Marcello Palumbo: Filcon Projects, co-owner

Across the globe all industries are struggling in the face of the global financial downturn, but with finance becoming harder to obtain both for developers and consumers, the construction industry in the developed world has been particularly hard hit.

In South Africa, the good fortune of 2010 FIFA World Cup-related construction projects coupled with a swathe of infrastructure projects being undertaken by the government are helping to buffer the country from some of the worst aspects of the gloom.

One company that has been making a name for itself in the South African construction industry, and shows no sign of slowing down despite the current downturn, is Cape Town-based construction group Filcon Projects.

The company was started in 1995 by Italian-South African Filippo Cinti and Italian-born Marcello Palumbo. The two had both met previously whilst working for an Italian construction company in Johannesburg a few years earlier.

Fourteen years later and Filcon has progressed from its origins of working on a series of relatively small construction projects to being responsible for the construction of some of the biggest projects currently underway in Cape Town.

Over the last couple of years Filcon has been involved in building some famous sites in Cape Town. The Rockwell, a luxury block of apartments situated near the Waterkant (pictured below right), was completed in 2007, while The Metropole Hotel, in Long Street, was completed in 2004.

The R130-million Rockwell aside, Filcon is currently working on its three biggest ever projects, all of which are valued at more than R100-million.

The most expensive of these is Roggebaai Square, a 14-storey office block in Jetty Street that is costing R190-million to build. Filcon is also working on two luxury apartment blocks The Orangerie and Canal Quays.

The former is nestled between two iconic landmarks in Cape Town, the Labia Theatre and the Mount Nelson hotel. Canal Quays (pictured below left) is part of the wider redevelopment of the Roggebaai district, and will boast more than 90 apartments when complete.

The fact that Filcon already had three such large projects under its belt as the global financial crisis broke meant that the company was largely sheltered from the impact of the global financial crisis and subsequent downturn on the construction sector.

“We have not felt it (the credit crunch) so much because a lot of the work that we have since received we had already been negotiating. At the beginning when the crisis started, we had three contracts running for 22 months, so we haven’t really seen the crisis yet,” says Marcello Palumbo.

Palumbo also notes, however, that Filcon’s positive view of the current climate also stems from its aggressive growth. The company has been rapidly growing in a decreasing market, he says, taking market share from some of its bigger rivals.

“Looking at the future, we’ve put seeds in all different places. We’re looking ahead with confidence,” says Palumbo, though he adds that while Filcon hasn’t felt the pressure yet it is possible the company will to some degree going forward.

One of the seeds that Palumbo is referring to includes the company’s strategy of diversifying its core business.

In recent years, Filcon has expanded into all sectors of construction including residential, commercial and industrial projects, which has enabled the company to offset a downturn in any one area of construction, and benefit from taking on more work in other areas.

“The market has shrunk but because of the World Cup, the government has been investing a lot of money into infrastructure, so while the residential and commercial sectors have been going down, the infrastructure sector has grown,” says Palumbo.

That is not the only strategy that Palumbo and Cinti have been employing though, as Filcon has also been moving into new areas geographically.

Eighteen months ago Filcon opened its business in Mauritius, working on a number of tourism opportunities including the Sugar Beach Hotel.

The company is also in the process of opening an office in the Eastern Cape and is currently looking to spread its wings further into the wider SADC region with plans to establish an office in Angola.

That will largely depend on where Filcon wins its first project in the country, though, as Palumbo suggests that the most cost-effective strategy would be to position the Angolan office on site at its first contract.

Given Filcon’s expansion plans into other regions, has Palumbo discovered any challenges that the South African construction industry faces specifically?

The challenges start from the banking sector, says Palumbo. “It’s a challenge that we don’t like, but we have to respect the banking sector. It is very slow in some ways; it’s very difficult to get finance for building developments in South Africa.”

Palumbo notes, however, that while banking remains a challenge for companies in the construction sector, because of the protections in South Africa’s industry, the banking sector has not felt the full impact of the global banking crisis as elsewhere in the world.

Mirroring concerns voiced by a number of other industries, Palumbo also notes that skills remain an issue for the construction industry.

“The government has a programme called the Skills Development Fund, which promotes skills and development, but that is not enough. It’s not proactive enough. We need more to be done from that point of view,” says Palumbo.

Filcon actively supports skills development and participates in the Go For Gold programme – a partnership between the construction sector and the Western Cape Education Department – which assists students wanting to enter the construction industry.

The company, which is now 48% black-owned, currently employs about 12 students, which it has supported through school and/or further education, as well as guaranteeing them employment for a certain amount of years after they leave school.

With a host of projects under their belts, and students looking to them for inspiration, how does Palumbo view the immediate future of the construction industry, particularly with the cash cow of 2010 to be spent in little over a year?

Palumbo says that while he cannot predict the construction boom will continue beyond 2010, he expects that following the World Cup, infrastructure spend will not disappear but slowly decrease, but hopefully at the same time, private developers will begin to pick up the slack again.

“Obviously we know that the economy goes in waves, and as in the past, hopefully there will be a continued demand for construction. If we’re lucky infrastructure will drop but demand for residential units and everything else will increase,” says Palumbo.

For now, however, Palumbo is concentrating on the job in hand, as both he and business partner Cinti look to complete three of Filcon’s largest every contracts, proof that for some, business is still thriving in these tougher times.