state of the south african construction · pdf fileprice monitor – review of...

Company Profile

Industry Insight supplies construction business intelligence through regular services and customized requests. We

provide an independent, objective and unbiased information service to the construction industry, embracing four key

market segments, including residential, social housing, non-residential and civil works.

As part of our unique service, we have developed a quantitative “fact-based” time-series database of construction

activity across the country, based on private and public contracts out to tender, including a value added drill down

facility to view project descriptions. Each project has been geo-coded according to the coordinates of its location, to

provide real-time spatial analysis of construction activity.

To find out more about our company and services please visit www.industryinsight.co.za.

Services provided Business services packages include a combination of the following services:

o Quarterly state of the industry reviews

o Monthly newsletters

o Industry Insight project database

Time series database of project trends based on contracts out to tender and awarded, by city, client, number and value

On-line extraction of project descriptions

o Annual budget review – implications for the construction industry

Price Monitor – review of construction costs, including the Industry Insight building cost

Index, contract price adjustment provisions, average rates per m2 by type of building.

Construction Tender Indices – measures activity in the construction industry in the residential, low cost, non-residential and civil markets.

Statistics

Construction in Business Seminars, hosted in Sandton

Electronic library

Municipal Budgets (High capacity municipalities)

Preferred Supplier Trade Survey – find out who is the preferred material supplier in your product category, by type of project and / or by province.

Investment Map (Project Location intelligence) – geographical analysis of investment in towns and cities, based on the value of private and public sector contracts awarded. Please note our on-line service has been temporarily suspended. Kindly contact our offices for customised mapping

Geocrime Intelligence – Data analysis is fast moving in the direction of more defined spatial analysis, where large amounts of data can be easily viewed and monitored in relation to spatial boundaries. Industry Insight compares geographical construction infrastructure investment patterns with occurrences of reported crime. There is a direct link between construction development and criminal behaviour that can be further explored through the CPTED (Crime

(Prevention Through Environmental Design) principle. For more information about crime patterns or CPTED please contact our offices.

http://www.industryinsight.co.za/

Advertisers in this publication

Plascon SA

PERI Formwork Scaffolding Engineering

DPI Plastics

Databuild

Merkels

Billcost

For advertising opportunities and

bookings please send an e-mail to

[email protected] or

contact our offices at

021 554 0688

mailto:[email protected]

4 State of the Construction Industry 2012Q2

Our Pledge to you

State of the South African Construction Industry

2ndQuarter 2012

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You, our partners, can benefit from a number of service offerings, whether you a contractor, architect, specifier or

asset owner, with our 360 degree partnership pledge programme. In addition we have re-evaluated and improved our

Specifications and Preferred Applicator Contractor offerings.

Our Specifications service now will allow you access to improved specifications with a focus on speed of delivery.

The Preferred Applicator Contractor will ensure compliance to the agreed standards of the programme with the use of

regular audits. All contractors will also be graded according to a set of requirements and expertise and experience on

application.

With the utilisation of our National Technical Services consultants we will also do site assessments prior to

commencement of projects, site monitoring to ensure compliance to specification.

We will also guarantee you the following services:

Training of staff

Quality products

New technology and innovations

Green solutions

Personalised attention

Tailored specifications

Assistance with colour trends and visualisation

Assistance and reliability with managing projects

Assurance that building is maintained or painted effectively

Long term costs savings and benefits

CSI initiatives including training of BEE applicators

The assurance and endorsement of a large brand

A Plascon Guarantee

To find out more about the benefits of the Plascon 360°Partnership, please contact the Plascon Advisory Service Team on 0860 20 40 60 or visit www.plascontrade.co.za or www.plascon.co.za

http://www.plascontrade.co.za/

http://www.plascon.co.za/


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Report objective The State of the Construction Industry Report is a focus report used by stakeholders and related industries, to monitor developing and changing trends including economic indicators, pricing trends and financial indicators that affect the current and expected outlook in the construction industry.

Data pertaining to the construction industry is scattered with most data sources measuring only a certain aspect of investment or performance in the industry. Industry Insight aims to continuously research available sources of information in the industry to provide a more holistic and comprehensive view of the market.

We have developed a unique time series database of projects at various stages, which is the only national dataset independently surveyed. The Industry Insight Project Database forms the basis of many of our discussions and includes projects initiated by the private and public sector. It includes both building and civil projects. Each project has been geo-coded according to its location, making it the only GIS compatible infrastructure dataset in the country.

Other sources of information incorporated into the report on a regular basis include:

Statistics South Africa

South African Reserve Bank

Provincial Government Departments

Financial institutions

Industry Insight Library

Industry Insight Trade Surveys

Databuild

Global Insight

Cement & Concrete Institute

Forecasts are calculated based on expected trends in short to medium term leading indicators that have a strong correlation with investment in construction.


Sources: ABSA House Price Index , ABSA, www.absa.co.za

ABSA Housing Review, 2010Q3, www.absa.co.za

South Africa Economic Perspective, 2010Q1, ABSA, www.absa.co.za.

Business Confidence Index, RMB/BER, www.ber.ac.za.

Global Insight, www.globalinsight.co.za

Rode’s SA Property News, Rode & Associates

Statement of the Monetary Policy Committee, South African Reserve Bank, www.resbank.co.za

Consumer price index (CPI), Statistical Release P0141, Statistics South Africa

Producer price index (PPI), Statistical Release P0142.1, Statistics South Africa

Gross Domestic Product (GDP), Statistical release P0441, Statistics South Africa

Statistics of liquidations and insolvencies (P0043), Statistics South Africa

Selected building statistics of the private sector as reported by local government institutions (P5041.1), Statistics South Africa, www.statssa.gov.za

Quarterly labour force survey (QLFS), Statistical release P0211, Statistics South Africa, www.statssa.gov.za

Quarterly financial statistics, Statistical release P0044, Statistics South Africa, www.statssa.gov.za

General household survey, Statistical Release P0318, 2009, Statistics South Africa, www.statssa.gov.za

South African Federation of Civil Engineering Contractors (SAFCEC), wwww.safcec.org.za

Billcost, www.billcost.co.za

Merkels, www.billcost.co.za

Databuild,www.databuild.co.za

Organisation for Economic Cooperation and Development

http://www.absa.co.za/

http://www.absa.co.za/


2ndQuarter 2012

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Executive Summary

Domestic GDP slowed to 2,7% q/q in the first quarter of 2012, compared to 3,2% in the 4th quarter of 2011. Growth in the first quarter was led mainly by the manufacturing sector, agriculture and construction, but pulled down by a sharp contraction in the mining and quarrying sector. Official numbers for gross fixed capital formation for the first quarter of 2012 was not available at time of publication. In the last quarter of 2011, residential investment declined by 2,2% y/y, while the non-residential sector reported a contraction t of 1,3% y/y. According to the South African Chamber of Commerce and Industry, business confidence fell to the lowest level in three years to 94,3 points in April 2012. By contrast, the RMB/BER Business Confidence Index improved to 52 points in the first quarter of 2012, up from the previous quarter’s level of 38 points.

Headline consumer annual inflation slowed 6% in Mar-12, from the 6,1% in Feb-12. CPI is expected to fall and stay within the 3% to 6% target band during the next two years, according to Gill Marcus.

The total number of liquidations decreased by 39,4% y/y in Mar-12. Based on MAT values, the number of liquidations in the construction industry fell by 28,8% y/y to 158 (Mar 12-MAT) from 222 (Mar 11-MAT). Liquidations are on a downward trend.

Employment in construction fell by 4,4% y/y in 2012Q1 to 986 000, and was down 6,7% compared to 2011Q4. Outlook for construction employment remains bleak considering the depressed market conditions.

The number of sqm approved for private sector new residential developments declined by 0,4% y/y (Mar 12-MAT), which was the first contraction over the last 12 months. . The annual change in the total number of sqm approved for all residential projects (including renovations), slowed to -2,9% y/y (Mar 12-MAT). The turn in sqm approved comes as a bit of a surprise as the

market seemed to have started a slow recovery. We hoped that the affordable market would have reacted more aggressively, but the overall outlook for the residential market remains bleak. Government continues to focus on social infrastructure expenditure through the development of social housing, hostels, schools and hospitals. However, the investment has moved away from new developments and has started focusing on servicing sites. Health sector developments have taken some priority with government understanding that the implementation of the National Health Insurance requires major transformation within the sector. Of total construction expenditure that took place, according to the Databuild/ Industry Insight Database, in the first quarter of 2012, the health sector received the largest portion of 29% or R2,5bn in construction expenditure

The number of SQM approved for new private sector non-residential developments increased by 7,1% y/y to 2 620 259m2 (Mar 12-MAT) from 2 445 609m2 (Mar 11-MAT). We hope that the current upward trend shown in pipeline activity continues, which could provide some relief to the beleaguered building industry. The renovations market weakened throughout 2011, as the number of SQM approved for both the residential and non-residential sectors weakened. The number of sqm approved for renovations in the residential sector, contributed 33,9% to the total number of residential sqm approved in the twelve months to March 2012. The number of sqm approved for renovations in the non-residential sector, contributed 28% in March 2012 to the total number of non-residential sqm approved.

At the beginning of 2012, hotel operators reported l 208 hotels (with just over 38,000 rooms), for future development in Africa. Pipeline work in Africa has seen a massive increase, with a 31% increase in hotels and a 21% increase in rooms.This is just one sector providing more exciting opportunities for South African contractors looking to increase their African footprint. Other opportunities include energy, road and water services.


Planned Industry Insight Focus Forums for 2012

Budget Review 15 March (Speaker- Elsie Snyman, Industry Insight) Mass Housing – A Contemporary Approach 26 April 2012 (Speaker – Hennie Botes, moladi Housing) Consumer Protection Law 24 May 2012 (Speaker – Sean Bosse, Bosse & Associates) Civil Indicators (Speaker – Elsie Snyman, Industry Insight) Building Indicators (Speaker – Kimberley Bull, Industry Insight) Residential Market 22 August 2012 (Speaker – To be confirmed) 19 September: To be confirmed Forecasts 17 October 2012 (Speaker – Kimberley Bull, Industry Insight) 22 November: To be confirmed

Focus Forums held: 2011 African Growth & Development 22 February 2011 (Speaker - Duncan Bonnett, White House and Associates)

Budget Review 15 March 2011 (Speaker - Elsie Snyman, Industry Insight)

Carbon Credits 14 April 2011 (Speaker - Adam Simcock)

Affordable Housing 19 May 2011 (Speaker - Kimberley Bull, Industry Insight)

Building (mid-year) Indicators: 15 June 2011 Speaker: Kimberley Bull, Industry Insight

Civil (mid-year) Indicators: 14 July 2011 Speaker: Henk Langenhoven, SAFCEC

Overview of the South African Housing Market 20 September 2011 Jacques Du Toit, Absa Retail Bank

Green Building in SA: The Status Quo & the Opportunities 12 October 2011 Brandon Abdinor, MBA KZN

Competition Law & the Current Focus of the Competition Authorities in SA – 16 November 2011 Tamara Dini, Bowman Gilfillan


2nd Quarter 2012


Contents

Company Profile .................................................................................................................................................................... 2

Services provided .................................................................................................................................................................. 2

Advertisers in this publication .............................................................................................................................................. 3

Report objective ................................................................................................................................................................... 6

Executive Summary .............................................................................................................................................................. 8

Figures ................................................................................................................................................................................ 11

Tables .................................................................................................................................................................................. 13

Economic Conditions ...................................................................................................................................................... 15

Global Economy .................................................................................................................................................................. 15

Domestic Conditions ........................................................................................................................................................... 17

Gross Domestic Expenditure........................................................................................................................................... 17

