March 2019 - ssrdind

March 24, 2019

74pc export through pvt banks in 2018

Private commercial banks are dominating the country’s international trade as around 74 percent export in 2018 took place through them.

On the other hand, only 7 percent export was done through the state-owned banks and the remaining 19 percent through foreign commercial banks, according to a study of Bangladesh Institute of Bank Management (BIBM).

In 2011, the study report said, 71 percent export was through the private commercial banks while 18 percent through the state-owned commercial banks and the rest through foreign commercial banks.

The research report was presentedyesterday at a daylong review workshop at the BIBM in the city, said a press release.

The workshop was organized simultaneously at BIBM auditorium in Dhaka and Bangladesh Bank (BB) Sylhet office (through video conferencing).

BIBM Executive Committee Chairman and BB Deputy Governor SM Moniruzzaman was present at the workshop as the chief guest while Executive Director of the central bank Sylhet Office Syed Tariquzzaman, former Dhaka University Professor Barkat-e-Khuda and BIBM supernumerary professors Md Yasin Ali and Helal Ahmed Chowdhury spoke, among others, at the workshop.

BB Executive Director and BIBM Director General M Abdur Rahim chaired the program.

BIBM Professor and Director (Training) Dr Shah M Ahsan Habib presented the research paper titled “Trade Services Operations of Banks”.

The study identified the problem areas as well as success factors in trade services and operations of banks in Bangladesh.

Considering the concerning issues of trade based money laundering, compliance requirements, and other financial crimes, SM Moniruzzaman said, BB has strengthened requirements to enhance the trade quality.

“Our policies are now developing according to market needs and risks. The ‘New Guideline for Foreign Exchange Transaction’ has already been published,” he added.

He said integration between supervisors and the schedule bankers made the policies more operationally effective.

With this view, he said, Foreign Exchange Policy Department (FEPD) has established an AD forum with the trade heads in the scheduled banks.

Moreover, enforcement of online reporting and monitoring system by the Bangladesh Bank has brought positive changes in terms of decline in irregularities by banks and improvement in data accuracy, he added.

Senior bank executives, academicians, media representatives, faculty members, officers of BIBM participated in the review workshop.

source:http://www.dailyindustry.news/74pc-export-pvt-banks-2018/

March 24, 2019

Bangladesh need infrastructure to attain $5b export earnings from ICT

Bangladesh earned $182 million from ICT exports in 2018 which was $193.93 million in 2017. Computer service exports from Bangladesh fell by 6.16 percent, according to data from the Export Promotion Bureau (EPB).

The government has targeted $5 billion in annual export earnings from the ICT sector by 2021. However, ICT industry insiders say they disagree with the EPB data, claiming it does not reflect overall earnings from the ICT sector and there are faults in the system of calculation.

Computer services include software, data processing, consultancy, computer maintenance, and installation.
Sources said the real picture of export earnings from computer services were not reflected in the EPB data due to the lack of a proper mechanism for data collection.

The lack of a central authority to shoulder the responsibility of collecting data on computer service exports also contributes to the inaccuracy of the data, they added.

Bangladesh Association for Software and Information Services (BASIS) President, Syed Almas Kabir, said all earnings from computer service exports are not coming through banking channels, and hence some payments are not considered to be part of export earnings.

“A portion of our export earnings are being treated as remittance, as they come through digital payment services such as Upay. We need a proper mechanism to calculate earnings which takes these payments into account,” he said. Telecommunications and Information Technology (ICT) Minister, Mustafa Jabbar, echoed the BASIS president in saying that the EPB and the Bangladesh Bureau of Statistics (BBS) can’t reflect the true picture of ICT sector earnings.
“Making a comment on our export earnings based on EPB and BBS data would not be right,” he added.

According to the Bangladesh Association of Call Center and Outsourcing (BACCO), the call centre and outsourcing industry alone earns about $300 million a year.
BACCO President Wahidur Rahman Sharif said: “If we consider the overall earnings of the ICT sector, it is over $700 million.”

