January - June 2010 Biannual Economic and Capacity Survey

Salient Features zFewer responses combined with a much lower representation from smaller firms (4% compared to 38% in preceding survey (Dec-09)) zMarginal increase in fee income, up 3% since the last six months of 2009, but still down 5% compared to same period in zFee income in real terms down 8,1% y/y (constant prices) zNo real change in employment estimated at as at June 2010 zSalaries represented 54% of total turnover, estimated at R8,3 bn (current prices) zConfidence levels were better than expected in the first six months, and marginally higher at 87,1 compared to the preceding quarter. Confidence however deteriorates in the second half to 71.9, with a much improved outlook for 2010, recovering to zAlthough the bulk of earnings are in the civil sector, earnings dropped 19% y/y constant prices, but increased by 12% y/y in structural services. There was an impressive 98% increase in earnings in the environmental sector in the last 6 months to an estimated R749m constant prices. zEarnings in Gauteng improved in the last 6 months (up 15,8%) but is still 31% lower compared to the same period in 2009 zEarnings in the Western Cape deteriorated in the last 6 months, but was up an impressive 59% y/y zThere was a notable increase in earnings across South African borders in the last 12 months. zEarnings within the central government were up 135% y/y, to over R1,4bn in June 2010, with a 19% increase in provincial government earnings. Earnings within the private sector were 32% lower compared to last year. zEarnings in transportation increased by 24%, and a 35% increase was reported in earnings in the commercial sector. Housing edged up by 7%. zEarnings on water services fell by a disappointing 30% compared to last year. zCompetition in tendering intensified, with 73% of respondents reporting fierce competition (compared to 44,7% in the preceding survey) zProfits only deteriorated slightly, in spite of higher levels of competition, and averaged 15,4% during the first 6 months. zDiscounting however increased from an average of 16,4% to 18,9% zFewer firms are expecting to increase staff zCapacity utilization has fallen to 87.5 (from 89.5 in the December 2009 survey) zThe value of bursaries increased to 0.86% of the salary bill zThe issue of payment has become a greater problem in this survey, up to 23,4%, from 18,5% in the preceding survey, mainly due to poor payment from parastatals, and the private sector. A weakening was also reported in payment received from central government. There was no change in local government, but it remained unacceptably high at 16% of payment outstanding for longer than 90 days. CESA Biannual Economic and Capacity Survey June 2010

Civil Industry Outlook: 2 nd Quarter 2010 CESA Biannual Economic and Capacity Survey June 2010 According to the SA Reserve Bank, the general economy contracted by 1,8% during 2009, the overhang of which is still felt in a rising unemployment rate. The good news is that most indicators show strong recovery and gross domestic product grew (annualised) at 4,6% during the 1 st quarter of Consumption expenditure (both consumer and government) increased strongly, and the decline in inventory holdings by companies slowed down. The general economic outlook is still subdued for 2010 (2.5%) and somewhat better during 2011/12 (3.5% to 4%). Whereas the general economy is coming out of its sharp recession quite strongly and despite the much talked about R845 billion to be spent over 3 years, capital expenditure is slowing down. Gross fixed capital formation by different clients showed mixed trends; all tiers of government recorded lower capital expenditure (-1,2% for 2009 & - 8% for 1 st Q 2010), and so did private sector investment spending (-7% for 2009 & -0,7% for 1 st Q 2010). Public corporations fixed investment grew by 41% during 2009, but only 7% recently (1 st Q 2010). The Confidence Index recovered to roughly the same level it was at the beginning of Over the last 12 months it declined 41%, the last 6 months by 24% and improved 20% over the last quarter! This is a VERY good sign and indicates an expected turn of fortune a year and a half away. The cumulative number of tenders invitations declined by 16% over a year, by 20% over 6 months but actually improved quarter on quarter (ending 1 st quarter 2010). The average value kept on declining though. This still indicates tough times in the short term. The latter is reflected in the value of contracts awarded dropping by 55% over 12 months, 62% over 6 months and again over the last quarter (ending 1 st quarter 2010). It seems as if the bottom of this indicator is still some time away. The result is that estimated civil engineering turnover declined by 23,5% in real terms compared to a year ago, and 33% over a 6 months period (ending 1 st quarter 2010). It is expected to decline by 39% (real) in calendar 2010 compared to Re-estimated annual employment started to show stronger signs of contraction; a decline of 7% on a year ago, and -13% over a 6 months period. The fear expressed in our last report that companies cannot hold on to their unoccupied staff is becoming a reality. The general economy is recovering well after the sharp recession but despite the much talked about R845 billion to be spent over 3 years, capital expenditure is slowing down with delivery bottlenecks to execute micro economic policies at the heart of the problem. The lack of a coherent policy framework (between macro and micro policies), political fractions within the ruling elite and a growing, yet increasingly underperforming developmental state all contribute to this. Source: SAFCEC

