Cost pressures will continue to impact seriously on the construction industry until at least 2014, the South African Federation of Civil Engineering Contractors said on Friday.
“There are going to be serious pressures until at least 2014,” Safcec construction economist Pierre Blaauw stated, speaking in an exclusive telephonic interview with Engineering News Online.
He said that, owing to a surge in demand, which would continue well beyond 2010, construction companies were returning to a more “rationalised” profit-taking system of seven to eight per cent profit before interest and tax, last seen in the construction boom of the 1970s.
In the last five years, this figure had been closer to three per cent.
This was because there was not much activity in the construction sector in the past five years, but this had now changed dramatically.
Demand had now surged, and companies' capacities were being stretched, so they were in a better position to charge more for their services.
“The construction sector is an open and highly competitive market,” Blaaw said.
“It is in a generally stronger inflationary trend,” he noted.
However, Blaauw explained that cost escalation could be contained by clients and contractors signing agreements as early as possible, particularly for larger projects.
“This would limit the potential for inflation, as the companies could order the longer-lead items and materials early on,” he stated, adding that companies could also, if necessary, start training earlier on, which would allow them to properly prepare for the project.
The construction industry is running at high levels of capacity utilisation, and it is important for firms to understand how to best use their own resources, Blaauw emphasised.
