The global downturn has sent some of the big world economies reeling, but the South African construction market has been cushioned by preparations for the 2010 World Cup. Jessica Rowson reports.
Just 15 years on from the end of Apartheid, South Africa is a hive of activity. There are five new stadiums being built for the 2010 football World Cup, roads are being improved and 2011 will see the opening of the first South African underground railway − which makes up a quarter of the Rapid Rail Link called Gautrain.
New coal power stations are being rolled out to stop the recurrence of power outages which have blighted the country in recent years and a new pipeline is being built to take fuel from Durban on the coast to the industrial heartland of Gauteng. At the same time, a massive housing programme is going on as well as a number of port improvements and water projects.
“The construction industry in South Africa is expected to carry on growing between 6% and 8% per annum up to at least 2012,” says Arup South Africa chief operating officer Joe Strydom.
“We are seeing a growth in urbanisation leading to an increase in demand for new housing, water supply, treatment and distribution, roads, railways, power generation, schools, clinics and hospitals.”
Weathering the financial storm
That is not to say that South Africa has escaped the global financial crisis entirely − it slipped into recession in May this year. However, it has weathered the storm relatively well, holding off officially going into recession a few months after the UK and the construction industry has held up well.
“Areas that have slowed down include manufacturing and mining with roughly a 20% slowdown being seen in those areas,” says WSP Africa managing director Andrew Mather.
“However the construction industry is reasonably buoyant. The government has an aggressive infrastructure improvement programme for 2010 which started before the recession. It has buoyed up the construction industry which hasn’t really declined to the same extent.”
How has South Africa held up during the financial storm?
While South Africa has suffered during the global downturn − due to the dip in demand fromoverseas for its minerals and mined materials − it has not suffered the meltdown seen in manyother countries due to its tightly regulated banking system.
“We have a sound conservative financial system that has saved us from the financial storm,” says Middle East and Africa ICE council member Mike Lomas. “There have been some retrenchments and scaling down but the banks and balance sheets are in good shape.
“About two years ago, the government introduced the credit act where banks can’t lend to people that can’t pay it back. If breached, they could be prosecuted. Credit was tightened up due to the credit act before the financial crisis happened.
“The government also has strict foreign exchange regulations which limit what people could do offshore. These two things have cushioned us.”
“We’re doing better than many,” agrees former South African government minister of public enterprises Alec Erwin. “There have been more shutdowns but no major banking crisis. Our financial sector is dominated by four banks. We kept four banks rather than allowing further concentration and due to tight regulations, they didn’t take on overseas external exposure.”
One of the main drivers for a lot of the construction is the 2010 World Cup, which will be the first football world cup to be held in Africa. Football fever is sweeping the country.
“South Africans absolutely think it’s great. South Africa is quite a sports mad nation anyway.”
Andrew Mather, WSP Africa
“South Africans absolutely, without exception, think it’s great,” says Mather. “There are huge billboards across the country, clocks counting down and lots of hype. South Africa is quite a sports mad nation anyway.”
The tournament will see 32 nations compete in 10 stadiums: five already existed and another five are under construction. Hand-in-hand with the stadiums is work to improve transport connections in the major cities.
“There was an infrastructure boom in the late 1970s and early 1980s, building power stations and harbours,” says Middle East and Africa ICE council member Mike Lomas. But in the late 1980s South Africa was subject to widespread international trade sanctions and divestment due to its racial segregation policies under apartheid, which led to a decade of infrastructure under investment.
“The apartheid era found that funds were not easily available. The country had to depend on the infrastructure it had and there was no roll out of further infrastructure. What kept the industry busy was private sector − mining, housing and offices,” adds Lomas.
An era of change
However, that all changed when in 1994 the people elected the first racially mixed South African government. “The new government produced a plan for the rollout of new infrastructure development around 2003,” he says.
However, improvements did not pick up pace until the news came in 2004 that the country had won the right to host the 2010 World Cup − the result provided a vital catalyst for putting the plan into action.