CESA Biannual Economic and Capacity Survey January – June 2010 Firm distribution based on Annual Turnover based on responses received: January – June 2010 Category by gross annual income % of firms 0 – R1,5m 4% R1,5m – R11,5m 34% > R11,5m 62% Total 100.0%

CESA Biannual Economic and Capacity Survey January – June 2010 Economic Impact

Relationship to Gross Fixed Capital Formation

Consulting Engineering Industry Fee income, Rm Constant 2000 prices (CPI Deflated) Annualised

Consulting Engineering Industry Real Fee income (CPI deflated), 2000 prices: Annual Change

CESA Confidence Index

Industry Confidence

Consulting Engineering Industry Real Fee income (CPI deflated) vs confidence

Consulting Engineering Industry Nominal Fee income vs confidence

CESA Biannual Economic and Capacity Survey January – June 2010 CESA Labour Cost Indicator: Y-Y Change

Consulting Engineering Industry Employment vs REAL fee income (CPI / LCI Deflated)

Consulting Engineering Industry Employment vs Salary / Wage bill

CESA Biannual Economic and Capacity Survey January – June 2010 Discounting Question: What is the prevailing discount being offered in a tendering situation to clients by your firm, benchmarked against the ECSA Guideline Fee Scales? 43% of firms discounted by 20% or more

CESA Biannual Economic and Capacity Survey January – June 2010 Fee income earned by Sub-disciplines: % Share June 2010 Question: What type of work did your company engage in during the past 6 months?

CESA Biannual Economic and Capacity Survey January – June 2010 Fee income earned by Sub-disciplines: % Share June 2009 – June 2010 Question: What type of work did your company engage in during the past 6 months? 80% of fees are earned in four disciplines namely civil, project management, structural and mining

CESA Biannual Economic and Capacity Survey January – June 2010 Fee income earned by Sub-disciplines: % Share Change in the last 12 months Question: What type of work did your company engage in during the past 6 months?

Fee income earned by Top four disciplines: R mill 2000 prices Annual average: 2002 – June 2010 (annualised) Civil

Fee income earned by economic sector Percentage market share December 2008 – June 2010 Section A General Questions: Question: Income distribution per economic sector

Fee income earned by key economic sectors June 2006 – June 2010 Section A General Questions: Question: Income distribution per economic sector

Fee income earned by key economic sectors June 2005 – June 2010

CESA Biannual Economic and Capacity Survey January – June 2010 Provincial Market Share: June 2010 Vs change in market share from June 2009 GAIN market share Section A: General Questions: Question 10 Income distribution per province

Fee income earned by province (High Capacity economies) – Annualised smoothed Gauteng Section A: General Questions: Question 10 Income distribution per province

Fee income earned (Constant 2000 prices) High Capacity vs lower capacity provincial economies (Smoothed) Section A: General Questions: Question 10 Income distribution per province

Fee income earned (Constant 2000 prices) % of RSA Earnings : High Capacity provincial economies (Smoothed) Section A: General Questions: Question 10 Income distribution per province

Fee income earned : RSA vs EX-RSA R mill, 2000 prices (Annualised, smoothed) Section A: General Questions: Question 10 Income distribution per province

CESA Biannual Economic and Capacity Survey January – June 2010 Fee income earned by type of client % Share Section A: General Questions: Question 11 Local (SA) Income distribution per fee paying client type, during the past 6 months

CESA Biannual Economic and Capacity Survey January – June 2010 Fee income earned by type of client R mill 2000 prices (Annualised, smoothed - avg over 2 survey periods) Section A: General Questions: Question 11 Local (SA) Income distribution per fee paying client type, during the past 6 months

CESA Biannual Economic and Capacity Survey January – June 2009 Fee income earned by type of client Constant 2000 prices (Annualised, smoothed - avg over 2 survey periods) Section A: General Questions: Question 11 Local (SA) Income distribution per fee paying client type, during the past 6 months

