Amid tough times confidence levels have improved

The results of CESA’s Bi-annual Economic and Capacity Survey for the period January to June 2017 indicates that there has been some improvement in the industry with the net satisfaction rate increasing to 96.3% in the June 2017 survey from 87.5% in the last six months of 2016.

“Expectations for the last six months of 2017 are still relatively positive, but levels of optimism are waning for next year, particularly among larger and medium size firms. This is owing to issues pertaining to the political landscape amid revelations of State Capture and allegations of corruption in key Government entities. Our member firms mostly depend on these key Client Bodies being functional and in continuous pursuit of competent and professional Consulting Engineering services for infrastructure development to sustain their business operations and maintain a steady workforce of professional practitioners,” avers CESA CEO Chris Campbell.

He states that confidence levels among larger firms fell to below 50% this time next year, based on their outlook for business conditions in the next 12 months. Medium size firms reported equally satisfactory levels for the first six months but also expect weaker conditions for next year. Smaller to micro firms currently reported the lowest confidence levels (averaging 73% for June 2017), with no real change expected in the next 12 months.

Capacity Utilisation

Capacity utilisation of technical staff improved to an average of 85.1% after having slowed over the previous two surveys to 82.5%.  “Just over a third of the firms expect no change in utilization while just over 2% expect a slowdown.” Larger firms reported the highest capacity utilisation at 91%, while medium size firms averaged a rate of 84.5%. Smaller firms reported the lowest rates of 78.8%. Larger firms were also the most optimistic regarding the outlook for utilisation, as close to 70% expect an improvement, while majority of the medium and smaller size firms expect rates to either remain static or decline.

Financial Indicators

Fee earnings in the first six months of 2017 increased by 5% (in current prices) compared to the last six months of 2016, which was relatively unchanged compared to the same period in 2016. The increase was better than the expected 7% decrease as reported by firms in the previous survey with regards to the outlook for the first six months of 2017. 

Larger firms reported an increase of 5%, while earnings for medium size firms ended flat, and smaller and micro firms reported an increase of 14%. Fee income rose to R26.6-Billion, annualized, at current prices as at June 2017. Earnings are expected to remain flat in the second half of 2017, although larger firms expect a marginal increase of 1.3%. Medium size firms are less optimistic expecting a drop of 8%.


Payment remains a serious issue, having a broad-based effect on firms operating in the industry. After having shown some improvement in the December 2016 survey, the percentage of fees outstanding for longer than 90 days as a percentage of total estimated income (including late payments) deteriorated to an average of 23.8% in the first six months of 2017. The impact of foreign clients remain prominent in this survey contributed 56% to total fees outstanding for a period longer than 90 days.  Excluding foreign clients, private sector contributed 50% to delayed payments, followed by provincial government at 32%, local government at 11%, central government at 4%   and SOE’s at 3%.

It is estimated that around R6.3-Billion in earnings is currently outstanding after the 90 day period. In relation to earnings, the respective foreign clients owed 155% of earnings, provincial government 83%, private sector 19.3%, central government 7.6%, local government 10.9% and SOE’s 3.4%.


Some of the challenges include: unrealistic tendering fees remain a concern for members, while the extended time it takes in which to finalize a proposal is affecting profitability in the industry. Campbell states, “In this regard CESA continues to offer our services to government to procure and implement projects”. The quality of technical personnel is argued by some firms to have deteriorated, putting greater risk on the built environment sector. Skills shortage is regarded as one the most significant institutional challenges faced by the private and the public sector. Fraud and corruption is affecting the ethos of our society, with a lot of talk and little action accompanying the growing evidence of corruption.

CESA is aware that members are under pressure from contractors and corrupt officials, to certify payment for work not completed. This is regarded as an extremely serious matter by CESA and as such the organisation will be relentless in holding those in power accountable. Service delivery, especially at municipal level remains a critical burning issue. The consulting engineering industry is threatened by incapacitated local and provincial governments.

As major clients to the industry, it is important that these institutions become more effective, more proactive in identifying needs and priorities and more efficient in project implementation and management. Regulation issues, including the procurement of consulting engineering services, remain one of the biggest challenges faced by the industry. Procurement is currently based on price and broad-based black economic empowerment points, with functionality or quality having a minimum threshold, thus being largely price driven. This is affecting tender prices, as firms sometimes tender below cost in view of the diminished availability of projects.

Competition in Tendering

Competition in tendering generally eases during a time when the availability of work increases and intensifies during periods of work shortages. An easing of competition will generally lead to an increase in prices, while price inflation is capped during periods of work shortages due to the fact that an increasing number of firms tender on the same project. The tendering process is costly and time consuming, and higher levels of competition significantly increases the risk for the engineering firm.

Although there has been some improvement the in the level of ‘very keen to fierce competition’ since 2011/2012, an increasing number of firms continue to highlight ‘very keen to fierce competition’. In this survey 93% reported on ‘very keen to fierce competition’, up from 72.4% in the December survey and an average of 65.8% in 2016. Higher levels of competition are however experienced more by larger firms, with 97.5% reporting on ‘very keen to fierce competition’, while 59% of medium size firms experienced similar levels of competition. Micro firms reported the lowest level of strong competition, averaging 61% (very keen to fierce).

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