The construction industry and economic growth in South Africa P Blaauw

1. The construction industry and economic growth in South Africa P Blaauw

2. GDP Multipliers Source: IDC For every R1 increase in final demand

3. Employment Multipliers Source: Conningarth People Per Million

4. 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

5. Contributions Source: SARB

8. THE DEGREE OF COMPETITION IN TENDERING BUILDING CONTRACTORS 100 90 80 70 60 LESS KEEN < 50% > VERY KEEN 50 40 30 20 10 0 | 72 | 77 | 82 | 87 | 92 | 97 | 02 | 07 Source: BER; MFA DATABASE

9. Examining the relationship between Economic Growth and Infrastructure spend

10. Economic Growth Supply Demand • High corporate tax rate • Skill Constraints • Expensive logistical costs • High input costs • Low interest rate • Low inflation • Strong fiscal position No examples of developing countries that have sustained high economic growth on the basis of a consumption led-boom

13. P Perkins

14. P Perkins

15. Sustained Growth Political Stability Infrastructure Backlogs Healthy Budget

16. 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

17. Capital/Infrastructure 96% 76% 120%

18. Financial years Transnet’s five year gross capital investment budget

19. CapacityProject Funnel Research Opportunity Identification Pre - feasibility Feasibility, Business 1000 Build 165 Case, Contract 0 Concluding PBMR 3500 1332 800 New Coal Supply Oscar 1775 1000 Yankee Hotel 112 1775 906 600 0 1600 600 UCG Lima Komati Discard Coal November Juliett Sierra India 1520 100 4200 1600 800 Camden 6000 800 2400 4000 Concentrating Solar *Papa 1800 1200 300 Romeo Foxtrot Delta Mike Tango 2000 Uniform Victor Arnot P1&P2 4200 X-ray 1050 1000 0 Bravo 1128 1332 Grootvlei 500 Songo Apollo Quebec Echo 500 HVDC Link Capacity Upgrade 4200 2115 W Zulu Hydro Hydro - - Rainbow Millenium 2100 Alpha 1027 90 Golf 1546 0 1300 Nuclear Nuclear Charlie OCGT - - 90 0 500 765kV Cape Strengthening Kilo Gas Gas - - Whiskey Trans KalahariInterconnector Coal Coal - - Coal Coal - - *Possible 2400MW Mid Merit 90 - Solar - Transmission 7800 MW 17375 MW 20850 MW 8328 MW Version: 26 April 2006

20. EX SARB and ASSA

21. It has started

22. 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

23. Prospects & Challenges

24. Success Factor • Socio Economic Stability • Continued commitment to investment –Fiscal Health (sustainability) • Efficiency (Institutional Capacity) • Economic Growth

25. CONSTRUCTION WORKS FORECAST 70 60 50 Rand Billion (2005 = 100) 40 30 20 10 60 65 70 75 80 85 90 95 0 5 10 15

26. 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

27. CHANGES: OUTPUT, LABOUR INPUT, PRODUCTIVITY 20 OUTPUT LAB INPUT LAB PROD 10 0 CHANGE (%) -10 -20 70 73 76 79 82 85 88 91 94 97 0

28. Low Risk High Risk Qualified Resources - skills Contract Models Risk vs. Reward Change Management Growth & Expansion Risk Management Process Project Development Portfolio Risk Client Management Low Bidding Status of Partner Schedule Design Development Payment Key Risk Issues in effective infrastructure project structuring Source: ECRI

29. Training and EducationCurrent trends and requirements for technical skills to cater for growth EX Allyson Lawless

30. 69 Black 64 White 59 54 49 Age 44 39 34 29 24 0 50 100 150 200 250 300 Number per age group Civil Engineering – Engineers & Technologists EX Allyson Lawless, June 2004

31. Dramatic drop in artisan registrations EX Allyson Lawless; Inflation adjusted base 1990

32. 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

35. EX PPC

37. Current status of transformation in the contracting industry EX IMC

38. Business/Enterprise Development Demographic distribution and size of companies in the construction sector Ex Allyson Lawless

39. Other Challenges • Regulatory • 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

40. Concluding Remarks • Wonderful Opportunities • Bull Run of Pamplona • Change Mindset • GROWTH HAS MORE AND EXCEEDINGLY MORE DIFFICULT DEMANDS THAN CONTRACTIONS • Partnership