How SMEs are reshaping our construction industry

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SIMON BROWN: I’m chatting now with Thethe Mokele. She is managing senior associate at Pinsent Masons. Thethe, appreciate the early morning time.

Research on the construction sector within South Africa shows that from 2008 to 2025, as a slice of GDP it has gone from 4.2% to 2.3%. That is a significant shrinking of an important sector in our economy – not just in terms of obviously building infrastructure, but in terms of employment.

THETHE MOKELE: Good morning, Simon, and thanks for having me. Definitely. A sobering statistic. But it has been interesting to see how the industry has adjusted in restructuring overall.

So these stats, while important, are reflective obviously not just of the construction sector, but the economy generally. So in times of slow economic growth you kind of expect a statistic like this.

But, like I said, the positive has been the restructuring – how these small to medium enterprises have basically come in and almost filled that gap that was historically filled by the super construction companies on these large mega projects.

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The small to medium enterprises have found a shoo-in and they are really making inroads; they’re contributing to the economy, they are employing people, which is important. So yes, definitely sobering.

But on the flip side, it has  almost given these smaller entities that generally wouldn’t have been able to participate a way to participate and contribute meaningfully to our economy.

SIMON BROWN: That makes a great point, because I’m sitting here and I’m thinking of all the listed construction companies that have disappeared and gone into business rescue over the last five years or so. There have  been a lot of them. The rise of the small construction [groups] makes a lot of sense.

My question then is: Do they have the depth of skill and the like, or are they sort of doing joint ventures – perhaps locally, perhaps even with international entities – to help some of those resources, some of this expertise?

THETHE MOKELE: Some of them have been around for a while, so the experience is definitely there. It’s just a matter of tapping into slightly larger projects.

And then on the other side are the relatively newer small to medium enterprises –  and that’s where this joint-venture model that you speak about comes into play and becomes quite effective.

So we see it a lot with local-to-local joint-venture models, and we also see it a lot with international – sometimes Chinese entity – local joint ventures.

What that allows both parties to do is to leverage with each other. So you’ve got the small and medium enterprises who are on the ground.

They can provide the local labour, the resources. They’re closer to community issues. They’re closer to the community and can get that buy-in from the community – and in the larger entities bring the money muscle.

They bring more expertise, more advanced technology, and that allows that skill-sharing and transfer, so that even those smaller entities are then left with something that they can use going forward in other projects – and hopefully bigger projects – going forward.

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SIMON BROWN: That was exactly going to be my next point. We actually get a benefit from it. I’m always reminded that every large company was once a small company, and the small construction companies can grow. We get that transfer of skills, of knowledge, which we then have as a country, as a small construction sector.

THETHE MOKELE: That’s exactly it. So yes. It’s a win-win for both.

SIMON BROWN: Yes, hugely important.

THETHE MOKELE: A win-win for both sides.

SIMON BROWN: The important part here, of course, is government as a sort of important leg in terms of a contract, in terms of funding, in terms of helping drive the sector as well. Are they playing their part? Are we seeing activity coming from government into the sector?

THETHE MOKELE: We are seeing quite a lot of activity in the government sector just trying to source that funding. But I think it would be a huge burden for them to carry on their own.

So what I think they need to focus on, in addition to trying to almost front-load the initial stages of the projects, is to de-risk those initial phases, to make sure that the projects get running, get going – without unnecessary bottlenecks or red tape.

That you have the necessary regulatory frameworks that facilitate whatever permits, licences, et cetera are required.

From a contracting side you ensure as much as you can that there’s almost a ring-fencing of funds, because that’s another stumbling block for some of these smaller, more inexperienced contractors.

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Once that money hits, it goes elsewhere and not necessarily to the project. So if you can de-risk that initial stage with the initial government involvement and funding, make sure the regulatory frameworks are in place, I think then you start winning more private-sector investor confidence.

They have the confidence to then come in off the back end and fund and hopefully see the projects to completion.

I think it would be a big task for government alone, but if they can get that initial stage right, then you’re more likely to get more buy-in from the private sector.

SIMON BROWN: I like that. Government almost as a leg-up in a sense and a leg-up in a positive sense, rather than a negative.

We’ll leave it there. Thethe Mokele, managing senior associate at Pinsent Masons, appreciate the early morning time.

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