CESA Biannual Economic and Capacity Survey January – June 2010 Competition in tendering Section B: Business Cycle Indicators - Question 16 During Jan – June 2010 competition for work was (Tick selection)

CESA Biannual Economic and Capacity Survey January – June 2010 Competition in tendering Section B: Business Cycle Indicators - Question 16 During Jan – June 2010 competition for work was (Tick selection)

CESA Biannual Economic and Capacity Survey January – June 2010 % of Firms wanting to increase staff New June 2005 survey

CESA Biannual Economic and Capacity Survey January – June 2010 Engineering Skills Shortfall Fewer firms want to increase engineers % Experiencing difficulties

CESA Biannual Economic and Capacity Survey January – June 2010 Recruitment problems

CESA Biannual Economic and Capacity Survey January – June 2010 Bursaries % of Salary / Wage bill

CESA Biannual Economic and Capacity Survey January – June 2010 Bursaries R mill 2000 prices (Annualised)

CESA Biannual Economic and Capacity Survey January – June 2010 Training (Salaries and Direct Training Costs) % of Payroll Data not available Large % of respondents did not complete information on salaries in December 2009 survey Data not available

CESA Biannual Economic and Capacity Survey January – June 2010 Training (Salaries and Direct Training Costs) Rand millions, Constant 2000 prices Data not available Large % of respondents did not complete information on salaries in December 2008 and 2009 survey Data not available

CESA Biannual Economic and Capacity Survey January – June 2010 Training (Direct costs only) % of Payroll

CESA Biannual Economic and Capacity Survey January – June 2010 Training (Direct costs) Rand millions, Constant 2000 prices

CESA Biannual Economic and Capacity Survey January – June 2010 Student enrolments in public higher education institutions Science, Engineering & Technology Increased by 39% between 2005 and Source: Department of Education

CESA Biannual Economic and Capacity Survey January – June 2010 Industry Capacity Utilisation Of existing technical staff

CESA Biannual Economic and Capacity Survey January – June 2010 Total fee income outstanding, by client Exceeding 90 days

Fee income outstanding for longer than 90 days June 2010

CESA Biannual Economic and Capacity Survey January – June 2010 Total fee income outstanding for longer than 90 days % of total fee income earned Survey amended to include foreign clients

CESA Biannual Economic and Capacity Survey January – June 2010 Escalation trends Year-on-Year % Change Based on headline consumer inflation (CPI) Forecasts Industry Insight Economist Poll Source: ABSA CPI Basket Revised in January 2009

CESA Biannual Economic and Capacity Survey January – June 2010 Consulting Engineering Profession Labour unit cost indicator: Year-on-Year % Change (Smoothed)

CESA Biannual Economic and Capacity Survey January – June 2010 Consulting Engineering Profession Labour unit cost indicator: Annual Average Y-Y Chg

CESA Biannual Economic and Capacity Survey January – June 2010 Typical Employment Breakdown January – June 2010

Typical Employment profile: January – June 2010 Total employment

CESA Biannual Economic and Capacity Survey January – June 2010 Overall Employment Breakdown, by race December 2003 – June 2010

CESA Biannual Economic and Capacity Survey January – June 2010 Employment profile: Black only (excluding Asian / Colourds) representation of total employment % Share of total employment

CESA Biannual Economic and Capacity Survey January – June 2010 Professional Indemnity Insurance Risk profile In terms of firms perceptions of risk, close over 70% of respondents said that their firm had a low risk exposure, compared to almost 30% saying it was regarded as medium.

CESA Biannual Economic and Capacity Survey January – June 2010 Equity Distribution by firm type

CESA Biannual Economic and Capacity Survey January – June 2010 Ownership / Equity: % Share of total employment PTY, CC & Partnerships

CESA Biannual Economic and Capacity Survey January – June 2010 Black Ownership / Equity: % Share of total ownership / equity PTY, CC & Partnerships Black, including Asian & Coloured -Women represented 4,7% of total ownership / equity compared to 6% in the June 2009 survey -Black women represented 3,5% of total ownership / equity compared to 3,4% in the December June 2009 survey

CESA Biannual Economic and Capacity Survey January – June 2010 Black ownership / equity as % of total ownership / equity by type of company June 2007 – June 2010 Black includes Asian and Coloureds

CESA Biannual Economic and Capacity Survey January – June 2010 Quality Management System

CESA Biannual Economic and Capacity Survey January – June 2010 ISO 9001:2000 Certificate

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