“When we won the 201 0 bid, it put pressure on the country for delivery. Getting the World Cup gave the roll out of infrastructure impetus. What followed was road improvement, highway widening, converting certain sections into toll roads. Ports and harbours were developed, widened and facilities added,” says Lomas.
“Getting the World Cup gave the roll out of infrastructure impetus”
Mike Lomas, ICE
The road infrastructure had not been keeping up with increases in traffic demand around growing economic centres, resulting in traffic snarl ups in an over-capacity road network.
One such project aiming to rectify the problem is the Gauteng freeway improvement programme. By improving intersections, building new roads and adding lanes to existing roads, the scheme will provide an interconnected network of inner and outer ring roads as a solution to the traffic congestion experienced in Gauteng and the Western and Southern townships of Johannesburg. Project cost is around 20bn rand (£1.5bn).
Investing in connectivity
“There are many large road construction projects in South Africa at present,” says Strydom.
“For example, Gauteng province has a highway improvement scheme that will see 185km of lane additions by 2010. There is a further 223km of upgrades and 158km of new roads planned for after 2010. The lack of connectivity is an Africa-wide problem and large investments will be made on road projects.”
Tracks are currently being laid for the Gautrain, a 80km mass rapid transit railway system in the Gauteng Province that will ultimately link Oliver Tambo International Airport in Johannesburg with the rest of Johannesburg and Pretoria. It is hoped that this railway will relieve the traffic congestion in the Johannesburg-Pretoria traffic corridor as well as aiding commuters, as Johannesburg has limited public transport infrastructure.
Part of the Gautrain includes South Africa’s first metro railway. “South Africa has never had a metro,” says Lomas. “It’s expensive to build and the geology is approximately 80% to 90% rock so tunnelling is expensive.”
It is under construction at the moment at a cost of around £1.7bn and should start to open in 2010.
South Africa in numbers
lane additions under the Gauteng province highway improvement scheme
cost of South Africa’s first Metro railway − part of the Gautrain project
predicted growth of the South African construction industry per annum to 2012
year in which the World Cup will be staged at 10 stadiums, of which five will be new
It is hoped that the Gautrain will help get people out of their cars, reducing peak hour congestion on the roads. “It will change the way people travel,” says Lomas. “Most people go to work in cars. Our history of public transport is not good and there’s thinking to improve that. A lot of roads are congested.”
Energy production and distribution in South Africa has suffered greatly from a lack of investment. South Africa began hitting the headlines in 2006 when the country began to suffer from power shortages. The growth in economy outgrew the capacity of existing power stations meaning that periodic power outages throughout the country had to be implemented, leading to snarled traffic, darkened homes and mine and industry shutdowns.
“We experienced a serious set of shortages,” says former South African government minister of public enterprises Alec Erwin. “We got the timing of the new build [of power stations] wrong, we should have started earlier.”
Protecting power supplies
The recent economic downturn has helped to ease the crisis and power outages are not currently necessary. However, should the economy pick up, there may well not be enough electricity to go around. On national power utility provider Eskom’s website, there is a dial indicating when the power supply is safe and when it is in danger. At the moment, it is resting firmly in the green safe zone.
“Due to the current economic downturn, demand is currently being met by supply,” says Strydom. “However, if there is an upswing in the economy and mines and smelters increase production, it could put the country’s power supply under pressure.”
Eskom is estimated to have around a £76bn budget over the next decade and is now racing to bring supply in line with demand. The government is also looking to encourage independent power producers to enter the market in a bid to bridge the gap.
“If there is an upswing and mines and smelters increase production, it could put the country’s power supply under pressure.”
Alec Erwin , former minister of public enterprises
“Eskom has a strong balance sheet which means that it can raise capital with a guarantee from the government,” says Erwin. “It [Eskom] is financed from retained earnings and from the capital market. We’re also looking for industrial power producers to come in and finance capital projects.”
