Cracks emerge in the construction sector

The construction sector remained almost flat in the third quarter of 2012, a possible sign that the multibillion-Pula industry is beginning to feel the effects of the unstable economic climate.The picture is somewhat disappointing regarding the sector’s performance measured year on year.

The industry known for taking an upward trajectory shows disturbing signs of weakness. Latest data released by Statistics Botswana indicates that in the third quarter (Q3) of 2012, the sector increased marginally to P1, 722 billion, a marginal growth of P198 million when compared to Q3 2011 figures when the sector had led a sterling recovery, increasing by a convincing P302 million to sit at P1, 524 billion from P1, 222 billion in the same period in 2010.

The ‘unconvincing’ increase recorded in the past two years is an indication that the sector is losing pace when compared to past glory years. “The latest results are not surprising. Most of the money that is made in the construction sector is now being taken out of the country,” said Managing Director of Hardrock Construction Lemphole Phirinyane.

In the last five years, Botswana’s construction projects continued to be foreign dominated, especially by Chinese firms. Of late, South African companies are also making their presence felt which has almost squeezed locals out. Phirinyane says the dominance is negatively affecting the sector’s contribution to the economy at large.

A visit to Central Business District (CBD) this week shows that most mega projects in the area have been awarded to foreign controlled companies. Chinese companies such as China Jiangsu and South African Murray and Roberts are some of the leading firms that have taken quite a chunk of the multi-million Pula projects currently being undertaken at the pristine area.

Developments at CBD, which include office, retail and commercial space are largely private sector driven.
However, it seems more disappointing figures are expected in the medium term. Two years ago government, the biggest spender in the construction industry, announced a cut on new projects, including those in the construction sector. The decision was partly taken due to budgetary constraints that have come as a result of the current economic tumble.

“The construction industry will be affected in the medium term,” confirmed Phirinyane adding this is due to the fact that Botswana’s private sector is very small to sustainably support the sector. Karabo Tladi, an analyst from IPRO Botswana, agreed with Phirinyane that the industry would continue to post marginal increases, partly because of the fact that the sector is foreign-led.

“Most of these (foreign companies) don’t contribute to the banking sector as they are financed from their native countries,” added Tladi. Over the years the construction sector remained strong, while other sectors such as agriculture and manufacturing felt the adverse effects of the global recession that has hit home.

However, the latest figures are worrisome especially at a time when the mining sector is failing to lift the economy amid challenges such as the Euro-zone crises. Phirinyane argued that while the economic climate has not favoured the sector, there is still more to be done (by government) to ensure all benefit equitably in the sector.

In a bid to push for more local participation, Permanent Secretary in the ministry of Infrastructure, Science and Technology (MIST), Dikagiso Mokotedi recently met with the industry regarding tender unbundling. “We are hoping for the best in the New Year.

Government is now willing to act on unbundling of tenders which most local companies are qualifying for, said Michael Moji, deputy chairperson of Setlogelwa Tsatsing contractors and engineering association. Gaborone and major towns and villages are experiencing numerous jobs relating to construction that gives an impression the sector is performing relatively well. “That does not matter at all. Most tenders there (CBD) have been won by external companies who take profits outside the country,” said the agitated Phirinyane. In 2011 alone the construction sector contributed well over P5 billion to the economy.

Manufacturing in modest growth
The manufacturing sector- one of the sectors chosen to lead the economy post mining period-also recorded a modest growth for the three months to September 2012. Data shows that manufacturing added P1, 305 billion to the economy in the above period. This is a marginal increase when compared with P1, 271 billion in the immediate past quarter.

In an interview last Wednesday, business development manager at Bokone Industries, Maria Matenge said her business normally picks during first and last quarter. The company supplies the local mining industry with conveyor idler rollers, pulleys, and troughs among others. “Most of our clients stockpile and are not forced to buy during the second and third quarter,” pointed out Matenge.

She added they contribute minimally to the economy, partly because the business (of supplying mining with associated services) is still new for local companies. Most mining companies buy their supplies in foreign countries. Manufacturing which is yet to a reach the P2 billion-mark in any given quarter is still to fully benefit from government’s Economic Diversification Drive (EDD), partly because some companies in the sector are producing sub-standard products.

GDP takes a tumble
Gross Domestic Product (GDP) at current prices for the third quarter of 2013 was P28, 4 billion, compared to P29.1 billion in the previous quarter, said Statistics Botswana. This shows a marginal decrease of 2,2 percent. Meanwhile Real GDP also decreased by 5, 7 in the same quarter, as opposed to 6,6 percent recorded last year.

“The slow growth is attributable to mining and manufacturing which recorded negative growth of 24,0 and 5,5 percent respectively,” said a statement signed by acting Statistician General Dabilani Buthali. 

The latest disappointing GDP figures are beginning to fuel fresh doubts on whether the country will be able to reach a 4,4 percent economic growth rate which has been set by Finance and Development Planning minister Kenneth Matambo in his budget speech last February.

At industry level, most of the increase was attributable to Trade, Hotels and Restaurants as well as finance and business services. Water and Electricity also contributed positively to GDP, said Statistics Botswana.  Botswana imports most of electricity from external suppliers such as Eskom and other Southern African Power Pool (SAPP) countries.