Gross Fixed Capital Formation (GFCF) ............................................................................................................................ 18

Inflation ........................................................................................................................................................................... 18

PPI ................................................................................................................................................................................... 19

Interest Rates .................................................................................................................................................................. 20

Business confidence ........................................................................................................................................................ 21

Liquidations .................................................................................................................................................................... 22

Construction: General overview ......................................................................................................................................... 23

General Sector Employment ........................................................................................................................................... 24

Construction Employment .............................................................................................................................................. 24

Critical Success Factor Index: Building ................................................................................................................................ 26

Expenditure in the Public and Private Sector ..................................................................................................................... 27

Residential Construction ..................................................................................................................................................... 28

Social housing ................................................................................................................................................................. 31

House Prices ................................................................................................................................................................... 33

Non-residential construction .............................................................................................................................................. 35

Landscape of Non-residential buildings .......................................................................................................................... 38

Office Space Development ............................................................................................................................................. 39

Retail Space Development .............................................................................................................................................. 41

Industrial and Warehouse Space Development ............................................................................................................. 43

Government Expenditure on Social Infrastructure ............................................................................................................. 46

Building Renovations .......................................................................................................................................................... 49

Tourism Accommodation ................................................................................................................................................... 51

Longer term outlook: Investment in buildings ................................................................................................................... 54


2nd Quarter 2012


Civil Construction Expenditure ........................................................................................................................................... 56

Current market activity ................................................................................................................................................... 56

Clients ............................................................................................................................................................................. 63

Civil Engineering Price Indices ........................................................................................................................................ 68

High profile Projects announcements: 1st Quarter 2012 .............................................................................................. 77

Tender indices ................................................................................................................................................................ 78

Figures Figure 1: Global CPI rates (OECD) ................................................................................................................................ 15

Figure 2: Global GDP Projections (OECD) ..................................................................................................................... 15

Figure 3: GDP Quarterly (Stats SA) ............................................................................................................................... 17

Figure 4: Household Savings and Debt to Disposable Income (SARB) .............................................................................. 17

Figure 5: GDE vs Final Consumption Expenditure (SARB) ................................................................................................. 17

Figure 6: GFCF: Construction (% Change) 2011Q4 (SARB) ............................................................................................... 18

Figure 7: GFCF: Gov, Public and Private Sector (% change) 2011Q4 (SARB) ................................................................... 18

Figure 8: CPI (Stats SA) .......................................................................................................................................... 19

Figure 9: PPI March 2012 (Y/Y% change) (Stats SA) .................................................................................................... 19

Figure 10: CPI vs PPI March 2012 (Y/Y% change) (Stats SA) ......................................................................................... 19

Figure 11: Interest Rate vs CPI vs PPI (Stats SA) ................................................................................................................ 20

Figure 12: Repo Rate (SARB) ....................................................................................................................................... 20

Figure 13: ABSA HPI vs SQM Approved: Residential (ABSA) ....................................................................................... 20

Figure 14: SACCI vs FNB Business Confidence Indices (FNB) ................................................................................... 21

Figure 15: Liquidations in the Construction Sector (Stats SA) ...................................................................................... 22

Figure 16: GFCF Total Construction (SARB) ................................................................................................................... 23

Figure 17: Net Profit before Tax (Stats SA) .................................................................................................................. 23

Figure 18: Sector Contribution to Total Construction (Stats SA) ................................................................................. 24

Figure 19: Women to construction employment: 2012Q1 ............................................................................................... 25

Figure 20: Contribution of Women to total employed in the Construction Industry 2012Q1 ......................................... 25

Figure 21: CSF Index vs Investment in Building ................................................................................................................. 26

Figure 22: Value of Contracts Awarded Residential Sector: Public vs Private Sector (R'm) y/y% change ...................... 27

Figure 23: Value of Contracts Awarded Non-Residential Sector: Public vs Private Sector (R'm) y/y% change .............. 27

Figure 24: Dwellings <80sqm BPP vs BPC (y/y% change) .................................................................................................. 28

Figure 25: Dwellings >80sqm BPP vs BPC (y/y% change) .................................................................................................. 29

Figure 26: BPP by segment: March 2012 ........................................................................................................................... 29

Figure 27: Residential Contracts out to tender ................................................................................................................. 29

Figure 28: Residential BPP vs BPC ...................................................................................................................................... 30


2nd Quarter 2012


Figure 29: Residential Projects Postponed March 2012 ................................................................................................... 30

Figure 30: Residential Sector by Segment: March 2012 (MAT) ........................................................................................ 30

Figure 31: Jabulani Hostel Redevelopment Project: Soweto ............................................................................................ 31

Figure 32: Low-income housing: Contracts (y/y% change) ............................................................................................... 32

Figure 33: ABSA HPI Figure 34: Price Differential: New vs Existing Property (ABSA) .............................................. 33

Figure 35: Non-residential investment .............................................................................................................................. 37

Figure 36: Non-residential BPP: New vs Renovations (y/y% change) (MAT) ................................................................... 37

Figure 37: Non-residential New Space development: BPP vs BPC (MAT) ........................................................................ 37

Figure 38: Non-residential Development Index: Index 1999=100 .................................................................................... 37

Figure 39: Landscape of private sector BPP for Non-residential Construction: March 2012 (MAT) ............................... 38

Figure 40:Non-residential Value of Projects Awarded by building type: 2012Q1 ........................................................... 39

Figure 41: Office space BPP vs BPC .................................................................................................................................... 40

Figure 42: Office space y/y% change ................................................................................................................................. 40

Figure 43: Retails Sales vs Retail SQM Approved .............................................................................................................. 42

Figure 44: Retail space BPP vs BPC .................................................................................................................................... 42

Figure 45: Retail space y/y% change ................................................................................................................................. 42

Figure 46: Industrial space vs Manufacturing Production (y/y% change) ........................................................................ 44

Figure 47: Industrial space BPP vs BPC .............................................................................................................................. 44

Figure 48: Industrial space y/y% change ........................................................................................................................... 44

Figure 49: Contracts Awarded: Health and Education ...................................................................................................... 48

Figure 50: Value of Contracts Awarded: Education and Health 2012Q1 .......................................................................... 48

Figure 51: Renovations Market ......................................................................................................................................... 49

Figure 52: Contribution of Renovations to Total SQM approved ..................................................................................... 50

Figure 53: Construction of tourist accommodation .......................................................................................................... 52

Figure 54: Hotel Contracts Awarded: Value (R’m) vs Volume .......................................................................................... 52

Figure 55: Foreign Travellers into South Africa ................................................................................................................. 53

Figure 56: Hotel construction postponement rate............................................................................................................ 53

Figure 57: Investment in Building: Constant 2005 Prices (R'm) 2011-2016 ...................................................................... 54

Figure 58: Civil infrastructure expenditure vs Economic production (SARB) ................................................................... 56

Figure 59: Source: South African Reserve Bank Quarterly Bulletin .................................................................................. 56

Figure 60: GFCF: Civil Works, Rm 2005 prices ...................................................................... Error! Bookmark not defined.

Figure 61: Nett profit or loss before taxation ................................................................................................................... 57

Figure 63: Pieter Snyman looks after stakeholder relations with a range of Northern Cape Communities. (www.ska.co.za) ................................................................................................................................................................. 58

Figure 62: Team currently working at SKA project in Northern Cape, Eskom, Conco and BV1 Consulting Engineers .... 58

Figure 64: Northern Cape Key infrastructure developments ............................................................................................ 59

Figure 65: Civil construction activity ................................................................................................................................. 61


2nd Quarter 2012


Figure 66: Value of projects awarded: 2012Q1 ................................................................................................................. 61

Figure 67: Projects postponed 2012Q1 | Number ............................................................................................................ 61

Figure 68: Civil projects postponed vs Postponement rate .............................................................................................. 62

Figure 69: Number of civil projects out to tender vs the number of civil projects postponed ........................................ 62

Figure 70: Tendering activity: Civil: y/y change ................................................................................................................ 62

Figure 71: Client profile, value of civil contracts awarded (Rm): 2012Q1 ........................................................................ 63

Figure 72: Client profile, civil contracts out to tender (Number): 2012Q1 ....................................................................... 63

Figure 73: Civil contracts awarded (Rm, 5qtr avg), by client type .................................................................................... 63

Figure 74: Civil projects out to tender by client ................................................................................................................ 63

Figure 75: Civil Industry Confidence Indicators ................................................................................................................. 65

Figure 76: Civil Engineering price indices .......................................................................................................................... 68

Figure 77: Presidential Infrastructure Coordinating Commission (Source Budget 2012/13) .......................................... 70

Figure 78: High impact construction projects announced 2012Q1 .................................................................................. 77

Tables

Table 1: Macro Economic outlook ............................................................................................................................ 15

Table 2: Number of Liquidations (y/y% change)........................................................................................................ 22

Table 3: Labour Force, Construction, by Province: 2012Q1 ........................................................................................ 24

Table 4: CSF Index .................................................................................................................................................... 26

Table 5: Investment in Housing, Rm 2005 Prices (SARB) ............................................................................................ 28

Table 6: Provincial Integrated Housing and Human Settlements Development Grant Expenditure 2005/06 - 2011/12................................................................................................................................................................................ 33

Table 7: House Price Growth by size 2007-2011 ........................................................................................................ 34

Table 8: non-residential Investment, 2005 Prices (SARB) .......................................................................................... 35

Table 9: Plans Approved for building construction March 2012 (MAT) Private Sector (Stats SA) ................................ 38

Table 10: Office Space Development Indicators ........................................................................................................ 39

Table 11: Key office projects awarded, tendered and postponed: 2012Q1 ................................................................ 41

Table 12: Retail Space Development Indicators ........................................................................................................ 41

Table 13: Key retail projects awarded, tendered and postponed: 2012Q1 ................................................................. 43

Table 14: Industrial Space Development Indicators .................................................................................................. 43

Table 15: Key industrial projects awarded, tendered and postponed: 2012Q1 .......................................................... 45

Table 16: Key Health Projects 2012Q1 ...................................................................................................................... 47

Table 17: Key Education Projects 2012Q1 ................................................................................................................. 47

Table 18: SQM Approved: Renovations and Additions (Private Sector only) .............................................................. 49

Table 19: Top 10 Countries for Hotel Development in Africa: .................................................................................... 51

Table 20: Key Hotel Projects 2012Q1 ........................................................................................................................ 52


2nd Quarter 2012


Table 21: Investment in Buildings: Rm, Constant 2005 prices: 2011-2016 (Base Case Scenario) ................................. 54

Table 22: Civil Investment ........................................................................................................................................ 56

Table 23: 2012Q1 VS 2011Q1 ................................................................................................................................... 64

Table 24: 2012Q1 Annual percentage change (smoothed 5-qrt mov. avg.) ..................................................................... 64

Table 25: Civil Industry Confidence Indices ....................................................................................................................... 66

Table 26: Civil Tender Index: 1998=100 (smoothed) ......................................................................................................... 67

Table 27: Civil Tender Index: 1998=100 (smoothed): ANnual Change by quarter ........................................................... 67

Table 28: Civil Engineering price indices (Stats SA) ........................................................................................................... 68

Table 29: Investment in construction Constant 2005 prices ............................................................................................. 72

Table 30: Investment in construction Constant 2005 prices: Y-Y % chg ........................................................................... 73

Table 31: Market Share by Type of Projects (based on nominal value of construction projects awarded) ................... 74

Table 32: Large Construction projects awarded: Jan - Mar 2012 (Databuild) .................................................................. 75

Table 33: High Profile Projects announcements: 2012Q1 ................................................................................................ 77

Table 34: Construction Tender Index 1999=100, by quarter: y/y% chg ........................................................................... 78

Table 35: Construction Tender Index 1999=100, by quarter: Smoothed ......................................................................... 79


2nd Quarter 2012


Economic Conditions Table 1: Macro Economic outlook

Indicator 2010

Annual Q3

2010 Q4

2010 Q1

2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

GDP 2.8% 2.6% 4.4% 4.8% 1.3% 1.4% 3.2% 2.7%

Gross Fixed Capital Formation (GFCF) -3.7% -1.4% 0.2% 1.4% 2.4% 4.9% 5.6% -

Residential -6.9% -6.8% -6.0% -4.9% -7.8% -3.8% -2.2% -

Non-residential 2.1% 1.3% 2.1% 2.1% -2.5% -2.6% -1.3% -

Construction works (civil) 2.5% 1.7% 0.8% 0.4% -0.1% 1.7% 2.3% -

GFCF by Private sector -4.4% 3.8% 5.2% 5.6% 5.3% 5.4% 5.5% -

GFCF by Public Enterprises 3.5% -0.7% 0.3% -0.4% 2.7% 5.8% 7.7% -

GFCF by Government -10.9% -8.2% -3.3% -0.8% 0.1% 1.2% 3.1% -

Investment in construction as % of GDP 10.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% -

(Source: Stats SA and South African Reserve Bank) Not all data available at release date of report.

