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

2. GDP Multipliers SectorDirectIndirectInduced Building (1.2040) 0.49340.30550.4051 Civil (1.1807) 0.52030.27080.3896 Agriculture (1.1704) 0.67740.16820.3247 Source: IDC For every R1 increase in final demand

3. Employment Multipliers SectorDirectIndirectInduced Building (11.87) 5.323.53.03 Civil (10.82) 5.242.393.18 Agriculture (24.17) 18.862.233.08 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 2005 Gen Gov. Publ. Corp. Private Sector Residential7.38%0.02%92.6% Non-Residential37.2%6.24%56.56% Construction Works44%39%17% Source: SARB

8. 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|07 Source: BER; MFA DATABASE LESS KEEN VERY KEEN

9. Examining the relationship between Economic Growth and Infrastructure spend

10. 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

13. P Perkins

15. Political StabilitySustained Growth 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% 120% 76%

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

19. Capacity Project Funnel Build 1000 800 1775 165 Feasibility, Business Case, Contract Concluding Pre-feasibility Research Opportunity Identification PBMR Echo 1128 Grootvlei 1520 Camden 300 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 Komati UCG 17375 MW 7800 MW 20850 MW 1050 Quebec 800 Tango 90 112 4000 Concentrating Solar 100 Version: 26 April 2006 - Coal W - Hydro - Nuclear - Gas - Coal - - Hydro - Nuclear - Gas - Coal Solar - Whiskey 500 Transmission - Songo Apollo HVDC Link Capacity Upgrade * Possible 2400MW Mid Merit Trans Kalahari Interconnector 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 Cape Strengthening 0 8328 MW

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 l 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 10 20 30 40 50 60 70 6065707580859095051015 Rand Billion (2005 = 100)

26. IMPLICATIONS OF VIGOROUS GROWTH §CHANGING YOUR MINDSET –Clients and Contractors §SUPPLY CHAIN CONSTRAINTS l PEOPLE: THE KEY; HAVE STRATEGIES TO: KEEP WHAT YOU HAVE; THEY ARE GOLD DEVELOP ALL POTENTIAL CHANGE/FIND THE STARS AND INVEST IN THEM l MATERIAL §EQUITY/TRANSFORMATION CHARTER

27. 707376798285889194970 -20 -10 0 10 20 CHANGE (%) OUTPUT LAB INPUT LAB PROD CHANGES: OUTPUT, LABOUR INPUT, PRODUCTIVITY

28. 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

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

30. 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. ELEMENTCONTRACTING OWNERSHIP10%-14% SENIOR MANAGEMENTALL – 6% Women - 0% MIDDLE MANAGEMENTALL -15% Women – 1% JUNIOR MANAGEMENT ALL – 56% Women - 2% 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 l 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