BACCO President Wahidur Rahman Sharif, also managing director of Digicon Technologies Ltd, said a lack of infrastructure and skilled manpower were the main challenges to the ICT sector.

“Right now, the main challenge for the ICT sector of Bangladesh is a lack of proper infrastructure. The quality and reliability of internet connections in the country is questionable,” he said.
He added that there was a lack of skilled manpower, as the country’s education system is not geared up towards the ICT industry.

“Bangladesh also lacks branding to inform global buyers of the quality and capacity of the Bangladeshi ICT industry. As a result, foreign companies are not interested in outsourcing work here,” said Wahidur.
In order to gain a larger share of the global ICT services market, Bangladesh needs to provide policy support and branding, BASIS President Syed Almas Kabir said.

He added that the collection of accurate data was essential for setting a strategy for the sector’s expansion.
“To establish a proper database for the sector, BASIS will launch a research project to collect data on people who are engaged in the ICT sector, the size of local markets, and export earnings,” the BASIS president said.
Regarding the need for branding, Syed Almas said: “Currently, Bangladesh is branded as a marketplace for cheap labour. This gives the wrong impression. We have to show that we are capable and can provide quality.”

Furthermore, Bangladesh has to concentrate on developing valued services, such as mobile games and apps, he added.
Meanwhile, industry insiders said the government needs to provide high speed internet and uninterrupted electricity for the ICT sector at an affordable rate, in order to meet the target of generating $5 billion in annual export earnings from the sector by 2021.

However, huge challenges lie ahead, and the next few years will be very crucial as the industry needs to adapt to technological changes, they said.

“We have enormous opportunities in the field of digitisation, but we don’t have enough skilled human resources to meet the needs of the information and communications technology industry”, BASIS president said.
Now, 120 Bangladeshi companies are exporting ICT products worth $750-$800 million to 35 countries, industry insiders said.

Source:http://www.dailyindustry.news/bangladesh-need-infrastructure-attain-5b-export-earnings-ict/

March 24, 2019March 24, 2019

Palak for utilizing prospects of fourth industrial revolution

Staff Correspondent: State Minister for ICT Zunaid Ahmed Palak yesterday called upon the private sector to cooperate the government for finding out a solution to meet the possible challenges as well as utilize the prospects of the fourth industrial revolution.

“A solution will come, if the government and private sector hold joint discussions to overcome the fourth industrial challenges,” he told the inaugural ceremony of a 3-day BASIS Softexpo 2019 at International Conference City Bashundhara (ICCB). Palak said the previous first, second and third industrial revolutions created a lot of opportunities and generated employment although there was apprehension of huge job loss.

“The fourth industrial revolution can be boon for us if we utilize the prospects and opportunities because of the emergence of new technologies,” he said.

The state minister said the educational institutions including universities have to take step to change their curriculum to develop skills on emerging technologies. Palak said the government has already taken initiative to set up Sheikh Hasina Institute for Frontier Technology (SHIFT) on 70 acres of land in Shariatpur to create skill manpower on new and emerging technologies.

The government has also taken a project titled: ‘Establishing Digital Connectivity (EDC)’ to reach internet facilitates in each village within the next five years, he said.

Bangladesh Association of Software and Information Services (BASIS)
organized the expo in partnership with ICT Division.

Executive Director of Bangladesh Computer Council Parthapratim Deb,
President of BASIS Syed Almas Kabir and Senior Vice President Farhana A
Rahman, among others, addressed the function.

Leveraging ICT for Growth, Employment and Governance (LICT) Project and
Bangladesh Computer Council (BCC) are zone partners of industry 4.0 Zone and
Experience of Zone.