Global Economy The global economic deterioration has deviated further since the beginning of 2012, with the European and Asian retreating back into a recession and continues to put pressure on global economic outlook. Growth and recovery of developed economies under structural revision has reported weaker growth than originally anticipated. On the other hand emerging markets and the US market has picked up slightly. Global unemployment remains high in many of the OECD economies. According to a report released by the OECD consumer price inflation in the OECD areas had increased by 2,7% for the year to March, compared to a 2,8% measured for the year to February. The easing of inflation resulted primarily from the slower growth recorded in energy and food prices from 7,9% and 3,8% to 6,5% and 3,5% respectively.

Figure 1: Global CPI rates (OECD)

The Euro zone growth rate came in below the projected growth rate estimated during late 2011. Despite the Euro zone strain on global economic growth, the International Monetary Fund (IMF) increased their growth forecast mildly alongside calls for policies to restore confidence in advanced economies. The IMF increased global growth forecast for 2012 to 3,5% from the 3,3% forecasted three months ago, acknowledging slight but volatile improvement in global prospects. Projections for 2013 are expected to strengthen to 4%. The IMF stated that the 17-Nation Euro zone is likely to slip back into a mild recession in 2012 with output contracting by 0,5%, however the organisation increased its growth forecast for both the US and Japan to 2,1% and 2% respectively.

Figure 2: Global GDP Projections (OECD)


2nd Quarter 2012


The Euro zone admits the plight of establishing fiscal and structural reforms to abate further economic stagnation. No final solution has been published as yet. The OECD maintains the Euro zone rebound forecasts for 2012, forecasting a growth of 0,3% and 0,7% in the third and fourth quarters of 2012 respectively. Unemployment rose to a 15 year high of 10,8% earlier this year. The sovereign debt market showed poor indication of improvement, with weakening confidence in monetary policy.

Andrew Balls, head of European Portfolio Management at Pacific Investment Management Co., sited imminent likelihood of Greece’s ‘Euro zone exit. Economic strains in Greece fragmented socio-political conditions, creating uncertainty. The Greek government is still to pay a €14,5bn payment, initially due on March 20 2012. Government is currently looking to source funds from civilians, to avert a collapse of the economy as the collapse could spark a new round of contagion in the Euro area, specifically for Italy and Spain. The Italian economy reported the largest declines throughout the 3 year recession and is at high risk of contagion in the event of the Greek Euro zone exit. The Italian economy decreased by further 0,8% in first quarter following 0,7% contraction in previous quarter. Unemployment in youth labour force (aged between 15-24) has risen to 35,9% in 2012 from 21,3% in 2007. A reform programme announced in April is expected to strengthen public finance, restore growth and improve competitiveness of economy. The programme should help government cut deficits as efficiently as possible. The Russian economy is still showing signs of recovery with continued petition, from the OECD, to consolidate future fiscal reforms. The Russian economy could realise high potential growth from natural oil resources. Investment is hampered by the requirement for improved social policy; business and economic security; and industrial development. Levels of corruption in the fore mentioned sectors challenges the rate of privatisation and foreign trade within the country. Increased fiscal stringency could raise GDP growth forecasts from 4,1% to 4,6% for 2012. Russia stands to benefit from the current high oil prices of $115/barrel, with resolved fiscal policy.

China’s growth rate was lower than expected, with the IMF cutting the economic growth outlook to 8,2% from 9% for 2012. Growth in China is more moderate than expected, following the Euro zone economic stagnation. The sharp downturn in the European market could see China’s growth rate nearly halve. The IMF said an 8,2% growth forecast could be reduced by up to 4% if Europe’s crisis causes large declines in credit and output. According to OECD statistics China’s inflation increased from 3,2% to 3,6% in March 2012 year-on-year.

According to IMF, the BRICS countries account for approximately 18% of global GDP, 40% of its population, 15% of global trade and holds 40% of global currency reserves. Emerging economies are key to global economic recovery.

Brazil, who will host the 2014 Soccer World Cup and the 2016 Summer Olympics, has benefited substantially from being a member of BIRCS, through boosting its international standing by strengthening its ties to international individuals said to take leading roles in the 21st century. Brazil over took the United Kingdom as the world’s 6th largest economy this year, fuelled in part by growth in domestic consumption as millions of people climbed out of poverty and into the middle class. The IMF projections indicate a 3% growth

for 2012, up from 2,7% growth rate in 2011. GDP

growth is expected to reach 4,1% by 2013. With

substantial oil and gas reserves continuing to be discovered off Brazil's coast in recent years, the country is now the world's ninth largest oil producer, and the government wishes to ultimately enter the top five. India’s growth rate is estimated at 7,7% for 2012 by the United Nations (UN). The government lowered its forecast to a 7,0% annual growth rate for the year from an earlier estimate of 8,5%. The IMF maintains its projection of the growth rate at below 7%. The slowdown has resulted from the Euro zone crisis together with domestic monetary tightening and political paralysis having discouraged investment.


3rd Quarter 2010


Domestic Conditions Real gross domestic product (GDP) slowed to an increase of 2,7% q/q (seasonally adjusted, annualised) in the 1st quarter of 2012, compared to 3,2% in the 4thquarter of 2011. Growth in the first quarter was led by the manufacturing sector (up 7,7% from 4,2% in the previous quarter), agriculture (which recovered to an increase of 3,4% from -5,0%), and construction (up 3,8% from 1,9%). Mining and Quarrying contracted by 16,8% after having showed no growth in the fourth quarter of 2011 and a 17,8% contraction in the third quarter of 2011. Mining was negatively affected mainly due to lower production in mining of gold. Gold was a safe haven for investors, but following on the trend of other commodity prices, the price of gold has slumped by over 20% from its peak of USD1895 in the third quarter of 2011 to around USD1574 at the end of May 2012. Gross value added by the construction industry (in simple terms this means the total selling price to the client less production costs associated to materials and services – and thus bluntly put, refers mainly to labour and profits), reported the most positive growth since the 3rd quarter of 2009 when it increased by 8,1%, at the start of the downward cycle, which is now in its third year. According to Stats SA the construction industry expanded by R6bn to R34bn in nominal terms, contributing just over 3% to the production side of the economy.

Figure 3: GDP Quarterly (Stats SA)

The household debt to disposable income ratio improved to 74,6% in the last quarter of 2011, from 75% in 2011Q3.Although the ratio, which implies that 74,6 cents of every Rand is going to paying off debt, is still relatively high, it is the lowest level recorded since 2006Q3.Lower debt ratios of between 50% and 65% had been measured prior.

Figure 4: Household Savings and Debt to Disposable Income (SARB)

Household savings as a percentage of disposable income improved from -0,1% in the third quarter of 2011 to 0% in the last quarter. A zero rate is the most positive level since the last quarter of 2005 following extensive periods of a negative savings rate.

Gross Domestic Expenditure The Gross Domestic Expenditure (GDE) based on constant 2005 prices, annualised, improved to an annual increase of 4,0% y/y in the last quarter of 2011, from 3,7% y/y in 2011Q3. Final Consumption Expenditure by households slowed in the last quarter of 2011 to a 4,5% y/y increase compared to a 4,7% y/y increase in the third quarter, keeping the trend on a downward slope. Final consumption expenditure by general government increased by 5,2% y/y in 2011Q4, expanding from the 4,5% y/y increase in consumption expenditure reported in the previous quarter and improving even further from the 3,1% y/y incline measured in the second quarter.

Figure 5: GDE vs Final Consumption Expenditure (SARB)


2nd Quarter 2012


Gross Fixed Capital Formation (GFCF)

Gross Fixed Capital Formation for the residential sector fell -2,2% y/y in2011Q4 based on constant 2005 prices, from R24,83bn to R24,29bn. The non-residential sector fell by 1,3% y/y in 2011Q4, to R37,08bn from R37,56bn in 2010Q4.

GFCF in construction works rose 2,3% y/y in 2011Q4, the highest growth rate over the past seven quarters. Investment in construction works increased to R110,36bn in 2011Q4 from R107,89bn in 2010Q4.

The annual growth of private sector fixed investment increased by 5,5% y/y , from the 5,1% y/y in 2011Q3. The private sector contributed 63,9% towards GFCF in 2011Q4 from a 64% contribution in the previous quarter. It is anticipated that the pace of private investment will slow.

GFCF by Public Corporations increased by 7,7% in 2011Q4, compared to the 6,7% y/y in 2011Q3. Public Corporation GFCF for the last quarter amounted to R86,51bn. Public Corporations contributed 22,3% towards GFCF in 2011Q4 from 22,1% in the third quarter. Momentum is expected to remain stable within Public Corporations. Delays in the construction of Eskom power station came as a result of labour disputes, while design delays were as a result of certain critical civil designs which were not concluded timeously for construction. The construction delays experienced in the boiler area were attributable to structural steelwork design, manufacturing, logistics and construction. The controversial e-tolling by SANRAL has caused much debate amongst residents and various work groups. The calamity continues tarnishing SANRAL’s credibility. Transnet’s R300bn infrastructure development programme is said to be on track to meet its deadline, however possible delays due to the Euro zone crisis could occur.

GFCF by General Government increased for the third consecutive quarter and recorded the largest growth rate in 10 quarters, to 3,1% y/y. General Government contributed 13,9% towards total investment in 2011Q4, from 13,8% in the previous quarter. Outlook for further investment is embraced in the budget, where very low real growth rates are predicted.

Total GFCF (including machinery, transport equipment and transfer costs) increased by 5,2% y/y for the fourth quarter of 2011 making this the sixth consecutive quarter of positive growth.

Note: Gross fixed capital formation include spending on residential buildings, non-residential buildings, construction

works (including civil works, mechanical and electrical engineering), machinery, equipment and transport.

Figure 6: GFCF: Construction (% Change) 2011Q4 (SARB)

Figure 7: GFCF: Gov, Public and Private Sector (% change) 2011Q4 (SARB)

Inflation Annual CPI rate in March 2012 was 6%, measuring

0,1% lower than the corresponding annual rate of 6,1%

in February 2012. The Following items have put strong

upward pressure on the CPI:

The annual rate for alcoholic beverages and tobacco index increased 7,6% in March from 6,4% in February, due mainly to increases in excise duties.

Housing and utilities index also reported an increase resulting from increases in actual rentals for housing and an increase in owners’ equivalent rent.

