The influence of economic factors on South Africa’s civil engineering consulting firms

Abstract

The infrastructure and construction activity of a country are strong drivers of economic development and the prosperity of a nation. This has been studied and discussed by various scholars such as Ruddock (2008) and Ofori (1990). As the construction industry prospers, employment is provided to many citizens, thereby improving living conditions due to the newly built infrastructure. This state of prosperity is often followed by a state of recession in the economy where jobs are scarce, interest rises and the price of commodities rises. In recent years, it has become glaringly evident that economic cycles have influenced several industrial sectors, including the construction industry and its civil engineering consulting (CEC) firms. In order to ensure that CEC firms remain financially sustainable throughout different macroeconomic cycles, it is necessary to study the economic factors with the highest impact on CEC firms. The aim of this work is to determine the economic factors that affect CEC firms through the different macroeconomic cycles and in which phase of the cycles these economic factors impact CEC firms. To address the aim of the study, mixed methods research was employed. Semi-structured interviews formed part of the qualitative methods used and statistical econometric tests formed part of the quantitative tests used. Seven semi-structured interviews were conducted, with five interviews at CEC firms, one with an employer, in this case South African National Roads Agency (SANRAL), and one with the Consulting Engineers of South Africa (CESA) association. The econometric data analysis made use of ADF Unit Root tests, Johansen Co-Integration tests and Granger Causality tests. The quantitative results showed that gross domestic product (GDP) and gross fixed capital formation (GFCF) of total investment indicate a change in total revenue of construction consulting firms. The Granger Causality results showed that construction value added (CVA) and GFCF of construction investment tend not to cause nor indicate a change in revenue of construction consulting firms, and vice-versa. The semi-structured interviews identified 16 economic factors that affect CEC firms. These factors were determined to be caused primarily by the South African economic activity, construction activity and CEC industry. It was observed that these factors can occur in different phases of a macroeconomic cycle, with business confidence and foreign investment having the highest influence during the recovery phase, capacity of firms and tender roll out having the highest influence during the peak phase, training of governmental staff and diversification having the highest influence during the downswing cycle, and strategic planning of CEC firms having the highest influence during the through phase of the cycle.