The BASIS Softexpo started with the slogan of `Technology for Prosperity’.
More than 250 national and international IT companies are showcasing their
products and services in this mega exhibition of Bangladesh. More than 100
local and international experts will address 30 seminars on various
contemporary IT related issues.

source:http://www.dailyindustry.news/palak-utilizing-prospects-fourth-industrial-revolution/

March 24, 2019

Manpower export falls 24pc in last 7-month

Zahid Hossain Biplob: Labor migration has become an important factor for Bangladesh in respect of employment generation, GDP growth, poverty reduction but in recent years the country is facing severe crisis for manpower export.
Industry insiders said, most manpower-importing countries are interested more in employing skilled workers. The authorities should take pragmatic steps to create a sizeable manpower, properly trained in trades that are in high demand in those countries. Most of the Bangladeshis on jobs abroad are poor and uneducated. There are heavily underpaid and face deprivation by overseas employers very often.

In order to stop the falling trend of manpower export, it is necessary to launch vigorous diplomatic drive to persuade the traditional manpower importing countries to open their doors for the Bangladeshi workers. The Bangladesh missions abroad need to be restructured with a view to effectively dealing with the emerging situation.
Although the matter of taking various initiatives was heard, new labour market is not really being opened to Bangladeshi workers. Some 109,607 Bangladeshi male and 21,458 female went to different destinations in January and February this year. Remittance inflow was $1090.82 million and $1386.61 million in January and February respectively, according to official figure of the Bureau of Manpower, Employment and Training (BMET).
Bangladesh’s overseas employment, according to an official estimate, dropped by more than 24 percent in the first nine months of the current year, compared to that of the corresponding period of previous year. The main destination point of the migrant workers has so far been the Middle East.
But the Gulf nations, mainly Saudi Arabia, are not hiring workers from Bangladesh on a large scale, creating negative impact on overall overseas job scenario in the sector.
Slow development work and restrictions on certain jobs for foreign workers were the main causes behind major fall in manpower export to the Kingdom. Falling oil price, political uncertainty and slow development work are also making it difficult for foreign workers to get jobs.
On the other hand, Malaysia has also suspended manpower recruitment from Bangladesh through the existing system under ‘G2G Plus’ deal due to some alleged unethical practices of the recruiting agencies. The south-east Asian country is now working to launch a new system for hiring manpower. As such, until introduction of the process, labour migration to the country will remain held-up.
Experts said, Bangladesh should try to tap other markets like rich nations in Africa and other oil-enriched Gulf countries like Qatar, Kuwait and the UAE to narrow the gap. In the past, workers could manage to get jobs, but now-a-days, it is difficult due to economic slowdown in most of the Middle Eastern countries. Although the migration cost is still much higher in Bangladesh comparing to the competitors.
The doors of developed countries, including America, Russia, Japan, South Korea and Australia, and some European countries are still closed for the Bangladeshi workers.
In current month, the destination of 90 percent of 1.0 million workers went abroad was the old market like Middle East, Malaysia and Singapore. But the Middle East crisis has been prolonged due to new rules of Saudi Arabia, visa closure of the United Arab Emirates and instability of Libya.
Only sending workers through the Malaysia’s government-to-government plus system has created hope. But introducing the new system of giving Immigration Clearing Certificate (ICC) by setting up an office in Dhaka for sending workers to Malaysia has created fresh complexity in sending Bangladeshi workers abroad.
It was learnt that Bangladesh’s biggest labour market in Saudi Arabia. One of the world’s richest and most oil-producing countries has approved a master plan named ‘Vision-2030’ in its cabinet in April 2016 in order to reduce its oil-dependency in economic matters and improving economy of the country.
The master plan says for coming out from the oil-dependent economy, creating new sectors of employment for young generation in the technology sector and empowering women.
As a part of implementation of the ‘Vision 2030’, the labour ministry of Saudi Arabia imposed a ban on many shops, including mobile, burka, rent-a-car, accounting, women’s ready-made garments, glasses, watches, home appliances, car parts, vehicle showrooms, electrical appliances and electricity materials, hospital equipment, chocolate or sweets, readymade garment, crockery, carpets, furniture or decoration, shopping mall, girls’ school and running heavy vehicles and crane.
They imposed the ban on the increase in the employment for the Saudi citizens at different sectors in the country.
Apart from this, the Saudi government also issued order to appoint the country’s citizens to the top posts of different institutions.
As a result, Bangladeshi expatriates involved in the ‘white colour’ professions of accountants, salespersons, administrators, sales-managers, sales supervisors, finance managers, chief accountants, senior accountants, office-bearers, drivers, receptionists, warehouse managers, lift operators, logistics supervisors are also losing their jobs.
It fears that the labour market in Saudi Arabia will be minimised due to such a decision of the country’s government while the Bangladeshi expatriates are in deep tension.
Bangladeshi workers were in panic after 26 workers were sent back from Singapore on charges of their involvement in militancy.
It was learned that Singapore is taking workers from India and other countries instead of Bangladeshi workers in construction and shipping industry.
Now, the dependency is only on Malaysian labour market in this worse situation. Two government agreements have to be continued in the country. But there are also a number of obstacles.
Bangladesh Association of International Recruiting Agencies (BAIRA) secretary general Ruhul Amin said, “Over 200,000 demand letters came from Malaysia. Of them, 112,000 workers have already flown to the country. Some 60,000 workers are now waiting to go to Malaysia. Hopefully, it will be possible to send 300,000 workers every year to the country.
Many said a foreign company started the process of issuing an immigration clearance certificate (ICS) by opening a new office in Dhaka for sending workers to Malaysia. Before the start of medical tests and other formalities of the workers, they are taking Tk 3045 in the name of immigration clearance.
When the government is trying to reduce the expense of the immigration, it has raised the question about taking money by the unauthorised organisation.
However, ICS officials claimed that they introduced the method as per the negotiations of both countries.

