the construction industry and economic growth in south africa p blaauw
TRANSCRIPT
The construction industry and economic growth in
South AfricaP Blaauw
GDP Multipliers
Sector Direct Indirect Induced
Building (1.2040)
0.4934 0.3055 0.4051
Civil (1.1807)
0.5203 0.2708 0.3896
Agriculture (1.1704)
0.6774 0.1682 0.3247
Source: IDCFor every R1 increase in final demand
Employment Multipliers
Sector Direct Indirect Induced
Building (11.87)
5.32 3.5 3.03
Civil
(10.82)
5.24 2.39 3.18
Agriculture (24.17)
18.86 2.23 3.08
Source: ConningarthPeople Per Million
Construction Facts
Total Employment: +-500 000
Residential, Non Residential and Construction Works – 6.3% of GDP
Total annual turnover R60 bill – R70 bill
Material Supplied R21.5 bill plus
Machinery Equipment R12 bill plus
Contributions
2005
Gen Gov.
Publ.
Corp.
Private Sector
Residential 7.38% 0.02% 92.6%
Non-Residential 37.2% 6.24% 56.56%
Construction Works 44% 39% 17%
Source: SARB
INVESTMENT IN TOTAL HOUSING AT CONSTANT 2006 PRICES
0
5
10
15
20
25
30
35
40
45
46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Source: SARB; MFA DATABASE
RA
ND
BIL
LIO
N
LONG TERMGROWTH 1.84% pa
INVESTMENT IN TOTAL NON-RESIDENTIAL BUILDINGS AT CONSTANT 2006 PRICES
0
10
20
30
40
50
60
46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Source: SARB; MFA DATABASE
RA
ND
BIL
LIO
N
LONG TERMGROWTH2,44% pa
THE DEGREE OF COMPETITION IN TENDERING BUILDING CONTRACTORS
0
10
20
30
40
50
60
70
80
90
100
| 72 | 77 | 82 | 87 | 92 | 97 | 02 | 07Source: BER; MFA DATABASE
LES
S K
EE
N <
50%
> V
ER
Y K
EE
N
Examining the relationship between Economic Growth and
Infrastructure spend
Economic Growth
Demand
Supply
No examples of developing countries that have sustained high economic growth on the basis of a consumption led-boom
•Low interest rate
•Low inflation
•Strong fiscal position
•High corporate tax rate
•Skill Constraints
•Expensive logistical costs
•High input costs
Economic Infrastructure Stock/GDP Ratio and Construction Works (2000=100)
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
196019611962196319641965196619671968196919701971197219731974197519761977197819791980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004
RA
TIO
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
Mill
ion
RATIO CW
% Points difference GDP/Capital Stock growth
-3
-2
-1
0
1
2
3
4
60 65 70 75 80 85 90 95 20
Years
Per
cen
tag
e (%
)
5 year moving average
Public-sector economic infrastructure investment (gross) and depreciation
0
6
12
18
24
30
36
1960 1970 1980 1990 2000
R b
illio
n, 1
995
pric
es
Infrastructure investment Depreciation
P Perkins
Paved national and provincial roads, passenger vehicles,and commercial vehicles for transport of goods
0
100
200
300
400
500
1940 1950 1960 1970 1980 1990 2000
Inde
x (1
970
= 10
0)
Paved roads Passenger vehicles Goods vehicles
P Perkins
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
GDP CONS
Political Stability
Sustained Growth
Infrastructure Backlogs
Healthy Budget
What Investment ?“The capacity for economic infrastructure to reduce costs associated with production and delivery and increase the competitiveness of South African business suggests a positive relationship between expansion in infrastructure and economic growth. In fact neglecting infrastructure investment could compromise long-term economic growth.”