The transport inflation index increases due to the 28c/litre increase in petrol price.

The education and restaurant and hotels indices both measured annual rate increases.

Inflation is expected to average 6,0% in the second quarter of 2012 according to the South African Reserve


2nd Quarter 2012


Bank and has been forecasted to remain within the target bracket until 2014. CPI is expected to average 6,0% in 2012, 5,5% in 2013 and 5,0% in 2014. Due to the recent improved outcome of inflation, the near-term forecast was softened as a result of a new lower starting point for forecasting.

Administered prices, however, remain on average in excess of the upper end of the target range and are said to be the main factor keeping upside pressure on inflation. Administered price inflation measured 11,6% in April 2012 and 8,9% when excluding petrol, with the key drivers being the 17,3% increase in electricity cost and 9% increase in education prices.

Figure 8: CPI (Stats SA)

With hesitant domestic growth, inflation is expected to be contained within the SARB target bracket. Despite some evidence of price pressures becoming more broad-based, the moderate pace of ‘core’ inflation remains fairly stable. In a report by Reuters the Reserve Bank Governor, Gill Marcus said that inflation should fall back into the bank's 3% - 6% target range by year-end 2012 "on a sustainable basis".

PPI

PPI is the first indicator of inflation as it measures wholesale prices at producer level for consumer goods and capital equipment (physical goods) and excludes services. PPI is an accurate indicator for future CPI, while also assisting investors in industries that analyse potential sales and earnings.

The Producer Price Index (PPI) for domestic output increased by 7,2% in March 2012, compared to 8,3% in February 2012.

Items that contributed to the slower pace of inflation include: mining and quarrying (down from 8,2% in Feb-12 to 6,6% in Mar-12), food at manufacturing level slowed from +10,9% in February to +9,6% in March. Other sectors that also reported slower rates were

agriculture, tobacco products, chemical and chemical products and basic metals.

Sectors that reported stronger increases in annual PPI were electricity (from 26,6% to 27,6% Mar-12). The PPI for exported commodities increased by 4,6% y/y in Mar-12, from 5,9% in Feb-12.

Should PPI, which defines the cost of production, decelerate in annual increases it would imply that the factors considered in determining the index have measured declines and the cost associated to these factors have fallen, however this can be counteracted by increases in other factors. As the cost of raw materials increase PPI increases which in turn causes the seller to raise prices. As a result this affects CPI. With the pace of PPI expansion slowing in South Africa and given the outlook on CPI, it is anticipated that PPI will stabilise.

Figure 9: PPI March 2012 (Y/Y% change) (Stats SA)

Figure 10: CPI vs PPI March 2012 (Y/Y% change) (Stats SA)


2nd Quarter 2012


Figure 11: Interest Rate vs CPI vs PPI (Stats SA)

Interest Rates

On May 24 2012 interest rates were kept unchanged at 9% by the South African Reserve Bank, remaining favourable to the consumers at an all-time low, to support the economy while keeping an eye on price pressures.

The benchmark repurchase rate was left at 5,5% as announced by the Governor of SARB Gill Marcus, which was in line with the estimates of all 18 economists surveyed by Bloomberg.

Global uncertainties continue to impart a downside risk to the domestic economic growth outlook which remains relatively subdued. The crisis in the Euro zone has intensified since the beginning of the year. Although inflation breached the 3%-6% target bracket of the Bank in some months of 2012, it has since slowed, with the forecast of core inflation by the Bank being lower for the near term compared to the estimates announced in the previous MPC meeting. Core inflation is expected to peak at an average of 5,5% in the second quarter of 2013, marginally higher than in the previous forecast, before moderating, and averaging 4,5% in the final quarter of 2014.

The rand currency continued to be dominated the changing sentiment of international financial markets. The rand, which has weakened along with other emerging-market currencies in the face of slower global growth, poses an upside risk to inflation, Marcus said. In addition renewed concerns about the Euro zone outlook caused the rand to depreciate further, in tandem with the weakening euro. Given the highly volatile and uncertain environment the MPC would like to maintain the current accommodative monetary policy stance. The Committee has assured that they will continue to monitor all events and asses risks that may impact their outlook and stands ready to act in either direction should it be deemed appropriate.

Figure 12: Repo Rate (SARB)

When the interest rate increases, it implies that borrowing funds becomes more expensive, which dampens the demand for property and leads to a negative impact on the value of property.

As calculated by ABSA, South Africa’s house price deflation continued in the residential market based on a year-on-year analysis and on the average value of homes for small, medium and large categories in the middle segment.

Nominal house prices for small houses (80m2-140m2) declined by 17,8% y/y in April 2012. The ABSA HPI declined from 379,8 points in Apr-11 2011 to 312, 3 points in Apr-12. The average nominal price for a small home is R622 100. Medium sized houses (141m2-220m2) reported a second consecutive month of contraction in nominal prices, falling by 1% y/y in April 2012 to a HPI of385,9 points from 389,7 points in the previous year. The average nominal house price for a medium sized home is currently R964 000. House prices of large sized houses (221m2-400m2) declined for the second consecutive month, measuring -0,5% y/y. The average price for a large home is R1 469 700.

Figure 13: ABSA HPI vs SQM Approved: Residential (ABSA)


2nd Quarter 2012


Business confidence

Based on the Bureau of Economic research (BER) Business confidence index measured 38 points in the last quarter of 2011, from the 39 points measured in 2011Q3, after recording 55 points in the first quarter of 2011.

An index value of at least 50 (preferably 60) is required to stimulate new investment, which means an environment conducive to stimulate new investment is plausible. From this it can easily be understood why investment into the business sector has declined, given the recorded BCI values.

According to the South African Chamber of Commerce and Industry, the business confidence level fell to 94,3 points in April 2012, the lowest level in three years. Sentiment remains highly volatile in the uncertain and unpredictable economic climate both in the local and global markets. Three of the six financial sub-indices were negative, while three were neutral based on a month-to-month basis. The chamber said that in order for a higher, sustainable level of business confidence needs solid economic growth to support structural economic fundamentals. An economic environment that induces and seeks private fixed investment could also help to sustain an improving business outlook.

Figure 14: SACCI vs FNB Business Confidence Indices (FNB)

Explanatory Notes:

South African Chamber of Commerce Index (SACCI): Business Confidence Index based on movement in 9 sub-indices, or economic indicators. Not an opinion survey.

BER Business confidence: FNB/BER Business Confidence Index is an opinion survey, based upon a quarterly survey amongst businesses by the Bureau of Economic Research

The RMB/BER Business Confidence Index climbed to 52 points in the first quarter of 2012, up from the previous quarter’s level of 38 points.

An index less than 50 implies that the outlook in the business sector limited investment is taking place. With an index of 52 points, this is the first time in just over a year that a slight majority of respondents are experiencing good prevailing economic conditions.

Business mood improved in all five of the sectors surveyed in the first quarter. New vehicle dealer confidence index rose to 73 points as an increase in new car sales were measured, jumping by 23 points from the previous quarter. Confidence for building contractors increased to a three-year high of 31 points, a 12 point increase. Retail and wholesale business confidence climbed by 5 and 10 points respectively in the first quarter of 2012, to 61 and 48 points. On the retail side, not all respondents felt positive movement in sentiment. Softer retail sales in combination with the inability to increase selling prices, has put pressure on profitability. On the wholesale side, there was an increase in confidence in wholesalers selling non-consumer goods, but a decline in confidence of those selling consumer goods. The FNB/BER building confidence index grew by 5 points to 34 points in the first quarter of 2012 as the confidence levels amongst building contractors, manufacturers of building materials and amongst quantity surveyors. The 2012Q1 index of 34 points is the highest level since the last quarter of 2010. The increase in confidence was supported by increased activity and profitability. It is in the opinion of FNB/BER that the building cycle has bottomed and is now slowly recovering. The confidence of both residential and non-residential contractors rose in the first quarter. Residential contractor confidence registered a more moderate improvement, rising to 28 from 22 index points in 2011Q4. Non-residential contractor confidence climbed from 14 points in 2011Q4 to 38 during 2012Q1. The recovery in the industry remains fragile albeit the increase in activity in the sector, with the slowdown in sales seen by retailers and manufacturers of building materials being a supporter of the moderate growth. Global economic conditions still remain a key player in the outcome of movements in the domestic markets.


2nd Quarter 2012


Liquidations

The total number of liquidations that took place in South Africa in March 2012 amounted to 212increasing from the 200 liquidations (Feb-12), but declining by 39,4% y/y from 350 liquidations in Mar-11. Looking at the trend based on a 12 month moving annual total (MAT) the number of liquidations that took place in March 2012 amounted to 3 109 (MAT), slowing from 3 247 m/m (Feb 12-MAT) and 24,4% y/y from 4 110 (Mar 11-MAT).

The total number of compulsory liquidations that took place nationally in March 2012 amounted to 37 from 27 in February 2012 and grew by 208,3% y/y compared to 12 liquidations recorded in March 2011. The moving annual total for the period to March 2012 amounted 423 increasing 31,4% y/y compared to 322 (Mar 11-MAT).

The number of voluntary liquidations that occurred in March 2012 slowed to 175 from 338 liquidations in March 2011, and increased from 173 voluntary liquidations in February. For the 12 month period a total of 2 686 (Mar 12-MAT) voluntary liquidations took place, contracting by 29,1% y/y from 3 788 (Mar 11-MAT) voluntary liquidations that took place.

Total liquidations in the construction sector to 7 in March 2012 compared to 15 (Feb 12) and 24 (Mar 12). Based on MAT values, the number of liquidations in the construction industry fell by 28,8% y/y to 158 (Mar 12-MAT) from 222 (Mar 11-MAT). THIS IS THE LARGEST

DECLINE MEASURED IN CONSTRUCTION LIQUIDATIONS SINCE MARCH 2008.

The total number of voluntary liquidations in the construction sector for March 2012 amounted to 5, from 24 in March 2011 and 13 in February 2012. For the 12 month period a total of 138 (Mar 12-MAT) voluntary liquidations took place, reporting a 32% annual contraction from 203 (Mar 11-MAT).

Total compulsory liquidations within the construction sector remained unchanged in March 2012 at 2 compared to the previous month, but increased from 0 (none) in March 2011. The MAT for March 2012 amounted to 20 compulsory liquidations, thus recording a 5,3% y/y increase from the 19 (Mar 11-MAT).

Figure 15: Liquidations in the Construction Sector (Stats SA)

Table 2: Number of Liquidations (y/y% change)

Construction: Total

Construction Compulsory

Construction Voluntary

Total –All sectors

Total Closed Corporations Construction

Total Company

Construction

2008 1.8% -44.1% 13.4% 4.7% 41.0% -64.8%

2009 32.8% -10.5% 38.2% 25.2% 34.5% 58.1%

2010 4.0% -17.6% 4.7% -3.4% 12.9% -28.6%

2011 -22.0% 28.6% -25.2% -10.8% -35.3% 54.3%

2011Q1 55 5 50 1 062 34 21

2012Q1 29 7 22 612 19 10

additional/less -26 2 -28 -450 -15 -11

% change -47.3% 40.0% -56.0% -42.4% -44.1% -52.4%

(Source: Stats SA (P0043)


2nd Quarter 2012


Construction: General overview

Investment in the construction sector (including residential, non-residential and civil construction works) recorded an expansion of 0,9% y/y for 2011Q4 and has improved from the negative growth rates that were recorded between2010Q1 to 2011Q3. Total construction investment that took place in 2011Q4 amounted to R171,73bn from R170,27bn in 2010Q4.

