Wednesday, 12 March 2008 02:00

Civil engineering powers ahead

While the residential and nonresidential construction market is heading for slow growth this year because of higher interest rates, the civil construction sector is expected to grow 33%.

Construction IndustryLocal construction companies stand to benefit from the boom that is expected to carry on until at least 2015, influenced largely by governmental infrastructure spending of R560bn over the next three years.

Coupled with this is Eskom’s R1-trillion budget to build power stations, Transnet’s building of railway lines, ports and fuel pipelines, and private sector expansion programmes.

Strong demand and rising commodity prices are also driving expansion in the mining sector, which will benefit the construction sector.

According to Reserve Bank data, the value of construction works reached an estimated R46bn last year, a 32% increase in real terms from R34,7bn in 2006.

South African Federation of Civil Engineering Contractors (Safcec) economist Pierre Blaauw says the estimate is an annualised figure, with the final number due at the end of this month. “Turnover this high was last seen during the construction boom in the 1970s, when the industry recorded a figure breaching the R40bn mark for the first time,” Blaauw says.

“Safcec’s numbers indicate growth between 25% and 30% for the civil engineering industry alone last year.”

He says the good news is that spending on the government's R560bn infrastructure budget started only last year and that this year and next should see further growth for the industry.

“We expect a 13%-16% increase in civil engineering industry turnover this year. It may sound small compared to last year’s record number, but this comes off a higher base,” he says.

Despite challenging macro economic conditions, infrastructure spending is steaming ahead, which bodes well for the industry, which has experienced 80% growth in turnover since 2004.

Blaauw says infrastructure spending is a prerequisite to maintain economic growth.

Blaauw says the biggest challenge the civil engineering industry will face this year will be capacity constraints. Companies will need to increase their capacity by acquiring new capital assets, locating and securing the necessary skills, buying up smaller firms, and expanding their education and training budgets.

Most big construction companies are already at work on projects such as the Gautrain, stadiums, and upgrading of airports and ports.

The likes of Murray & Roberts, Aveng and Group Five are either part of infrastructure development programmes or are bidding with international groups to build power stations and big projects.

Cadiz African Harvest portfolio manager Rajay Ambekar says gross fixed capital formation had peaked at about 30% in 1976 but has since been coming down to the current 15% of gross domestic product (GDP). “The target is 25% of GDP,” Ambekar says.

International construction companies are partnering with local companies that are unable to cope with the load and lack expertise, especially for big projects. “No South African company can build a power station on its own. A lot of civil construction would be done by local companies while technical expertise is brought by international companies,” Ambekar says.

However, he says there is a risk of delays that are outside companies’ control, which could be costly. Blaauw agrees, saying there will be more supply-side constraints than demand-side constraints.

According to Statistics SA, the construction industry showed the biggest jump of all economic sectors in acquiring capital assets from 2005 to 2006, recording a 73% increase. Salaries and wages rose 16,6%. Blaauw says it is likely the industry will have doubled in size between 2004 and next year. .

In 2006 there were four large international construction firms registered with the Construction Industry Development Board, rising to 11 last year.

“We are likely to see a further increase in competition from abroad over the next two to three years, as well as from smaller companies growing into larger firms able to compete for bigger contracts.”

 

Wednesday, 23 January 2008 02:00

New work boosts civil construction confidence

THE First National Bank civil construction confidence index jumped from 70 in the third quarter to 83 in the fourth quarter of last year, with greater availability of new work boosting confidence levels.

Construction IndustryThe index, compiled by the Bureau of Economic Research, recovered notably during the fourth quarter of last year after the relatively sharp drop experienced during the third quarter.

According to the index the growth in civil construction activity during the fourth quarter turned out slightly better than expected.

The higher work volumes executed were accompanied by an improvement in profit margins, hence the overall profitability growth of the businesses that participated in the survey.

Tendering competition dropped sharply during the fourth quarter. A drop in tendering competition is normally associated with the greater availability of new work.

The growth in employment expanded relatively sharply, but respondents to the survey indicated that they battled to procure adequate labour resources.

In fact, 98% of the companies polled indicated they were experiencing skilled labour shortages and this constrained their operational efficiency.

The SA Federation of Civil Engineering Contractors reported a further rise in civil construction employment in the third quarter of last year to 121600. This compares with 108300 a year earlier, an increase of 12%.

Indications are that business conditions will remain positive and lively in the first quarter of this year.

 

Wednesday, 08 August 2007 02:00

Earthworks specialist Protech lists on the JSE

Protech Khuthele were quoted at R1.90, valuing the company at more than R7 million

Monday, 16 August 2004 02:00

Activities marginally up

The BER Composite Business Confidence Index for the Building Industry has shown a further marginal increase during the second quarter of 2004

South Africa's civil engineering sector, hit by a slump in revenues as contracts fall, could shed thousands of jobs this year, a key industry official warned yesterday.

Wednesday, 10 March 2004 02:00

Civil engineering confidence down: report

Between 5,000 and 8,000 jobs could be lost in the civil engineering industry this year, industry sources said.

The civil engineering industry is reaping the rewards of increased spending on infrastructure

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