becomes almost impossible,” it says.