P Perkins
Economic Infrastructure:
•Transport
•Communication
•Power
•Water and sanitation
Capital/Infrastructure
0
10000
20000
30000
40000
50000
60000
70000
Previous MTEF Current MTEF
Mill
ion
Water Sanitation Electricity Housing Education Health Roads Rail Ports Courts Police Infrastructure Prisons
96%
120%
76%
Transnet’s five year gross capital investment budget
12,015,3
11,414,7 11,1
64,5
53,3
41,4
26,7
11,4
0
10
20
30
40
50
60
70
2006/2007 2007/2008 2008/2009 2009/2010 2010/2011
Rbn
Financial years
Capacity Project Funnel
Build1000
800
1775
165
Feasibility, Business
Case, Contract
Concluding
Pre-feasibility
ResearchOpportunity
Identification
PBMR
Echo
1128
Grootvlei
1520
Camden300
Arnot P1&P2
November
600
Juliett
Oscar
6000
Mike
1000
Lima
1332
600
India
Romeo
1600
Sierra
1027
OCGT
1600
*Papa
1300
Kilo
Golf
Bravo
906
KomatiUCG
17375 MW 7800 MW 20850 MW
1050
Quebec
800
Tango
90
112
4000Concentrating Solar
100
Version: 26 April 2006
- Coal
W - Hydro
- Nuclear
- Gas
- Coal- Coal
- Hydro
- Nuclear
- Gas
- Coal
Solar-
Whiskey
500
Transmission-
Songo ApolloHVDC Link Capacity Upgrade
* Possible 2400MW Mid Merit
Trans KalahariInterconnector
0
0
Discard Coal
0
New Coal Supply
0
90
1546
90
1800
Uniform
1200
Victor
500
Rainbow Millenium
2000
X-ray
1775
3500
Zulu 2100
Delta
Charlie
2400
4200
500
Yankee
800
1000
2115
Alpha
Hotel
1332
4200
Foxtrot
4200
765kV CapeStrengthening
0
8328 MW
Growth in population vs Stock of Social infrastructure (06 = estimates)
-4
-3
-2
-1
0
1
2
85 90 95 0 5
Perc
enta
ge P
oint
EX SARB and ASSA
It has startedConstruction Works Scenario
2000=100
0
5
10
15
20
25
30
35
40
45
60 63 66 69 72 75 78 81 84 87 90 93 96 99 2 5 8 11 14 17 20B
illio
n
Optimistic Pesimistic Reality
Infrastructure Real Contribution
Not normally initiator of investment, but facilitator of investment.
Addressing the Supply Side Providing the fixed assets needed
to expand capacity and lower costs of doing business.
Investment only real contributor to new employment opportunities
Prospects & Challenges
Success FactorSocio Economic StabilityContinued commitment to investment
–Fiscal Health (sustainability)Efficiency (Institutional Capacity)Economic Growth
CONSTRUCTION WORKS FORECAST
10
20
30
40
50
60
70
60 65 70 75 80 85 90 95 0 5 10 15
Ran
d B
illio
n (
2005
= 1
00)
IMPLICATIONS OF VIGOROUS GROWTH
CHANGING YOUR MINDSET –Clients and Contractors
SUPPLY CHAIN CONSTRAINTS PEOPLE: THE KEY; HAVE STRATEGIES TO:
• KEEP WHAT YOU HAVE; THEY ARE GOLD
• DEVELOP ALL POTENTIAL
• CHANGE/FIND THE STARS AND INVEST IN THEM
MATERIAL
EQUITY/TRANSFORMATION CHARTER
70 73 76 79 82 85 88 91 94 97 0-20
-10
0
10
20
CH
AN
GE
(%
)
OUTPUTLAB INPUTLAB PROD
CHANGES: OUTPUT, LABOUR INPUT, PRODUCTIVITY
Key Risk Issues in effective infrastructure project structuring
Low Risk High Risk
Payment
Design Development
Schedule
Status of Partner
Low Bidding
Client Management
Portfolio Risk
Project Development
Growth & Expansion
Risk vs. Reward
Contract Models
Qualified Resources - skills
Risk Management Process
Change Management
Source: ECRI
Training and EducationCurrent trends and requirements for technical skills to cater for growth
-12500
-10000
-7500
-5000
-2500
0
2500
5000
7500
10000
12500
15000
17500
20000
22500
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Retirement
Early retirement
Emigration
Loss due to premature death
Leaving the industry
Immigrants
National Diploma graduate
BSc/BEng graduate
In industry from 2004
EX Allyson Lawless
Civil Engineering – Engineers & Technologists
0 50 100 150 200 250 300
24
29
34
39
44
49
54
59
64
69
Ag
e
Number per age group
BlackWhite
EX Allyson Lawless, June 2004
Dramatic drop in artisan registrations
0
5000
10000
1500064 68 72 76 80 84 88 92 96 00
Civ
il S
pend
ing
R b
n
0
500
1000
1500
2000
Art
isan
s R
egis
tere
d
Civil Spending Building Industry Artisans RegisteredEX Allyson Lawless; Inflation adjusted base 1990
Skills Challenge
CETA lost focus and is struggling to find its way back.