Source:http://www.dailyindustry.news/manpower-export-falls-24pc-last-7-month/

March 13, 2019

DIY retailers struggle in sputtering economy

SA’s DIY retail stores have mostly been immune to economic downturns.

When the going was good, people bought new homes, which they renovated later. In a sputtering economy, many prefer fixing things themselves.

Thanks to this kind of all-weather resilience, companies like Cashbuild and Italtile became JSE favourites.

But now, even they say this slowdown is the severest in a long time. Over the past year, retailers have had a lot to grumble about, as a rise in the VAT rate, increases in the fuel price and poor wage growth have drained consumers’ wallets.

The difficulty was evident in total retail sales growing only 1% for the three months to end-December. For hardware, paint and glass retailers, sales shrank 1.5% for the period, Stats SA data shows.

This could clearly be seen in the performance of Massmart’s Massbuild division, which had a rise in sales of 5.9% to R13.72bn but only a paltry 1.8% gain to R749.1m in trading profit in its results for the year to December.

At rival Cashbuild, revenue inched up 3% to R5.56bn and operating profit declined 12% to R284m for the half-year to December.

The situation is unlikely to change soon. The wider view is that consumer confidence will only really improve when the government sets out its economic strategy after the May 8 elections.

It’s not been totally bad for everyone, though. Spar’s Build it chain increased sales 10.3% for the 17 weeks to January 26.

Italtile is not waiting for the elections to see what happens. CEO Jan Potgieter says the group is employing various strategies to cope with the difficult economy. It plans to take more market share from its competitors.

Potgieter says that in an economy that’s slowing down, one of the ways the company can grow is by getting customers to buy all the material they need to renovate their home from one of its stores.

At its low-income-focused chain TopT, for example, people can buy an extensive range of products, obviating the need to go anywhere else.

Potgieter says the diversification of its product range has led to tile sales now making up only 50% of total sales. Italtile’s retail turnover rose 7% to R3.33bn and net profit 13% to R189m for the six months to end-December.

Despite the growth, Potgieter says middle-class customers are clearly taking strain.

Massbuild CEO Llewellyn Walters says the chain adapted to the slowdown by supplying materials to enterprises, larger landlords and building sites.

Essentially its strategy boils down to “looking for sectors unaffected by the recession”.