Figure 16: GFCF Total Construction (SARB)

Investment growth in civil works measured an increase of 2,3% y/y in 2011Q4 improving from a 1,7% y/y growth rate measured in 2011Q3. GFCF measured R110,36bn in the fourth quarter of 2011, up from R107,89bn in 2010Q4, and increasing from R109,65bn investment values recorded in 2011Q3.

The pace of contraction for investment in residential buildings has decelerated and has recorded the smallest contraction in investment in 17 quarters. GFCF in residential for the last quarter of 2011 amounted to R24,29bn from R24,83bn in 2010Q4. Although the residential sector remains under pressure, there has been an improvement in demand for housing, specifically smaller more affordable units, which is likely to enhance construction investment within the sector slightly.

Non-residential investment has recorded an annual contraction rate of 1,3% in 2011Q4 from the previous quarter’s decline of 2,6% y/y. Non-residential investment fell to R37,08bn in the last quarter from R37,56bn in 2010Q4.

Investment by general government grew by 3,1% y/y in 2011Q4, escalating from the 1,1% y/y increase measured in the 2011Q3. GFCF in monetary value inclined from R52,24bn (2011Q3) to R53,83bn (2011Q4).

Private enterprises and public corporations recorded increases of 5,5% y/y and 7,7% y/y in 2011Q4

respectively. The total investment value for private sector investment amounted to R248,15bn, while public corporations amounted to R86,51bn in 2011Q4.

Of building type, civil construction works made the largest contribution to total GFCF of 28,4% for the fourth quarter of 2011, from the previous quarter’s contribution of 31%. The non-residential sector’s investment held a share of 9,5% total GFCF, slowing from the 11% contribution recorded in 2011Q3. Residential investment construction contributed 6,3% to total GFCF, after a 7% contribution measured in the third quarter.

Of the total investment expenditure that took place in the construction sector, 64,3% went into civil projects, 21,6% was invested into the non-residential sector, while only 14,1% of total expenditure was invested into the residential market.

According to Quarterly Financial Statistics P0044, (a sample of formal businesses operating in the non-agriculture sector) profitability in the construction sector improved in the last two quarters of 2011, up 6,4% y/y in 2011Q4, however slowing from a 15% y/y expansion measured in 2011Q3. These profitability growth numbers came off a low base, but showed substantial improvement from the -44,4% y/y and -81,3% y/y declines in profit values measured in the first and second quarters of 2011 respectively. Profitability improved to an average estimated rate of 5,7% in the second half of 2011, compared to an average of 1,7% in the first half of 2011. Spending on capital expenditure (including buildings, improvement, plant, machinery, furniture and fittings and vehicles) fell by 40% y/y in the 2011Q4, although spending on vehicles did increase by 25% since 2011Q3.

Figure 17: Net Profit before Tax (Stats SA)


2nd Quarter 2012


Figure 18: Sector Contribution to Total Construction (Stats SA)

General Sector Employment

According to Statistics South Africa the total employment for individuals between the age of 15 – 64 years grew 2,3% y/y in the first quarter of 2012 from 13,12 million to 13,42 million. Employment did however contract by 0,6% q/q, from 13,497 million in 2011Q4. Formal sector employment declined by 107 000 jobs while the informal sector employment decreased by 28 000 jobs.

As the public sector continues to endure in creating new jobs, various sectors have recorded increases in the number of people employed including mining and quarrying, manufacturing, wholesale and retail trade and transport, amongst others.

Construction employment recorded the largest quarter-on-quarter decline by sector falling by 71 000 employees or 6,7% q/q. The manufacturing sector declined by 67 000 employees in 2012Q1 compared to the previous quarter, thus recording a 3,7% q/q contraction. The agricultural sector measured the largest quarterly growth in employee numbers, expanding by 4,1% (or 26 000 employees).

On an annual basis the utilities industry reported an annual contraction of 6,2% in the number of employees from 97 000 in 2011Q1 to 91 000 in 2012Q1, therefore holding the largest annual contraction rate. The agricultural sector measured the largest annual increase of 8,8% y/y in 2012Q1 to 656 000 employees from 603 000 employees in the same quarter of 2011.

Construction Employment

Employment in construction fell by 6,7% q/q from 1 057 000 employees in 2011Q4 to 986 000 employees in 2012Q1. The sector also measured an annual decline in the number of employees when compared to the

first quarter of 2011, with a loss of 45 000. In 2011Q1 a total of 1 031 000 people were employed in the construction industry.

South Africa is amongst the world’s worst countries in terms of inequality, which is being further exacerbated by the low employment growth in the country. The unemployment rate rose to 25,2% in the first quarter of 2012, increasing by 282 000 people compared to the previous quarter and by 162 000 people compared to the same quarter a year ago. The unemployment rate is currently sitting at 4 526 000 which is at the same level observed in 2011Q2.

The large loss of jobs in South Africa has been broad based and has affected both the informal and formal markets. It has been found that excess real wages has a role in suppressing employment creation.

Employment levels in our country remain under stress, as demand levels remain subdued and the desire for individuals to take on business risk in the current global and domestic economic uncertainties are limited. Although many SME’s wish to expand, there is inadequate support for many of them to grow.

Table 3: Labour Force, Construction, by Province: 2012Q1

Province 2012Q1 (‘000)

Q-Q % chg Y-Y % chg

WC 135 -6.3% 8.9%

EC 108 -12.9% -10%

NC 19 0% 35.7%

FS 47 -4.1% -16.1%

KZN 210 -12.1% -7.1%

NW 46 -6.1% 2.2%

GAU 265 2.3% -6.7%

MPU 64 -17.9% -7.2%

LIM 92 -3.2% -1.1%

TOTAL 986 -6.7% -4.4%

Provincially, the number of people employed in the construction industry declined in 7 of the 9 provinces on quarter-on-quarter basis. Mpumalanga reported the largest contraction in construction sector job loss of 17,9% q/q from 78 000 in 2011Q4 to 64 000 in 2012Q1. The Eastern Cape followed with a 12,9% q/q


3rd Quarter 2010


contraction in construction jobs to 108 000 in the first quarter from 124 000 in the last quarter of 2011.

Looking at employment numbers based on annual rates, the Free State reported the largest annual decline of 16,1% y/y from 56 000 in 2011Q1 to 47 000 in 2012Q1. The Northern Cape measured a 35,7% y/y expansion in construction employment growing from 14 000 in 2011Q1 to 19 000 in 2012Q1.

The number of women employed in the construction industry declined by 0,9% y/y in the first quarter of 2012 to 107 000 compared to 108 000 in the same quarter of 2011, while also increasing by 5,4% q/q.

The contribution of women to the number of individuals employed in the construction industry softened to 10,9% in the first quarter of 2012 from 11,2% in the previous quarter.

Figure 19: Women to construction employment: 2012Q1 Figure 20: Contribution of Women to total employed in the Construction Industry 2012Q1

(For information about women owned companies that are registered in South Africa, visit www.cidb.org.za

http://www.cidb.org.za/


2nd Quarter 2012


Critical Success Factor Index: Building

The critical success factor index (CSF), is a weighted index that includes key indicators regarded as necessary to stimulate investment. These include affordability and confidence. It does not take into account external factors that could dampen investment for example, shortage of electricity or the implementation of policies such as those imposed by the NCA. Affordability takes into account the current household debt ratios and changes to the prime lending rate that affects mortgage payments. Confidence levels are represented using the RMB/BER business confidence index.

Table 4: CSF Index

The CSF peaked at an index value of 169,0 in March 2006 and then dropped 33,0% to 113.2 by September 2008, sending signals that there are constraints in the industry. Since December 2008,

lower lending rates have improved affordability, and although business confidence remain low, by historical terms, the CSF index has improved to an index value of 189.6 (revised) in 2011Q1, but deteriorated to 175.8 in 2011Q4, due to a weakening in business confidence (from 48 in 2011Q2 to 38 in 2011Q4). Savings of households “improve” to zero, after having been in the red since 2005Q4. While not particularly exciting, it is encouraging to see some improvement in the savings rate, a critical ingredient to stimulate higher levels of private sector investment, considering the current risk adverse behaviour of financial institutions. Household debt levels are also finally starting to improve, after a stable lending environment since the beginning of 2011, from 82,7% in 2008Q1 to 74,6% in 2011Q4, the lowest rate since 2006Q3.

The improvement in affordability is however subject to a parallel improvement in confidence levels, which has improved to an index value of 52 in the first quarter of 2012, according to the latest figures released by the BER/FNB. Thus if all other indicators also continue to improve and lending rates remain stable, the CSF index should recover in the first half of 2012.

Figure 21: CSF Index vs Investment in Building

2007 2008 2009 2010 2011

Q1 158.7 131.9 127.4 165.2 189.6

Q2 157.8 125.4 149.7 166.5 183.8

Q3 150.6 117.2 154.1 174.5 178.4

Q4 143.2 116.3 157.1 181.5 175.8

Y-Y Change

Q1 -6.2% -16.9% -3.4% 29.7% 14.7%

Q2 -6.2% -20.5% 19.4% 11.2% 10.4%

Q3 -9.3% -22.2% 31.5% 13.3% 2.2%

Q4 -9.9% -18.8% 35.0% 15.6% -3.2%


2nd Quarter 2012


Expenditure in the Public and Private SectorThe value of residential contracts awarded in the

month of March 2012by the Private Sector

amounted to R105m, with low-income housing

amounting to R35m, while the value of residential

contracts amounted to R70m. Based on a 12 month

moving average to March 2012, the private sector’s

total value for residential contracts amounted to

R8,1bn, declining 22,9% y/y from contract values of

R10,5bn (Mar 11-MAT).

The value of contracts awarded to non-residential

buildings by the Private Sector R2,26bn for the

month of March 2012 increasing from R1,93bn (Mar

11). Looking at the moving annual total for March

2012, the value of non-residential contracts

amounted to R21bn (MAT) which increased by 35,3%

y/y from R15,5bn (Mar 11-MAT).

Construction expenditure in the residential market

by the Public Sector for the month of March 2012

amounted to R139,1m, with R107,2bn being spent

on low-income housing and R31,9m. Looking at the

trend on a moving annual total, Public sector

expenditure for residential contracts awarded

amounted to R1,5bn (Mar 12-MAT), falling by 32,5%

y/y from R2,3bn (Mar 11-MAT).

Awarded contract values in the Public sector for the

non-residential sector amounted to R1,5bn in March

2012 improving from R784m (Mar 11). The Public

Sector recorded a substantial 63% y/y increase in

contracts awarded for the 12 month period to March

2012, from R8,4bn (Mar 11-MAT) to R13,6bn (Mar

12-MAT).

Figure 22: Value of Contracts Awarded Residential Sector: Public vs Private Sector (R'm) y/y% change

Figure 23: Value of Contracts Awarded Non-Residential Sector: Public vs Private Sector (R'm) y/y% change


2nd Quarter 2012


Residential Construction Table 5: Investment in Housing, Rm 2005 Prices (SARB)

Note: All data revised to 2005 base year, revised downward by SARB (Source: SARB Quarterly Bulletin)

Investment into the residential sector contracted by 2,2% y/y in 2011Q4, to R24,292m (seasonally adjusted annualised rate). Although the rate of decline has slowed the industry remains in a recession, with investment having slowed to just 75% of what was invested during 2006 and 2007.

The residential market remains tight, with the anticipation of a slight improvement to be seen in the medium term, however what needs to be observed is the demand side of housing (i.e. Affordable units) and the current overpricing of housing.

The number of SQM approved for dwellings smaller than 80sqm reported an annual contraction of 3,9% in March 2012 to 1 013 116m2(MAT) from 1 053 970m2 (Mar 11-MAT), this is the first annual contraction for dwellings less than 80sqm to be reported in 6 months.

