Company Announcement - On Sunday 23 August 2015, the first unit of the Medupi power station in Limpopo began pumping power after it was handed over to its operating division. Unit six is now feeding 794 megawatts of power into the national grid, alleviating some of the pressure that has forced Eskom to implement long-term load shedding in 2014. One complete (scheduled for 2019), Medupi will be one of the biggest coal power stations in the world.

“Energy is one of the biggest challenges facing South Africa’s economic development so we are pleased to see the various measures that have been put in place – both by Government and the private sector – to develop the necessary infrastructure that will secure our energy future,” comments Elaine Crewe, CEO of BAUMA CONEXPO AFRICA.

Government is clearly taking steps to strengthen planning and implementation capacity at all levels. “The success of the Renewable Energy Independent Power Producer programme is a good starting point, as it can be heralded as the most successful large scale procurement programme ever undertaken between the private and public sector in South Africa – with 66 renewable energy projects banked within 24 months, at a project value in excess of R150 billion,” notes Iain Macaulay, Lead Principal Infrastructure and Telecoms at Nedbank Corporate and Investment Banking.

This investment in energy infrastructure is a critical component of the National Development Plan, which identifies the need to produce “sufficient energy to support industry at competitive prices” in order to achieve the goals set out by the plan. That is, to eliminate poverty and reduce inequality by 2030. 

According to Terry Gillham, Bell Equipment Director of Sales and Marketing, the single largest opportunity for the construction industry in South Africa is the National Development Plan. “If Government implements that plan, not necessarily in its entirety, but at least 60 to 70% of the plan, that would certainly have a massive boost for the construction industry in South Africa,” he says.

“While infrastructure, transport systems and energy supply are major challenges in Africa, they also offer the greatest opportunities for the construction industry,” says Crewe. “Across the continent, construction players can play an integral role in developing this vital infrastructure and opening Africa up to further growth and development,” she adds.

According to the Brookings’ report, ‘Financing African Infrastructure: Can the World Deliver?’ US$93 billion is needed per year to fill the infrastructure gap in sub-Saharan Africa. Indeed, infrastructure took centre stage at this year’s World Economic Forum on Africa 2015, “pointing to not only the growing need, but also the focus on infrastructure development across the continent,” comments Adam Orlin, CEO of Blue Strata Trading. “As a result, infrastructure investment spending has quadrupled, imports and exports have increased and Africa is receiving a growing share of foreign direct investment,” he adds.

In South Africa, infrastructure development is guided by the NDP, as well as the National Infrastructure Plan, which was adopted by Government in 2012. “Government infrastructure spending has been relatively high for some time and between the 2009 and 2014 fiscal years, spent on infrastructure reached just over R1 trillion. However, this will increase quite significantly over the next three years with around R800 billion planned to be spent,” says Macaulay. “The 2015 National Budget earmarked R274 billion of the public kitty for the construction, maintenance, repair and upgrade of public-sector infrastructure in the coming fiscal year,” adds Orlin.

In a recent article published on IOL, South Africa’s Deputy Minister of Trade and Industry, Mzwandile Masina, highlights energy problems and global growth recovery as the main constraints to the country’s growth.  Linked to this is the fluctuating Rand value and the significant impact this has on project financing.

According to Orlin, one of the biggest challenges that the infrastructure sector faces today –alongside the skills shortage – is the cost of importing material. “There are several micro- and macro-economic components that may influence or negatively impact the cost of materials, including the exchange rate or strength of the Rand against other currencies and inflation,” he says. “Any construction project – particularly large scale projects that are developed in phases and over a longer timeframes – are exposed to potential increases in material costs – and the major risk here is always that this can lead to projects going over budget.”

Major infrastructure projects can often take more than a decade to implement. “Meeting the complex challenges of diverse capital projects requires long-term planning, detailed analysis, and continual learning and adaptation,” says Macaulay.

“In order for projects to stay on time and within budget, it is critical that construction players make informed financial decisions by taking currency fluctuation and potential increases in operational costs into account,” says Crewe. “With operational costs and tariff hikes increasing, not to mention the uncertainty around the Rand value, businesses cannot afford to get their calculations wrong if we are to continue to grow infrastructure projects. Ultimately, it’s about managing the transactional risk – which could make or break a business,” adds Orlin. He suggests greater visibility for the strategic management of the import supply chain and improved control of supplier relationships, costs and availability of product or materials. This will open up massive growth possibilities for construction importers in a resource constrained economy. “More visibility means less risk and better forecasting and not only can it reduce costs, but it also provides for better monitoring and control – something that is very much needed in the infrastructure development space today,” Orlin concludes.

For Macaulay, a key element required is integrated collaboration between the public and private sector to deliver the country’s infrastructure requirements timeously, in budget and fit for purpose. “This allows for the effective and efficient allotment of risks to the party who is best able to manage, price for and accept them. On this basis, public-private partnerships are positioned to be largely funded by investors and the banking community,” he concludes. 

“BAUMA CONEXPO AFRICA looks forward to hosting a debate on infrastructure finance and the growing need for public-private partnerships in September when construction industry players from across the continent come together to meet, connect and expand their contribution to the African development story,” concludes Crewe. BAUMA CONEXPO AFRICA takes place from 15-18 September 2015 at the Johannesburg Expo Centre.