Massbuild has also been quick to adapt to the specific regional needs of consumers. During the drought in the Western Cape it bypassed its distribution centres and delivered JoJo rainwater tanks directly from the factory in Groblersdal in Limpopo to two of its stores in Cape Town.

Though the economy remains sluggish, Potgieter sees “huge” potential in the SA tile market. When compared to other middle-income countries, SA’s tile market is only about half the size.

“People want to invest in their homes. It’s usually their most expensive asset.”

At a share price of R13.50 and a p:e of 13.02, Italtile looks nicely priced and seems worth buying, but not everyone is sold on it, or the other DIY chains. “Italtile has good metrics, but we are avoiding the DIY sector,” says AlphaWealth fund manager Keith McLachlan.

He says that with credit extension on the decline, consumers are holding off on upgrading their homes.

This, along with increased competition, means DIY retailers are going to be under pressure for some time.

The sector’s prospects are changing at a “fundamental level”, McLachlan says. “The golden age of DIY retailers is more or less over.”

Source:https://www.businesslive.co.za/fm/money-and-investing/2019-03-07-diy-retailers-struggle-in-sputtering-economy/

March 13, 2019

JSE likely to weaken as Brexit uncertainty escalates

The JSE will probably open lower on Wednesday after UK MPs shot down Prime Minister Theresa May’s Brexit plan for the second time, sending Asian stocks lower as uncertainty mounted.

With only 17 days to go before Brexit is meant to happen, May’s plan to withdraw from the EU was heavily rejected by MPs. This raises the risk of a messy no-deal divorce between the UK and the EU.

Focus will now be on whether parliamentarians decide to go that route or ask for an extension to the break-up date.

Hong Kong’s Hang Seng index was 0.6% lower at the lunch break, with Naspers associate Tencent 0.8% down. Japan’s Nikkei 225 index was 1.1% lower, and Australian stocks were 0.4% weaker.

JSE heavyweight BHP Group was 0.5% down in Australia.

The busy reporting season continues for SA’s main bourse on Wednesday, with top-40 constituent Growthpoint Properties scheduled to publish its interim results.

Another top-40 member, RMB Holdings, will also report.

Mpact is due to publish results for the year ended December. It said in February that its headline earnings per share (HEPS) would increase by between 15.5% and 21.6%.

MTN’s shares could react to news that its e-commerce associate, Jumia, has filed for an initial public offering (IPO) in New York. The mobile operator said recently it planned to offload noncore assets, such as Jumia, to raise at least R15bn.

Bloomberg News reported in February that an IPO would value Jumia at about $1.5bn.

Meanwhile, in the wake of May’s Brexit defeat, gold was slightly firmer while the rand was weaker.

Against the dollar, the rand was 0.17% weaker at R14.38/$. Versus the pound it was 0.24% worse at R18.82/£, and against the euro it was 0.12% weaker at R16.23.

Source:https://www.businesslive.co.za/bd/markets/2019-03-13-jse-likely-to-weaken-as-brexit-uncertainty-escalates/

March 13, 2019

Growthpoint warns of little to no growth from SA properties

The real estate investment trust says it will have to rely on its international properties for growth due to deteriorating conditions in the local property sector.

Growthpoint Properties says it will have to rely on its international properties for growth, as it expects “little to no growth” from its SA portfolio due to deteriorating conditions in the local real estate sector.

Most growth in the year to end-June 2019 will come from the real estate investment trust’s (Reit) international investments, Growthpoint said in its interim results on Wednesday.

SA’s property fundamentals “remain weak and are worsening”, which means the local portfolio would probably produce “little to no growth”.

Even the V&A Waterfront, which benefits from local and international tourism, was “not immune to the erosion in the domestic economy, and turnover rentals declined in the first half”.

However, property fundamentals remained strong in Australia, Growthpoint said. The group has a 66% interest in Growthpoint Properties Australia, which owns 59 properties valued at R38.3bn.