The number of SQM completed softened recording an increase of 2,8% y/y in March 2012, from a 15,4% y/y and 9,9% y/y increase in January and February 2012 respectively. The 12 month moving annual total for building plans passed in dwellings less than 80sqm in March 2012 amounted to 873 931m2 (MAT) from 849 822m2(Mar 11-MAT).

Figure 24: Dwellings <80sqm BPP vs BPC (y/y% change)

Dwellings greater than or equal to 80sqm continued in the negative territory but the pace of contraction rate has slowed. In March 2012 the number of SQM approved fell by 0,9% y/y from 3 828 910m2 (Mar 11-MAT) to 3 793 060m2 (Mar 12-MAT).

Quarter Investment in housing, Rm 2005 prices, Seasonally

adjusted annualised rates

% Annual change

2008 R34,157 -7.2%

R33,486 -8.5%

R32,969 -7.3%

R32,012 -7.4%

2009 R 30,824 -9.8%

R 30,280 -9.6%

R 29,797 -9.6%

R 29,339 -8.3%

2010 R27,857 -9,6%

R26,455 -12.6%

R25,233 -15.3%

R24,827 -15.4%

2011 R24,571 -11.8%

R24,400 -7.8%

R24,281 -3.8%

R24,292 -2.2%


2nd Quarter 2012


The number of SQM completed for dwelling >80sqm for the 12 month period to March 2012 amounted to 2 812 477m2(MAT) increasing by 0,9% y/y from2 787 363m2 (Mar 11-MAT). Although the number of SQM completed remains in positive territory, the expansion rate has slowed from the 4,7% y/y increase measured in the previous month.

Figure 25: Dwellings >80sqm BPP vs BPC (y/y% change)

The number of residential (including low cost housing) projects awarded for the 12 months to March 2012amounted to 208, where 114 (Mar 12-MAT) projects were residential and 94 (Mar 12-MAT) projects were low-cost housing projects. This amounted to an18% y/y decline in projects awarded for total residential buildings, falling from 253 (Mar 11-MAT).

Figure 26: BPP by segment: March 2012

Figure 27: Residential Contracts out to tender

Total SQM approved for residential construction (including new and renovations) based on MAT reported a year-on-year contraction of 2,9% y/y in March 2012, falling from a 2,7% y/y increase measured in February 2012, reporting the largest annual contraction rate since November 2010. The total number of SQM approved for the residential sector amounted to 9 275 606m2 (Mar 12-MAT) from 9 548 344m2 (Mar 11-MAT).

The number of SQM completed for total residential buildings, including both renovations and new plans, recorded 3,9% y/y decline from 6 642 194m2 (Mar 11-MAT) to 6 384 152m2 (Mar 12-MAT).

The number of SQM approved for new residential building declined by 0,4% y/y in March 2012, weakening from an 8,3% y/y increase in February 2012. A total of 6 133 182m2 (Mar 12- MAT) were approvedfrom 6 156 348m2 (Mar 11-MAT). This is the first annual contraction rate measured in 12 months.

The number of SQM completed for March 2012 amounted to only 4 736 926m2 (MAT) from 4 766 720m2 (Mar 11-MAT). Although February measured an increase in SQM completed of 1,3% y/y and March 2012 recorded a 0,6%y/y contraction is the slowdown is far lower than the contraction rates of between 10% and 30% y/y reported from August 2010 to August 2011.

As indicated by the information and graphs above, the uptick that was reported late 2011 and early 2012 has taken a knock with most of the indicators slowing. The residential market, albeit the demand, remains highly pressured by consumer affordability. Tough conditions persist and the building sector is


2nd Quarter 2012


under much scrutiny as the need in the housing sector changes from a traditional buying market of standard middle-segment houses, to higher demand on affordable units, with higher rental demand also remaining in the market.

The number of building plans passed for flats and townhouses slowed to a 4,2% y/y increase in March 2012 from a 19,6% y/y growth measured in February 2012. The number of plans passed in amounted to 1 327 006m2 (Mar 12-MAT) from 1 273 468m2 (Mar 11-MAT). SQM completed in this segment continue to report negative growth rates however at a slower pace. In March 2012 a 7% y/y contraction was measured with total SQM amounting to 1 050 518m2

(MAT). The annual decline rate softened from the previous months decline of 12% y/y.

The residential sector is highly sensitive to supply mechanism dependant on developers sentiment as well as affordability which is still of concern despite the low interest rate level.

Signs of a slow recovery which take into account the inflationary pressures, the slowing and cutting of the GDP growth rate, increase in fuel and administrative costs and the negative outlook of economic recovery in the international markets, indicates that the road remains difficult for the residential construction sector. Contractors operating in the residential sector will remain under considerable pressure in the medium term, affecting profitability and their ability to create job opportunities.

Figure 28: Residential BPP vs BPC

The number of residential projects postponed in March amounted to 169 (MAT), with 104 projects being residential and 65 projects being low-income housing. For the MAT period to March 2012, the number of projects postponed declined by 19,1% y/y compared to the previous year where 209 (MAT) contracts had been postponed. The postponement rate remains on a downward trajectory.

Figure 29: Residential Projects Postponed March 2012

Details of the projects awarded can be downloaded from www.industryinsight.co.za. For more details on geographical analysis pertaining to construction developments please contact our offices or send your requirements to [email protected] for a quotation.

Figure 30: Residential Sector by Segment: March 2012 (MAT)

http://www.industryinsight.co.za/



2nd Quarter 2012


Social housing Social housing is an integral part of the government’s quest to enhance racial integration in South Africa, according to the Eastern Cape Economic Development MEC Mcebisi Jonas at the official launch of the multi-million rand Southernwood social housing project in East London.

The Social Housing Regulatory Authority will build its capacity and credibility as a national regulator, invest in and monitor the social housing sector and form strategic partnerships with both local and international financiers to attract more funds to the social housing sector, this according to the 2012 budget. During 2011 the Minister of Human Settlements and the members of the executive council who are responsible for human settlements approved substantial increases to the finance linked individual subsidy programme (FLISP), which aims to improve a households ability to access finance by providing a deposit. “The amendments to the programme include an increased threshold for participation in the subsidy scheme for households earning between R7 000 to R15 000 per month and an increased subsidy amount from R54 000 to R83 000 with a maximum property value of R300 000. The amendments aim to improve the access of low and middle income working families to participate in the housing programmes and attempts to keep the subsidy level aligned with the general price trends in the residential property market.”

Gauteng is said to spend R8,5bn on formalising squatter camps over the next three year period, with the first phase of the R487m Jabulani Hostel Redevelopment Project in Soweto having been opened early in March 2012. The project will see 1 919 community residential and state-subsidised units being completed over the next five years. To be built on the site of the single-sex hostels designed for migrant labourers during South Africa's apartheid era, the new units will provide a more family-oriented environment for the current hostel dwellers as well as other income groups.

Bulk infrastructure services will be completed by the end of April, with occupation expected at the end of May.

Figure 31: Jabulani Hostel Redevelopment Project: Soweto

Government is focusing on numerous initiatives to resolve this dilemma by 2030. In addition to this, the Department of Human Settlements (DHS) has started looking at a “gap-funding” model which provided a R1bn guarantee fund aiming to bridge the gap in housing loans to middle-income earners. Government continue to cushion the poor and unemployed, with social assistance spending projected to rise from R111,2bn in 2012/13 to R129bn in 2015.

Old Mutual financial investor group raised R9bnfor Housing Impact Fund for South Africa, being one of the largest funds of its kind. The funds were raised to build affordable units for rental and sale, in addition to providing housing loans and rental accommodation for students and families. The Fund, together with its partners had several projects with a target of 120 000 affordable housing units.

Government continues to consider the use of alternative and innovative building materials to address the back log. Therefore social housing brings some good opportunities for companies, developers and contractors who are involved in such building material. The problem associated with using such building techniques relates to the lack of knowledge by new home owners in addition to governments limited procedures being used to educate individuals about alternative building structures.

Pending a joint effort by both private and government sectors, we can anticipate the housing backlog to remain in high volumes.


2nd Quarter 2012


Activity in social housing has shown signs of improvement recording an annual increase of 15% y/y in March 2012. The number of low cost housing projects awarded, including hostels, grew to 94 (MAT) projects from 82 (MAT) in the same month of the previous year. This improved from February 2012’s projects of 90 (MAT), which increased by 3% y/y.

On a tendering basis, the number of low-income housing projects tendered in March 2012 declined to 142 (Mar 12-MAT) from 160 (Mar 11-MAT), thus recording an 11,3% y/y contraction rate, which accelerated from the 6,3% y/y contraction measured in the previous month.

Postponements of low-income housing contracts grew by 41,3% y/y in March 2012, increasing from 46 (Mar 11-MAT) projects to 65 (Mar 12-MAT) projects. Although March reported an annual increase, the number of postponed projects slowed from the 72 (Feb 12-MAT) projects in the previous month.

Figure 32: Low-income housing: Contracts (y/y% change)

Currently, the South African Government, through the Department of Human Settlements, builds approximately 200 000 subsidised houses annually, which is impossible to meet the current backlog. The department received R22bn for delivery of housing in 2011, while a further R100bn was allocated to other departments to assist with bulk infrastructure needed to establish successful settlements. According to the department, a subsidised house currently costs approximately R55 000.

During the 2010/11 financial year the number of additional residential units completed through the Housing Development Finance Programme amounted to 121 879 units, but is expected to fall to 88 441 units for the current 2011/12 year. Projections for the 2012/13 financial year currently sits at 127 200. The number of additional sites serviced during the 2010/11 financial year was 64 362 and this is also expected to fall during 2011/12 to 33 361, before picking up during 2012/13 to 72 876 units.

The Department of Human Settlements reiterated the importance of Public Private Partnerships. A successful partnership came in Mazista/Skierlik in the North West on land that was donated by a farmer.

The Department has strengthened their relationship with Cuba in order to recruit more Cuban engineers. The Department also visited Kenya, Netherlands and India.

Tracking progress in social housing development is difficult due to lack of regularly updated official statistics. However, there is a general perception that while a lot is being done in terms of planning (including drafting a more detailed framework to accelerate delivery); little is being done at roots level. The South African government has earmarked extensive amounts for housing construction, but has not increased the actual number of units to be constructed. This is because the funds allocated to the Department of Human Settlements will be used for integrated development, including additional critical services such as clinics, schools and roads.


2nd Quarter 2012


Table 6: Provincial Integrated Housing and Human Settlements Development Grant Expenditure 2005/06 - 2011/12

Province 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

R ‘million Medium term estimates

EC 607 637 337 981 1313 1599 1803

FS 370 528 467 859 963 1301 1380

GAUT 1357 1760 2614 2778 3187 3772 4323

KZN 816 1075 1311 1627 2180 2714 3150

LIMP 383 605 633 825 997 1235 1415

MPUM 269 330 652 797 795 976 1118

NC 103 105 231 219 325 273 313

NW 615 697 786 952 1100 1289 1578

WC 552 769 1122 1306 1581 1869 2142

TOTAL 5072 6505 8152 10343 12442 15027 17222

(Source: National Treasury)

House Prices

Figure 33: ABSA HPI Figure 34: Price Differential: New vs Existing Property (ABSA)

According to the 2012Q1 ABSA Housing Review, the 2011 nominal house price was lower than the nominal prices measured during the previous year, however after taking into account the effect of consumer price inflation, (i.e. Real House prices) were on average lower in 2010. In 2011 the average price of middle-segment housing as measured by ABSA increased by 2,2%, falling from 2010’s average price increase of 7,3%. Real price deflation of 2,7% was reported for 2011, while in 2010 a real prices measured a 2,9% increase. In 2011 price growth for houses were as follows:

Small houses (80sqm-140sqm) measured a -4,2% y/y nominal and -8,7% y/y real

Medium houses (141sqm-220sqm) measured a 1,7% y/y nominal and -3,2% y/y real

Large houses (221sqm-400sqm) measured a 3,2% y/y nominal and -1,8% y/y real


2nd Quarter 2012


ABSA house prices for small sized houses fell by 17,8% y/y in April 2012, declining to R622 129 from R756 520 in

(April 2011), this is the largest decline within the segment measured to date. Medium sized houses measured a

1% y/y contraction in prices, falling to R964 039 from R973 554. Although this contraction rate was small, it

accelerated from the -0,1% contraction measured in the previous month. Large housing units also measured a

decline in prices, falling to R1 469 653 in April 2012 from R1 477 571 in the April of previous year.

