Finance Minister Trevor Manual announced a R105-billion, three-year, infrastructure expenditure drive during his 2003 Budget presentation, more than half of which would be directed towards the construction sector.
This is a big recovery for South Africa, which has been experiencing a construction investment slump for many years, mainly due to under-expenditure by government.
Indeed, construction expenditure as a percentage of gross domestic product has been bungling along at some 2% during the last decade, significantly off its high of around 7% experienced during the late 1970s early 1980s.
Government’s intention to spend has, therefore, been welcomed by industry observers, but they have also cautioned that it would be key that government spends the money and it does not roll over.
This up-tick in the South African economy is also coming as vital relief for the local construction sector, which is facing uncertainty in the international markets, particularly in the Middle East, where South Africans have taken up a strong position. This is doubly important in light of the strengthening rand, which is likely to dampen its earnings from Africa and abroad.
However, it was also made clear during President Thabo Mbeki’s State of the Nation address that businesses hoping to win work from government would need to demonstrate a commitment to black economic empowerment (BEE).
Speaking earlier this week, Grinaker-LTA deputy chief executive Howard Jones revealed that empowerment would be a key priority for the company in the year ahead, adding that it would be pursuing various BEE initiatives.
This sentiment was supported by the head of Grinaker-LTA’s holding company, Aveng, who said that it would be pursuing ownership, employment equity, procurement and corporate social investment programmes to improve its BEE profile.
Carl Grim says the company will also be seeking to maintain a well-balanced construction order book, locally and internationally and that it would be happy to allow its order book to fall if that improves quality of work on hand. Indeed, the company had already seen its order book fall from R9,8-billion in June 2002 to R8,2-billion in December, with Grim explaining that this was due to managed programme of ensuring that the order book remained of a quality acceptable to the company’s risk framework.
The improvement in the construction sector is also evident in Aveng’s cement business Alpha, South Africa’s second largest cement producer, with its tonnages for the six-month period to December 2002 rising 9,9% on the previous period.
Aveng describes the cement market as buoyant, reporting 5% growth last year.
The cement business is also beginning to raise its output and is currently running at 60% capacity, which could improve as its efficiency projects involving R340-million begin to kick in.
Grim added that BEE was likely to be a big challenge, but that Aveng was committed to making it work in the interests of both social equity and its shareholders.
It is also understood that the construction sector as a whole is considering the establishment of a BEE charter, although it is likely to hold back on this until the Department of Trade and Industry (DTI) publicises a broad-based piece of legislation, giving guidance to South African business on the issue of empowerment.