Dividend withholding taxes relating to that investment would be lower this financial year, and the group had taken advantage of exchange rate weakness “with favourable hedge rates”.

Further offshore growth would come from Growthpoint’s Central and Eastern European investments, where property fundamentals “are solid”.

Assuming “no further deterioration in the SA business environment”, Growthpoint expected growth in dividends per share for the financial year to end-June 2019 of about 4.5%.

The Reit said distributable income in the first half grew 5.9%, allowing it to increase its interim dividend by 4.5% to 105.8c a share.

The value of the group’s property assets rose 4.3% to R138.7bn.

Vacancy levels in SA rose from 5.2% to 6.5%. In the office sector specifically, vacancies rose to 10.2% from 8.4%.

Growthpoint said the Cape Town water crisis “is now under control”. The V&A Waterfront, which is 50% owned by the group, was building its own desalination plant to take it entirely off the water grid.

Source:https://www.businesslive.co.za/bd/companies/property/2019-03-13-growthpoint-warns-of-little-to-no-growth-from-sa-properties/

March 13, 2019

Diversify energy supply, do more with renewables – Netherlands Ambassador on Eskom

It is important to diversify energy options, as a reliable energy supply is “vital”, Netherlands Ambassador to SA Han Peters told Fin24 on Monday.

Speaking to Fin24 by phone, Peters discussed various issues affecting investor confidence in SA – among these, energy supply. He was previously ambassador to Brazil, before being appointed to his current position in 2018.

At the state of the nation address in February, President Cyril Ramaphosa announced that the state power utility Eskom would be split into three entities, in an effort to ensure security of energy supply.

The entities – responsible for generation, transmission and distribution – will remain state-owned and will fall under the Eskom Holdings parent company, Ramaphosa has said.

Government has since announced the appointment of a technical review team, tasked with reviewing the operations, maintenance and the technical environment at Eskom’s power stations.

The team of 11 have academic, engineering and power system expertise. The team reports to Public Enterprises Minister Pravin Gordhan and to a technical sub-committee of the Eskom board.

“I think it is good that government has a plan for Eskom, and now we will have to see how to implement it,” Peters told Fin24.

“Energy supply is vital for industry, for households, for all of us. It is also good to diversify energy options.

“I think almost any country in the world will have to do that, as we move away from fossil fuels,” Peters said.

Peters referred to the Netherlands, which is heavily reliant on gas for energy. It is also in a process of transitioning to other energy resources, as the areas where natural gas sources are located are experiencing earthquakes.

“There is definitely a need for all of us to do more with renewable energy,” he said.

Labour unions have opposed the introduction of renewable energy to the energy mix, arguing they pose a risk to jobs at coal mines and will make electricity more expensive.

The National Union of Metalworkers of South Africa has blamed tariff hikes granted by the energy regulator to Eskom for the next three years, on the introduction of IPPs.

Gordhan has previously said that government has been consulting with unions and other stakeholders in the energy space to better understand the challenges Eskom is facing and what must be done to turn things around.

Source:https://www.fin24.com/Economy/Eskom/diversify-energy-supply-do-more-with-renewables-netherlands-ambassador-on-eskom-20190313

March 13, 2019

Hundreds of jobs at risk as Absa revamps retail bank

Absa Group is restructuring its South African retail and business banking unit within months of reducing the division’s management team and rolling out a new strategy.

Finance labor union Sasbo was notified to begin consulting staff last week on the potential impact of the move, union representative Philip Landman said by phone Wednesday. About 15 retail-banking executives exited their positions at the Johannesburg-based lender in June, after a similar process was followed to flatten the unit’s top structure.

Discussions between Sasbo, Absa and employees are still in their early stages, with 827 jobs potentially at risk, Landman cited a written notice from the company as saying, adding that 340 people might be employed through the process. “At this point we are trying to figure out if what the bank is saying has merit, and prove that the restructuring is actually unnecessary.”