The ABSA housing review noted that affordability of housing remained favourable up to the end of 2011, however high debt-to-income ratio, large portion of consumers with impaired credit records, the NCA and the banks’ lending criteria all played a role in hampering the favourable trend. It is in our opinion that there remains an effective demand for housing. Some may distinguish between real demand and effective demand. Effective demand can be described as the number of individuals applying for home loans, while real demand is the actual number of individuals being granted loans. There may be a rift between the demand by consumers who are willing to take on the debt and the supply of funds by banks granting these consumers access to finance (i.e. The National Credit Act).

Table 7: House Price Growth by size 2007-2011

(Source: ABSA)

Demand for smaller-sized, high-density housing remains high albeit affordability constraints, access to mortgages and rapidly rising housing operating costs. We don’t anticipate much positive movement in the housing market in the short-term. Affordability is however not limited to size only. A report by ABSA says affordability in the residential market improved slightly as a result of, firstly, low interest rates making mortgage interest rate which stands at 9% (33,5% lower than the mortgage rate recorded in December 2008). Secondly, the banks’ selective relaxation of mortgage lending criteria over the past two years, thus both factors supported the residential market. According to Dr. Andrew Golding, CE of Pam Golding Properties, the rising cost of living continues to put pressure on consumer affordability. He also noted that the Groups perspective highest demand for housing falls in the R1,5m – R3m price bracket, but they have also seen a growing demand from young, first-time home buyers wishing to gain a foothold in the owning of a residential unit. The FNB Property Barometer released in April 2012 indicated that the first quarter of 2012 saw an acceleration in house price growth in almost all of the segments when segmented by room number and title deed, contrary to the data released by ABSA. “With wage growth having seemingly slowed in 2011, house price growth more recently accelerating mildly, and no sign of further interest rate reduction since late-2010, it would appear that the steadily improving housing affordability trend since around 2009 has almost ground to a halt.” As indicated by the FNB Estate Agent Survey, large financial pressure on households still exists.

Large houses (221sqm+) Medium sized houses (141 – 200 sqm) Small houses <141 sqm)

2007 17.5% 17.4% 11.4%

2008 5.4% 4.8% 5.6%

2009 -0.1% -2.6% -2.7%

2010 4.4% 4.7% 15.6%

2011 5.8% 3.3% -10.5%


2nd Quarter 2012


Non-residential constructionTable 8: non-residential Investment, 2005 Prices (SARB)

Non-Residential investment has provided a cushion to the sharp decline experienced in residential investment, but indicators are suggesting a weakening in this market in the next 12 to 18 months, following a sharp contraction in the rate by which new plans are approved, high vacancy rates and poor income yields.

The value of projects awarded in the non-residential sector for 2011Q4 increased to R11,1bn, from R3,1bn in 2011Q3 (Constant prices).

Tendering activity contracted strongly during 2010, as fewer projects were put out to tender. Excluding tenders related to the education sector (as most of these projects are very small, internal renovations, with no construction associated with it), tendering activity in the non-residential sector looked to recover during 2011 with double-digit growth rates being recorded bearing in mind however these were coming off a low base. The tender index for non-residential buildings excluding education recorded a 21,1% y/y growth in December 2011, slowing from October and November’s annual increase of 32,1% and 24,4% respectively.

Thus considering the leading indicators for non-residential investment, we expect actual investment to contract in the next few quarters, but are encouraged by the fact that activity levels have started showing some improvement which could support a soft recovery in 2013.

Major NEW projects awarded during the 1st Quarter of 2012:

R850m New Cradlestone Shopping Mall, Gauteng, Krugersdorp

R456m New Brits Hospital, North West, Brits

R365m New Government Office Agrivaal, Gauteng, Pretoria

R300m New Burgersfort Regional Mall, Mpumalanga, Burgersfort

R240m New Platinum Square retail centre, North West, Rustenburg

R200m New Office Block , Western Cape, Bellville

R200m Alice Lane Office, Gauteng, Sandton

Quarter Investment in non-residential buildings, Rm 2005 prices, Seasonally

adjusted annualised rates

% Annual change

2007 R33,198 20.8%

R33,556 16.7%

R34,036 12.7%

R34,706 9.0%

2008 R34,810 4.9%

R35,859 6.9%

R37,440 10.0%

R38,587 11.2%

2009 R39,534 13.6%

R38,606 7.7%

R38,856 3.8%

R39,088 1.3%

2010 R37,964 -4.0%

R38,163 -1.1%

R38,073 -2.0%

R37,556 -3.9%

2011 R37,356 -1.6%

R37,199 -2.5%

R37,086 -2.6%

R37,079 -1.3%


2nd Quarter 2012


R180m New Protea Glen Mall, Gauteng, Soweto

R175m New Chemistry Building, University of Western Cape, Bellville

R150m New Head Office for GCIS, Gauteng, Pretoria

R150m New Makro Store, Free State, Bloemfontein

R137m New Casualty-Frontier Hospital, Eastern Cape, Queenstown

R135m New Paediatrics Wing-Frontier Hospital, Eastern Cape, Queenstown

R130m New Massbuild Distribution Centre, Gauteng, Midrand

R100m New Urban Park Development, KwaZulu Natal, Umhlanga

Amidst improved indicators, the outlook for future investment by the private sector remains dim. The number of SQM approved for new private development grew by 7,1% y/y to 2 620 259m2 (Mar 12-MAT) from 2 445 609m2 (Mar 11-MAT). The role of the private sector has deteriorated as a result of affordability constraints and limited access to funding and is expected to remain under strain as the market simply does not provide sufficient stimulus to encourage private sector investment, but they are however still the largest investors by client type. Government investment on the other hand, is supported by demand for improved social infrastructure including increased investment in health, education and protective services. The challenge remains whether or not these allocated budgets can be effectively spent. The renovations market saw signs of improvement from April to August of 2011 with each month under consideration reporting positive growth rates within the non-residential renovations markets. This was short-lived as growth rates slumped and fell back into negative territory with September 2011 and continued to deteriorate recording a 30% y/y decline in March 2012 to 1 020 511m2 (MAT) from 1 457 336m2 (Mar 11-MAT). March 2012 reported the largest contraction since September 2010.


2nd Quarter 2012


Figure 35: Non-residential investment

Figure 36: Non-residential BPP: New vs Renovations (y/y% change) (MAT)

Figure 37: Non-residential New Space development: BPP vs BPC (MAT)

Figure 38: Non-residential Development Index: Index 1999=100


2nd Quarter 2012


Landscape of Non-residential buildings

Figure 39: Landscape of private sector BPP for Non-residential Construction: March 2012 (MAT)

Table 9: Plans Approved for building construction March 2012 (MAT) Private Sector (Stats SA)

WC EC NC FS KZN NW GAU LIM MPU TOTAL

Offices 112 535 24 538 7 423 5 115 86 562 8 668 258 528 4 503 18 724 526 596

Shops 113 369 55 670 9 448 54 425 81 867 21 328 130 619 7 376 112 266 586 368

Industrial 307 932 93 341 13 073 31 672 380 803 36 277 511 647 46 521 86 029 1 507 295

Housing 1 333 190 266 876 141 689 307 299 644 727 403 265 2 377 658 270 283 460 772 6 205 759

Renovations Housing

857648 285827 59540 150749 362806 154745 1068091 135351 67667 3 142 424

Renovations Other

275897 100342 51402 48660 149154 36168 318409 29063 11416 1 020 511

TOTAL 3 000 571 826 594 282 575 597 920 1 705 919 660 451 4 664 952 493 097 756 874 12 988 953

Non-res % of SQM approved of Total

27.0% 33.1% 28.8% 23.4% 40.9% 15.5% 26.1% 17.7% 30.2% 28.0%

(Source: Stats SA)


4th Quarter 2011


Figure 40:Non-residential Value of Projects Awarded by building type: 2012Q1

Of total construction expenditure that took place in the first quarter of 2012, the health sector received the largest portion of 29% or R2,5bn in construction expenditure. The retail sector had a construction expenditure value amounting to R2,27bn which amounted to a market share within the non-residential sector of 26% for 2012Q1. Commercial property and the education sector had projects awarded to construction expenditure values of R1,71bn and R1,54bn with market shares of 20% and 18% respectively. Industrial contract values amounted to R411m while entertainment construction expenditure values amounted to R171m in the first quarter of 2012.

Office Space Development Table 10: Office Space Development Indicators

Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12

Office space approved

MAT (SQM; y/y % chg)

-23.3% -16.3% -10.0% -7.2% -2.5% 3.6% 8.2% 17.8% 21.2% 22.1% 18.0% 16.6%

Office space completed MAT (SQM;

%chg)

-34.6% -41.6% -30.1% -31.1% -26.1% -23.1% -26.3% -37.2% -35.2% -30.8% -34.4% -37.9%

Business Confidence

(SACCI) 102.5 101.2 102.4 99.0 98.6 98.4 97.5 97.4 99.1 97.1 99.5 95.7

RMB/BER Business

Confidence (Quarterly)

48 39 38 52

(Source: Stats SA, RMB/BER, SACCI)


2nd Quarter 2012


The number of SQM approved in the commercial property market reported its first positive annual growth rate in 30 months in September 2011 and continued to improve recording a 16,6% y/y increase in building plans passed from 451 702m2(Mar 11-MAT) to 526 596m2 (Mar 12-MAT). The annual growth rates recorded slowed in March 2012 compared to the growth rates measured between November 2011 and February 2012.

In the Office Vacancy Survey report released by SAPOA, which covers 15,1 million SQM of stock across 50 commercial nodes, the vacancy rate remained unchanged at 10,4% in the first quarter of 2012 compared to the previous quarter, while increasing from the 9,9% vacancy rate measured in 2011Q1. The report states that it is in their opinion office vacancy rates are beginning to stabilise. Since the second quarter of 2011, the SQM of new office space available for rent due to “new” additional space, increased by 39% to 709 135m2. Of this, 373 040m2 are still available for rent, which implies a vacancy rate for new office developments of 52%. While still extremely high, it has improved from 61,8% in 2010Q3. Most of the new additional office space was added in Rosebank, contributing 13% to the national total, with a vacancy rate of 24,7% for new space and 7,7% for existing space. Sandton contributed 11,7% to the national total, but with a much higher vacancy rate of 89%. The average R/m2 for new space was R160/m2in Sandton vs R140/m2 in Rosebank. Other areas where new space is being added include Menlyn, Cape Town CBD, Eastern suburbs of Pretoria, Centurion, Umhlanga, Cresta

and Randburg, to name a few.

On the supply side, the number of square meters approved for March 2012 contracted by 37,9% y/y, the highest annual rate measured in three months. Total building plans completed amounted to 367 823m2 (Mar 12-MAT) from 591 948m2 (Mar 11-MAT). The annual rate of -37,9% y/y measured in March 2012 declined further from the 34,4% y/y contraction measured in the previous month.