There are a number of projects underway to make power outages a thing of the past, from major projects like building the new Medupi Power Station to smaller projects. Each year, capacity will be increased as these projects are commissioned.
“Many say that Medupi power station is the largest civils project in the southern hemisphere,” says Parsons Brinckerhoff senior director of energy David Rutherford. It has been at the design stage for the last two years and construction has ramped up this year with ground clearance and early civils work taking place.
There will be six units providing 800MW each and each will come online at a different point on the time line. It is due to be complete by 2017, but commissioning will start from 2012.
Mmamabula coal fired power station is being built in Botswana by an independent power plant producer with a view to exporting surplus energy to South Africa.
Moving towards alternatives
Rutherford says the project is in the early stages of feasibility but heading towards financial close. South Africa is rich in coal and historically it has been South Africa’s main power source.
However, the government is committed to reducing emissions and the power supply crisis has accelerated the need to diversify Eskom’s energy mix and its move towards alternative energy sources.
“There is a multi-fuel approach being taken,” says Rutherford. “There are improvements in the coal fired fleets. Coal is very important in South Africa. It’s a natural choice as a source of fuel [due to the availability of large coal deposits]. But there are efficiencies being made in gas fired plants and refurbishment of hydroplants. A multisource approach is being taken to improve supply. Consideration is being taken with regards to nuclear.”
The infrastructure upgrades planned by many governments to boost the economy duringrecession will see many countries rolling over into the red. However, South Africa will be able tofund a large amount of planned works from a tax surplus.
“What the government did do from 1994 was they modernised and improved tax collections,” says Middle East and Africa ICE council member Mike Lomas.
“The tax base has become bigger, [the government is] using IT systems and has completely re-engineered how it works. It has managed to build a reserve. That’s what’s happened up until now.
“What level taxes will be in the next two to three years when the mining and mineral sectors are not earning what they have been, is the question. Mining and minerals have cut back due to a dip in demand from overseas. There will be a gap which will have to be bridged using borrowing.”
As well as looking to increase supply, the country has looked to reduce demand, hoping to meet somewhere in the middle. The energy crisis has powered a drive to save energy, with obvious added environmental bonuses.
“The country needs to save around 20% of energy to get by until the stations are online,” says Mather. “We are implementing a number of energy saving measures and a lot of effort is being put into conserving energy. Had we not had the power crisis, South Africa would have lagged in energy saving, now it’s a priority.
“Had we not had the power crisis, South Africa would have lagged in energy saving, now it’s a priority.”
Andrew Mather, WSP Africa
“There are plans to replace electrical geysers with solar power and there’s been a huge programme of replacing light fittings with low energy bulbs and using switches which turn lights off when the building is not occupied.”
Since the death knell sounded on apartheid the country has visibly changed. The government is rolling out black economic empowerment, putting a share of the economy into the hands of black people who were excluded for so long under apartheid. Its plan is to encourage black people into management and improve the amount of black shareholders.
“There’s been radical change in the last 10 years,” says Mather. “There’s been lots of development, the economy has been strong and there have been a number of positive changes. It’s become more integrated, staff are more representative, more mixed, which is positive. However there has been a running down of infrastructure. The government has responded and is now pumping money into it. With or without the World Cup, there’s a lot to be done in terms of infrastructure. We need upgrading of water, sewage, roads, healthcare and education systems. All these areas need investment.”
- South Africa will be hosting the 2010 ICE conference in Cape Town in January
2010 World Cup preparations
Preparations for the 2012 World Cup are helping South Africa’s construction industry weather the global recession.
Work involves stadium construction and associated transport infrastructure like the Gautrain metro line in Pretoria. There is also a major port expansion programme underway in Durban.
Green Point Stadium, Cape Town
Nelson Mandela Stadium, Port Elizabeth
Moses Mabhida Stadium, Durban
Gautrain Metro Line, Pretoria
Durban Harbour, Durban
Mbombela Stadium, Nelspruit
Peter Mokaba Stadium, Polokwane