“It is only once the realignment is complete that the total number of people who have either been appointed to new roles or have left the organisation will be known with certainty,” Absa said in emailed comments. The changes will result in “both new opportunities and redundancies across the business,” it said, adding that the steps aren’t a “retrenchment exercise, but a realignment effort aimed at enabling our new strategy.”

Tepid growth

The shake-up comes as South African lenders contend with slow economic growth and a consumer base battered by tax hikes and rising fuel and utility expenses. A stubborn unemployment rate of about 27 percent and declining business confidence is also curbing demand for loans, forcing banks to bring their costs down.

Retail and business banking accounts for more than half of Absa’s profit and is at the center of a group-wide push to grow revenue faster than its competitors after the lender’s former UK-based parent, Barclays, sold down its controlling stake to below 15%.

The division’s chief executive officer, Arrie Rautenbach, who was appointed about a year ago, is focusing on boosting mortgage lending, lowering costs and expanding the number of products sold to its clients. Rautenbach is implementing his strategy as South Africa’s banking sector becomes increasingly competitive with one new rival, TymeBank, launching in February and two more are expected to follow this year.

Source:https://www.fin24.com/Companies/Financial-Services/hundreds-of-jobs-at-risk-as-absa-revamps-retail-bank-20190307

March 13, 2019

Group Five collapse signals SA construction demise

South Africa’s construction industry is being demolished.

After 45 years of trading on Johannesburg’s stock exchange, Group Five’s stock was suspended on Tuesday after the company filed for bankruptcy protection, making it the fifth local builder to enter business rescue in less than a year.

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From a peak market value of R8.2bn in 2007, it was worth less than R100m when the shares stopped trading.

While the construction industry is notoriously cyclical, the current mix of a depressed South African economy, high levels of national debt and low infrastructure spending is proving toxic as contracts dry up. At risk are thousands of jobs – including 8 000 at Group Five alone – in a country with an unemployment rate of above 27%.

“Those construction companies that are South Africa orientated have gone from bad to worse in the past 12 months,” Marc Ter Mors, the head of equity research at Johannesburg-based SBG Securities, said by phone. “In South Africa, volumes are low, pricing is under pressure and companies are taking on more risk to win contracts, so margins are thin and that hits cash flow. There are no real segments to hide in.”

Volatile markets

Group Five’s history demonstrates the group’s resilience in “several extremely volatile markets,” the company still says on its website. Even so, it has “for some time been experiencing cash flow difficulties,” it said on Tuesday.

Murray & Roberts saw the writing on the wall. Having built significant South African landmarks such as Johannesburg’s Carlton Centre, the continent’s tallest building, the company sold its building and infrastructure units in 2016 to focus on international businesses focused on projects such as underground mining and oil and gas.

While M&R’s market valuation is a fraction of what it once was, the stock has gained 44% in the past year amid takeover interest from 40% shareholder Aton GmbH.

READ: R4.5bn new development at O.R. Tambo Airport
The industry’s woes are a far cry from the build up to the FIFA Soccer World Cup in South Africa nine years ago, which required major national infrastructure spend, including on new stadiums.

However, that boom was cast in a dark light even before the tournament took place, when the Competition Commission started investigating collusion in the industry. The regulator settled with 15 firms in 2013, while Group Five was granted immunity for co-operation.

Government spending

While South African President Cyril Ramaphosa last month said government’s infrastructure spending had slowed, he also said the state will contribute R100bn into a fund over 10 years. The plan is to use this to get financing from both private and state-owned companies to reboot the industry.

In the meantime, the FTSE/JSE Africa Construction & Materials Index is down 27% in the past 12 months, compared to a 6% drop in the FTSE/JSE Africa All Shares Index. There is also risk that if South Africa’s local construction industry is wrecked, future building projects will become more expensive, Ter Mors said.

According to Ter Mors, as South Africa depletes its capacity to build its own infrastructure, when the cycle turns again, it will be forced to rely on international companies and their pricing.

Source:https://www.fin24.com/Opinion/group-five-collapse-signals-sa-construction-demise-20190312