Around 50% of the labour force does not have access to training because of instability, sub-contracting and temporary labour
Specialists are ageing and fall mostly in the +- 50 age bracket.
Construction graduates are lured to other more attractive sectors
Emerging contractors have a limited lifespan due to lacking experience and limited access to finance
Are you experiencing a skills crisis
1.24 2.26
96.20
0.310
20
40
60
80
100
120
Not at all Maybe To some extend A crisis
2006.4
LABOUR & MATERIALS SHORTAGES
0
10
20
30
40
50
60
70
80
90
100
| 72 | 77 | 82 | 87 | 92 | 97 | 02 | 07
Source: BER; MFA DATABASE
LESS
SEV
ERE
BO
TTLE
NEC
KS
/ SEV
ERE
BO
TTLE
NEC
KS
Materials Labour
SHADED AREAS REPRESENT THE UPSWING PHASESIN THE ECONOMY
Regional Cement Demand
17.116.615.9
7.6 8.5 9.1 9.2 9.3 9.6 9.0 9.0 9.2 9.6 10.211.7
13.014.2 15.1
-
2
4
6
8
10
12
14
16
18
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Mt PPC Forecast
Current Industry Capacity (extenders included)
EX PPC
Civil Engineering Turnover (200=100), Inflation (%), Profitability (%)
5
7
9
11
13
15
17
19
21
23
25
68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 2000
2001
2002
2003
2004
2005
2006
Bill
ions
0
2
4
6
8
10
12
14
16
18
20
22
%
Civil Engineering Turnover Profitability Inflation
7.06%6.5%
5.21%
20%
17%
ELEMENT CONTRACTING
OWNERSHIP 10%-14%
SENIOR MANAGEMENT ALL – 6%
Women - 0%
MIDDLE MANAGEMENT ALL -15%
Women – 1%
JUNIOR
MANAGEMENT
ALL – 56%
Women - 2%
Current status of transformation in the contracting industry
EX IMC
Business/Enterprise Development
0
30000
60000
90000
1-5 6-10 11-20 21-30 31-50 51-75 76-100
101-250
251-500
501-1000
1000+
Size category
Nu
mb
er
of sta
ff
Staff in Total of 11441 Black Companies
Staff in Total of 8412 White Companies
Demographic distribution and size of companies in the construction sector
Ex Allyson Lawless
Other ChallengesRegulatory
Great number of public sector clients;
• 6 National departments
• 9 Provincial departments: transport, roads, works
• 240 local authorities,
• a number of public corporations
• In excess of 120 pieces of legislation
• Uncoordinated policies – heterogeneous client base
• Costly to police
Fragmentation
Concluding Remarks
Wonderful OpportunitiesBull Run of PamplonaChange MindsetGROWTH HAS MORE AND
EXCEEDINGLY MORE DIFFICULT DEMANDS THAN CONTRACTIONS
Partnership