[BizTrends 2016] A tougher construction industry for smaller players

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Opportunity for flexible smaller players

One of the trends we expect in the construction industry in 2016 is that the general industry will get tougher, with a major rationalisation starting throughout the industry, which will lead to poor results and below-market expectations. The major players are expected to lose their grip on the industry, but this in turn will create an opportunity for more flexible smaller players.

At Inyatsi Construction we are preparing for these trends by shifting our focus to diversifying our markets and products. This means that we not only have to diversify risk from clients, but also regarding currencies and product types. Flexibility and quick responses to client adjustments and requirements is key to surviving in the market.

Focus on international markets

The slow rate of economic growth will sustain the pressure on the industry and the slower-than-anticipated roll-out of government's capital expenditure will aggravate this, causing more companies to focus on international markets.

These trends will cause more pressure on construction companies and continued constrained results of listed entities. The change in focus to international markets, on the other hand, will not only cause the loss of skills, but will reduce employment opportunities in the regional market as the drivers behind these businesses will be focused elsewhere.

If, for example, a company becomes more profitable by doing work in Australia, it will build its future and the future of its key skills in that market and not in Africa. We know that society follows the path of least resistance and migration is inevitable to where it is easier to find work.

These trends will therefore not impact positively on profit margins. As skills are lost and markets become more competitive, margin squeeze becomes inevitable. Moving into new markets brings companies into contact with new and foreign risks where mistakes are expensive.

More projects for sub-Saharan Africa

However, we expect more projects for sub-Saharan Africa in 2016 compared to the past two years, because Africa is only scratching the surface of the real value on the continent. Growth across Africa will exceed growth in the rest of the world significantly for years to come.

Studies show expected growth in infrastructure spend in sub-Saharan Africa is significant at around 10% per annum until 2025. South Africa and Nigeria have the most ambitious infrastructure programmes and together make up almost 60% of the spend across sub-Saharan Africa. Kenya is the third largest in planned spend. As with most of sub-Saharan Africa, energy is a focal area for investments in West Africa as the region remains in the grip of a prolonged power crisis.

In addition, there appears to be a renewed enthusiasm among leaders and civil society on the continent to improve the situation in Africa. We must remember that the success of expanding industrialisation and regional trade to drive inclusive growth depends largely on infrastructure, which offers tremendous opportunities for businesses. With expectations, optimism and willingness among stakeholders to embrace new ideas and partners at a high point, the investment climate is positive.

We expect continued and intensive construction activity in 2016 because Africa is the growth node of the world for the next few decades. Growth is usually preceded by construction activity, but each unique country is at different stages of development and have different needs regarding infrastructure delivery. It is therefore important to take note of the drivers for success, current thinking and challenges stakeholders are experiencing within the region.