Has Commercial Property Been Shot in the Foot by Construction Collusion?
So have you hung out with commercial property developers lately? The complaining, the belly aching- it’s like being in the room with an unoiled machine. One may sympathise with much of it, we’re all under the same pressure – inflation, weak Rand, strikes, higher electricity prices and corruption. Oops did I say corruption?
The construction industry and commercial property development are a two piece bathing suit and one piece has just shot the other in the foot. So the news has been out for a while. Those squeaky clean corporates who’ve been tut-tutting at government corruption with the rest of us have had their snouts in the trough all along apparently.
But before we join the rest of the rabble and chorus: “off with their heads,” we may wonder what the implications are for the future of construction, commercial or otherwise. The rot runs so deep and apparently for so many decades that prosecuting authorities may struggle with the implications of action against this network of crooked scaffolding.
It’s possible that upon the conclusion of investigations, top executives and manages could face jail time and companies are looking at burdensome fines. Twenty of the country’s largest construction firms continue to be under investigation by the competition authorities for running a cartel over a number of decades and roughly 20 more subsidiaries will also face the music after being fingered by the larger firms, the penalties have been awarded, but the singing isn’t over yet.
The investigations have left the industry in a royal flap, with firms doing damage control to minimise the impact on their bottom line and executives and managers who have only just managed to avoid going to jail. The effects on the bottom line will be passed on to – you guessed it, future clientele, future development- that include private sector commercial property developments.
But here’s a twist: the country’s currently engrossed in one of the most momentous infrastructure rollouts in its history; the NPA is faced with the predicament of pursuing the culpable parties with the necessary force and potentially decimate the sector. The knock-on effect could have dire consequences for large scale construction in general but also for private sector commercial property development.
There are calls to black list guilty firms. However the collusive practices are so widespread that there would be scant companies left in the country with the ability to handle major construction projects if the blacklisting is carried out. Of course this would only effect the most sizable private development– but the effects would be felt down the line.
The government is faced with some hair-raising decisions as the private sector has been one of the most vocal in the cries for an end to government corruption. Now the construction industry’s dirty washing is out for the world to see, some of those cries have become quite muffled as arguments calling for the government to think of the good of the industry and the future of jobs emerge. No doubt all with some merit perhaps.
Senior executive from Stefanutti Stocks Holdings, Schalk Ackerman, was been granted Section 204 immunity by the NPA. Others followed. But now as we face the aftermath of this saga it’s difficult to tell whether commercial property development will suffer until the full consequences of corruption, exposure and prosecution take place. One optimistic fellow is Afrifocus analyst Hugan Chetty who despite the debacle told media: “I think a recovery in earnings will only take place in 2014. I would start looking at construction stocks’ earnings from the third quarter of 2013.”
In the words of Aveng Group chief executive Roger Jardine, responding to the collusion activities: ” this is a thorn in the side of our economy,” and that may be the rub, a thorn doesn’t go deep enough to kill but pierces sufficiently to cause widespread infection. Perhaps it would be best for the industry in the long run to rid the industry of all its infected members. Time will tell.
Posted on August 19, 2013, in Commerce, Property and tagged Afrifocus, Aveng Group, commercial property, construction industry, Hugan Chetty, Roger Jardine, Schalk Ackerman, Stefanutti Stocks Holdings. Bookmark the permalink. Leave a comment.