The South African Institution of Civil Engineering (Saice) has written an open letter to President Cyril Ramaphosa questioning the award by the South African National Roads Agency (Sanral) of tenders to joint ventures led by foreign companies, claiming that thousands of local jobs will not materialise as a result.
This follows the award of four tenders last week by the Development Bank of Southern Africa (DBSA), Sanral’s agent for the adjudication of tenders that were cancelled in May due to irregularities.
In the letter, Saice President Professor Marianne Vanderschuren said the institution is disappointed by the recent awarding of up to R6.65 billion worth of Sanral tender funds to foreign contractors.
- Details regarding the tender adjudication process and the criteria used to award these tenders to foreign companies;
- Clarity on the procurement processes that will govern these infrastructure projects, which are key to the economic development of South Africa; and
- Insight into how these procurement governance processes will be managed to ensure compliance.
Focus on growing the South african economy …
Saice referred to Ramaphosa’s State of the Nation address in February this year, specifically his comments stressing the importance of growing the South African economy, reducing the unemployment rate and combatting poverty and inequality.
It quoted Ramaphosa as stating: “We have given ourselves 100 days to finalise a comprehensive social compact to grow our economy, create jobs and combat hunger.”
Saice said Ramaphosa on 25 July further stated that: “The work to grow the economy and create jobs is going ahead with the support of all economic stakeholders.”
Vanderschuren said with these comments in mind, Saice is trying to understand how up to R6.65 billion worth of Sanral tender funds have been awarded to foreign contractors.
“We understand that South African tenders usually legislate the use of local materials and labour, requiring that a spend of 30% of the contract is designated to local jobs, and we, therefore, assume that these foreign companies will gain the other 70% of the contract value, up to the amount of R6.65 billion as quoted above.
“Further, our members have expressed their deep concerns related to the procurement of local labour and materials in these projects,” she said.
“Can government guarantee that this requirement will be enforced and honoured based on the experiences of foreign firms operating across Africa, which does not suggest this?”
Vanderschuren said Ramaphosa, as a businessman, will understand the impact of the multiplier effect and referred to academic literature and South African Reserve Bank data on this topic.
She said the literature quotes that the multiplier rates for the construction industry are between 0.5 and 1.3, adding that the R6.65 billion that has been awarded to foreign joint ventures could therefore potentially cost South Africa between R9.9 billion and R15.3 billion.
“The possible negative impact on job creation and the lack of social upliftment are tremendous,” she said.
Vanderschuren added that the Reserve Bank in 2021 indicated that between 1.7 and two formal jobs are generated for every R1 million spent in the construction industry.
“In applying these figures to the awarded Sanral tenders, between 11 300 and 13 300 jobs may not materialise based on the current tenders awarded.
“Employment is also critical to the upliftment of households across South Africa,” she added.
“In light of which, with an average household size of 5.18 persons (in 2018), the lives of at least between 58 500 and 68 800 people may not improve, and could further deteriorate as a result of potential job losses.”
Saice further questioned:
- If there were no South African companies capable of leading and forming part of these joint ventures;
- The impact on the economy and the engineering fraternity as a result of the appointment of foreign firms leading these joint ventures;
- The potential negative impact on employment, job creation and skills development for South Africans;
- If local procurement regulations will be complied with in support of local content and the use of locally-sourced materials for these projects; and
- Who will provide oversight from government to ensure compliance with local procurement targets?
Ramaphosa’s spokesperson Vincent Magwenya said Saice must address the matter with Sanral because the president does not get involved in the awarding of tenders or tender disputes.
The project awards Saice is concerned about are:
- The R3.428 billion Mtentu Bridge contract, which was awarded to the China Communications Construction Company Ltd (CCCC) Mota-Engil Construction South Africa (MECSA) joint venture (JV);
- The R4.302 billion EB Cloete Interchange Improvements contract, which was awarded to Base Major China State Construction Engineering Corporation (CSCEC) JV, with Base Major founded by Chinese businessman Stephen J Lu;
- The R1.814 billion Ashburton Interchange project, which was also awarded to the Base Major CSCEC JV; and
- The R1.057 billion R56 Matatiele rehabilitation project, which was awarded to Down Touch Investments, with little know about this company.
The fifth cancelled tender, which relates to the Open Road Tolling tender for the Transaction Clearing House operator for e-tolls on the Gauteng Freeway Improvement Project (GFIP), has not yet been awarded.
South African Forum of Civil Engineering Contractors (Safcec) CEO Webster Mfebe said last week that South African contractors participate and win bids across the globe on the basis of the applicable legislation that governs procurement in those countries – and nobody could question these Sanral awards provided they were made in terms of the constitutional principles of fairness, equitability, transparency, competitiveness and cost effectiveness.
Black Business Council in the Built Environment (BBCBE) CEO Gregory Mofokeng said the council is happy the projects have finally been awarded but concerned that the tender awards have been dominated by international companies, while stressing the need for local companies to be competitive.
Mofokeng is also concerned about the possibility of these successful Chinese bidders importing all or the bulk of their material for these projects from China and also importing skills for these projects.