Headline: Slow economic growth challenges local engineering industry

Infrastructure projects, consulting and project management services provider Aecom Africa CEO Carlos Poñe tells Engineering News that low economic growth in South Africa is a major challenge for the consulting engineering industry.

“Based on the Budget Speech by Finance Minister Pravin Gordhan, we can observe a number of projects that will probably be delayed. There will be a lot more caution on the part of government and State-owned enterprises (SOEs) on large projects,” he says.

Poñe states that, with low investment on the part of government comes lower investment from SOEs, which, in turn, causes the private sector to diminish project investment.

Considering the unemployment rate in South Africa, he points out that the country probably needs growth of between 4% and 5% just to absorb new entrants to the job market. “So, if economic growth is below 1.5% for two, three or four years, there cannot be an increase in the employment rate of graduate engineers,” states Poñe.

Commenting on building the country’s skills base, he notes that investment in roads and road infrastructure creates a lot of employment for nonqualified people. Moreover, when rehabilitating roads and power lines, those employed within these projects are predominantly those with low level qualifications in rural areas. Poñe says that these kinds of projects develop parts of the country that are not easily accessible.

Owing to concerns over infrastructural investment by government across industry, Aecom has attempted to safeguard its business by developing a broad focus and range of skills, says Poñe.

“We saw a need to be able to deliver fully integrated solutions as the company now has the capacity to offer these kinds of solutions, as well as asset management services, which is something that not many other consulting firms are able to offer,” he notes.

Moreover, Poñe states that the company has the necessary skills and expertise to operate in the fields of renewable and nuclear energy and also has the capacity to carry out the decommissioning of nuclear plants, including nuclear waste removal. The company is operating heavily in these areas in the UK and the US and aims to take advantage of solar power opportunities in South Africa and its neighbouring countries.

“In markets that are much more mature, people want to concentrate on their core businesses, and it is not their job to manage assets. This is quite far from what we are doing in Africa, but there is a lot we can learn from these companies,” says Poñe.

Commenting on the importance of infrastructural investment, Poñe suggests that the development of nations actually relates to access to electricity. The first nations that were able to provide their citizens with access to power, such as Finland, Denmark, Sweden and Germany, are the most advanced countries in terms of infrastructure and development.

Referring to African civil infrastructure, he points out that “Morocco, Tunisia and Libya are able to offer almost 100% access to electricity, and that number is slightly lower in Egypt. If you look at sub-Saharan Africa, certainly South Africa is the number one country when it comes to access to electricity, we are around 80% and growing.”

Poñe explains that, in the last 20 years, South Africa has managed to deliver electricity to millions of households. However, the country built its industrial capacity on cheap electricity, which was a strategy of the national power utility, and it is not sustainable in terms of the country’s desired growth trajectory.

In conclusion, he asserts that population growth and urbanisation will drive demand in the local consulting engineering industry. Poñe explains that, owing to the devaluing of the rand, the industry is becoming more competitive, stating that above R12.50 to the dollar, the country becomes extremely cost competitive and that at higher exchange rates, such as those experienced in mid-June, nearing R15 to the dollar, the country’s consulting engineering firms are well placed to absorb international demand.