Lack of regulatory body hampers construction industry

Martin Endjala

With the lack of a sector council or regulator, the construction industry will continue to be negatively impacted by economic factors which will result in the sector not yielding any growth.

According to Simonis and Storm Economist, Theo Klein, the situation is likely to persist and it will weigh on the profitability of local operators in the construction industry.

“Apart from calling on more investor-friendly policies, since 2006 the Construction Industry Federation has argued for a construction council that would serve in the interest of local capacitation and effective regulation of the sector. This has however not been realized to date l,” Klein explained.

Klein said that the lack of political will to establish a sector regulator is concerning and should be made a priority for the government.

“The construction industry has been facing significant growth challenges since 2016. In that year, the industry experienced a 41 percent year-on-year contraction and has remained in negative growth territory ever since, reporting a further annual contraction of 16 percent in 2022 based on preliminary National Accounts from the Namibian Statistics Agency,” he said.

According to the NSA, 2022’s poor performance was reflected in both the civil engineering and related services and buildings and related services categories of construction works, which experienced reductions in 2022.

Additionally, the gross fixed capital formation such as investment net of depreciation for buildings and construction works has also been on a declining trend, decreasing by 26 percent year-on-year in buildings and -3.5 percent year-on-year in construction works in 2022.

The Economist stated that the outlook on the construction sector remains bleak and is most likely set to contribute negatively towards the GDP calculation for 2023 and given the government once again reducing its development budget.

“Local contractors will depend more on private projects where competition to tender for projects under a restricted development budget is at an all-time high according to the Construction Industry Federation,” he said.

In addition, Namibian contractors also have to compete against foreign companies and smaller Namibian construction businesses have been displaced by larger, more established contractors.

“The competition in the sector is extremely fierce, with politically connected individuals receiving tenders but who do not have the necessary skills and equipment to carry out the tasks and so sub-contract to more adequate contractors,” Klein added.

He noted that this situation has also contributed to project deliverables not being achieved as well as certain infrastructure projects stalling.

Meanwhile, on a monthly basis, Windhoek’s approved building plans saw an impressive increase of 67 percent from February 2023, rising from 117 to 195 approvals.

Swakopmund experienced a modest monthly increase of three percent with approval of projects increasing from 63 to 65.

However, on an annual basis, Windhoek’s approvals in building plans experienced a decline of 21 percent, while Swakopmund’s approvals saw a remarkable increase of 91 percent, from 34 to 65. The latter can be attributed to a low base effect.Despite the positive monthly results, the total number of approvals for both Windhoek and Swakopmund decreased by 23 percent during the first quarter of 2023 compared to the fourth quarter of 2022.

Similarly, the number of completed building projects also experienced a decrease of 14 percent.

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