The construction industry will need to double its levels of productivity if the Accelerated and Shared Growth Initiative for South Africa (Asgisa) targets are going to be met, according to newly appointed Minister of Public Works Thoko Didiza.
Construction is vital to Asgisa, as the industry creates and maintains the infrastructure necessary to stimulate economic growth. The South African government is prepared to spend quite heavily to ensure the success of this programme. Expenditures on public infrastructure, as a percentage of GDP, are expected to increase to 6.4% in 2008-09.
Currently, the construction industry sustains output productivity levels approaching $13.6bn each year. Didiza has voiced the government's intent to drastically increase this yield in order to meet the 2014 public and private sector growth targets expressed in Asgisa.
Speaking at a construction conference in Durban, Didiza discussed the government's plans to work with the construction industry to accelerate projects because it serves as an impetus in President Mbeki's goal of halving poverty and unemployment over the next seven years.
"The government has reasserted its commitment to an infrastructure programme, which has effectively doubled public sector investment over the past five years," she said. The government intends to distribute money to all construction sectors at annual growth rates ranging from 12% for household infrastructure to 21% for roads.
Other targeted priorities for the 2007 budget include funding for stadiums and facilities for the 2010 World Cup, affordable housing, electricity infrastructure, water, sanitation and other community facility spending and road and railway systems.
"Continued growth is projected for the medium-term expenditure framework period ahead, showing that investment in public infrastructure will rise as a percentage of gross domestic product from 5.4% in 2002/03 to 6.4% in 2008/09. Thus, investment in public infrastructure is growing at a faster pace than the economy, and construction is set to lead the country's economic growth." Didiza said to the audience.
The government is currently reviewing a number of proposals aimed at reducing the difficulties surrounding infrastructure delivery and to promote sustainable growth and empowerment. Collaborators in these programmes include the Construction Industry Development Board, in collaboration with the National Treasury and the Development Bank of Southern Africa.
Since implementing a number of these initiatives, South Africa has been able to drastically reduce the time needed to award contracts from as much as six months to 60 days and less. More than 600 contractors had improved their grading status over the past six months and 80% of them were black-owned small and medium sized enterprises.
With more than 18,000 contractors registered, the ministry of public works now holds a better understanding of the capacity and empowerment gaps from different classes and grades of contractors registered and can better determine where allocations of funding are most needed. Since registering contractors, the provincial public infrastructure spending increased by 29% last year.
Graham Pirie, the chief executive of the South Africa Association of Consulting Engineers, said the biggest challenge facing the industry was the $55.8bn set aside over three years by the government to increase fixed investment from 16% to 25% of GDP.
"This is an unprecedented growth in the construction industry and is due to government's view of the fixed investment as the way to deal with job creation, poverty and economic growth," he added.
Dennis Dykes, chief economist for Nedcor Group, stated that it was unrealistic to expect robust economic growth in the short-term due to capacity constraints created by decades of inadequate fixed investment in sectors such as transport, electricity, the public sector and in skills development.
Construction industry leaders indicate that unification, transformation and skills development are key components of the industry that ensure the delivery of services take place in an appropriate timeframe.
Meanwhile, the government is faced with capacity challenges. Among them and as Pirie points out, "The problem is that while there is an increasing interest by young people in becoming engineers, the average age of civil engineers at the moment is 56, so there is a big gap in the middle where skills mentoring is a big challenge."
Nevertheless, Treasury Deputy Director General Andrew Donaldson said construction was the fastest-growing industry in South Africa in 2005 and this year. He and other industry insiders expect the trend to continue for the next few years due mainly to increased spending on a variety of government projects.