Building activity has already contracted sharply in this sector, and with further declines reported in pipeline activity, the market is not expected to recover in the short to medium term. Optimism within the business sector is highly sensitive to consumer behaviour which is directly and indirectly impacted by factors taking place within the international market. RMB/BER business confidence level has improved, but conditions remain tough and highly competitive.

Figure 41: Office space y/y% change Figure 42: Office space BPP vs BPC

According to research

conducted by Broll, Sandton

CBD is a major growing node

for office space development

in Gauteng. New

developments in the planning

stages are expected to

produce 400 000m2 of high

rise modern buildings. Rentals

have stabilized, with some

rentals having been reduced in

some cases. New

developments are expected to

rent at R140 –R150/m2 for

2013, while existing prime

grade rentals can be

negotiated from R125/m2.

New buildings are currently

under construction for several

large users, including

Alexander Forbes (36 000m²),

Ernst & Young (23 000m²) and

Marsh (18 000m²).


2nd Quarter 2012


Table 11: Key office projects awarded, tendered and postponed: 2012Q1

Project Status Description Province City R mill

(Current prices)

Awarded New Office Blocks- First Rand Bank Western Cape Bellville R200m

New Alice Lane Offices Gauteng Sandton R200m

New Head Office - GCIS Gauteng Pretoria R150m

Tendered - - - -

Postponed New Offices – Seers on Maude Gauteng Sandton R900m

(Source: Databuild/ Industry Insight Database)

Retail Space Development

Table 12: Retail Space Development Indicators


Retail space approved MAT (SQM % chg y/y)

-40.6% -25.8% -27.9% -15.1% -11.8% -2.0% 19.6% -5.4% -0.4% -30.6% -21.9% -15.2%

Retail space completed MAT (SQM % chg y/y)

-29.6% -35.0% -18.7% -25.8% -17.9% -16.5% -29.1% -19.8% -4.3% -0.3% -4.1% -3.4%

Residential approved (SQM % chg y/y)

3.2% 1.6% 2.4% 0.5% -1.5% -1.9% -1.7% -0.5% 0.6% 1.3% 2.7% -2.9%

Retail trade

(% chg y/y)

10.0% 1.1% 2.4% 3.0% 7.7% 7.7% 7.5% 7.2% 8.7% 4.2% 6.7% 6.8%

(Source: Stats SA)

The approval of new retail space reported a contraction of 15,2% y/yin March 2012 to 586 368m2 (MAT).Consumer confidence remains unstable, while disposable income to debt ratio is still high (although it has showed an improvement to below 75% to disposable income). These factors, in addition to higher fuel and food prices, impact negatively on prospects in the retail sector. With interest rates continuing to remain in favour of the consumer, spending has shown some signs of growth, but not to the degree anticipated. Retail sales in slowed to 4,2% y/y in January 2012 from 8,7% y/y increase in December 2011, but has pick-up to 6,8% y/y in March 2012. According to The Nielsen Company’s retail service director of South Africa and Sub-Sahara, Craig Henry, retailing in 2025 is expected to look a lot like the market does currently. "Considering everything that is happening on the global stage, the changes are small adjustments to the turbulence in the market, they are not dramatic," said Craig Henry. Internet shopping has also picked-up and is said to stay. The company too conducted an online survey that indicated that the number of South African’s shopping online had steadily increased over the past two years, with 58% of respondents in the survey of active internet users saying that they used the internet for shopping. This was an increase from the 53% that said that they shopped online in 2010, and the 44% that gave the same answer in 2009. In addition to increased internet sales, the Global Payment Tracking Survey 2011 conducted by Visa indicated that South Africans


2nd Quarter 2012


are getting more comfortable with spending on their debit card. Between 2010 and 2011 debit cards accounted for 42% of the card market, and consumers are spending more on their cards.

Figure 43: Retails Sales vs Retail SQM Approved

Final household consumption has measured positive growth since the first quarter of 2010 growing to a 5,4% y/y increase in 2011Q2 but has since softened reporting a 4,5% y/y increase in consumption in the last quarter of 2011. Retail sales are said to improve supported by an increase in the emerging black middle class and the slight increase in disposable income. According to recent building statistics from Statistics SA the number of square meters approved for new retail space declined by a minimal 3,4% y/y in March 2012 from 614 649m2 (Mar 11-MAT) to 593 837m2 (Mar 12-MAT). The annual contraction rate slowed in December 2011 to 4,3% y/y from rates of high above 15% between October 2009 and November 2011. January recorded a 0,3% y/y decline, but declined further to a 4,1% contraction in February 2012, before improving to the 3,4% y/y contraction measured in March.

Figure 44: Retail space BPP vs BPC

Figure 45: Retail space y/y% change


2nd Quarter 2012


Table 13: Key retail projects awarded, tendered and postponed: 2012Q1

Project Status Description Province City R mill (Current prices)

Awarded New Cradlestone Shopping Mall Gauteng Krugersdorp R850m

New Burgersfort Regional Mall-Phase 1 Mpumalanga Burgersfort R300m

New Platinum Square North West Rustenburg R240m

New Protea Glen Mall Gauteng Soweto R180m

New Makro Store Free State Bloemfontein R150m

Tendered - - - -

Postponed New Letaba Mall Limpopo Tzaneen R600m

(Source: Databuild/Industry Insight Database)

Industrial and Warehouse Space Development Table 14: Industrial Space Development Indicators


Industrial space approved (SQM, MAT)

1,293.5 1,357.7 1,290.6 1,322.8 1,279.8 1,370.2 1,434.1 1,461.8 1,454.6 1,446.0 1,483.1 1,507.3

Industrial space approved (SQM, % chg y/y)

-21.3% -7.0% -12.8% -10.6% -12.9% -5.4% -0.2% 4.8% 8.6% 6.0% 11.5% 15.7%

Industrial space completed (SQM, MAT)

852.6 841.4 841.5 803.4 728.1 730.3 748.3 785.4 831.6 849.8 864.2 794.7

Industrial Plans complete (SQM, % chg y/y)

-35.1% -33.3% -33.7% -35.0% -40.0% -37.9% -32.4% -22.9% -12.8% -9.3% 1.5% -7.3%

Kagiso’s Purchasers Managers Index (PMI)

55.5 54.9 54.2 46.4 48.2 50.2 50.5 51.6 49.4 53.2 57.9 55.1

Manufacturing Production (Index)

94.7 102.8 104.9 99.4 107.7 110.5 113.2 117.1 93.1 90 103.7 107.4

Manufacturing Production (% chg y/y)

0.1% 1.0% 1.1% -6.1% 5.9% 8.2% 1.2% 2.8% 2.4% 2.3% 4.0% -2.7%

(Source: Stats SA, Kagiso)

An important indicator used to gauge the future prospect for industrial space development is the rate of change in local manufacturing production. Manufacturing production growth fell into negative territory for the first time in 7 months reporting a 2,7% y/y contraction in March 2012 as an economic slowdown in Europe weakened demand for exports. Recently South Africa announced a R5,75bn 3 year program to boost investment in the manufacturing sector and raise growth in the economy. Eligible companies can apply for capital-investment grants and funding to improve their competitive and energy efficiency. Minister of Trade and Industry, Rob Davies said that the manufacturing sector has experienced some challenges including rising electricity prices and volatile currency. With manufacturing accounting for 15% of South Africa’s GDP, it has slowed from the 21% share measured in 1977. Companies will have to agree not to fire workers while receiving support under the program and to meet government targets that seek to draw more of the country’s black majority into the mainstream economy, Davies said.


2nd Quarter 2012


Figure 46: Industrial space vs Manufacturing Production (y/y% change)

Figure 47: Industrial space BPP vs BPC

Figure 48: Industrial space y/y% change

The number of SQM approved has taken an upward position recording the largest annual increase since May 2007. A 15,7% y/y increase in the number of SQM approved was recorded in March 2012, growing by a total of 204 655m2 from March 2011 to 1 507 295m2 (Mar 12-MAT). The annual growth rate in SQM approved increased from the February 2012’s annual growth rate of 11,5% y/y which subsequently expanded from the 6% y/y increase measured in January 2012.

Building plans completed moved into positive territory reporting a 1,5% y/y increase in March 2012, measuring the first positive annual growth rate in 25 months. Plans completed grew from 851 356m2 (Mar 11-MAT) to 864 219m2 (Mar 12-MAT). The expansion in March 2012 improved from a9,3% y/y decline rate measured in February 2012.

With government focusing on investment in the manufacturing sector in order to boost economic activity, this creates a positive outlook for industrial space through possible higher demand. The Euro zone recession has caused a slowdown in exports as a result of strained finances and lower demand from their side, the manufacturing sector is being supported through investment. Respondents to the Manufacturing Circle's quarterly survey were optimistic in the light of government's infrastructure investment drive, but said various risks dampened their confidence. These risks included a deficiency in water and electricity supply and scarcity of raw materials like good grade coal and steel. Rising transport and energy costs, and uncompetitive labour costs coupled with the appreciating rand value were also key factors.

Kagiso’s purchasing manager index (PMI) declined to 55,1 points in March 2012, after having improved in January and February 2012, where new sales orders and business activity indices drove the sharp rise in the 57,9 points in February.

Although the PMI level is said to be remaining at a favourable level, however outlook is said to be less optimistic.


2nd Quarter 2012


The East London Industrial Development Zone (IDZ) has announced an R80m automotive component supplier investment for the upcoming Mercedes Benz C-Class W205, at a ceremony hosted at the company’s industrial park in May. The investor, RG Brose, will be suppliers of seat structures, window and door modules for the W 205 C-Class model. “We will initially employ about 80 local workers as we’ll be doing business with the MBSA plant in East London. Once we utilise our position in the IDZ and do business with the likes of VW and General Motors, we then aim to grow to about a 180 jobs by 2017,” says RG Brose Managing Director Stefano Gulmini.

Minister of Trade and Industry Rob Davies briefed the media on the gazetting of Special Economic Zones (SEZ) Bill for public comment. The minister said that special economic zones would expand the work done by the Industrial Development Zones (IDZs) and attract more foreign investment. In particular SEZs would also help stimulate industrialisation outside of the country’s main urban areas of Cape Town, Gauteng, Durban-Pietermaritzburg, East London and Port Elizabeth, he said. The department’s IDZ programme was initiated in 2000 and four zones had been designated, with three currently operational – namely Coega near Port Elizabeth, East London and Richards Bay, while the fourth IDZ at OR Tambo International Airport in Johannesburg has yet to come into operation.

Table 15: Key industrial projects awarded, tendered and postponed: 2012Q1


(Current prices)

Awarded New Massbuild Distribution Centre Gauteng Midrand R130m

Tendered - - - -

Postponed - - - -

(Source: Databuild/Industry Insight Database)


2nd Quarter 2012


Government Expenditure on Social Infrastructure South Africa is ready to roll out a multi-billion rand state-led infrastructure drive that focuses on infrastructure development in energy, transport and logistics, infrastructure to schools, hospitals and nursing colleges. Deputy President Kgalema Motlanthe unveiled the detailed plan of government which is expected to be taken to the provinces and other stakeholders to start implementation. The plan was first announced by President Jacob Zuma in his State of the Nation address in February 2012. According to the report, Public Private Partnerships are on the table.

The social and economic infrastructure projects are expected across all nine provinces, focusing on undeveloped areas. Energy projects will focus on ‘greening’ the nation, supporting sustainable energy initiatives through a diverse range of clean energy options. Several new hospitals will be built, and existing ones refurbished in preparation for the National Health Insurance Scheme. About 122 nursing colleges will be revamped, and 90 new schools will be built this year. In Limpopo investment in rail, water pipelines and energy generation and transmission has been identified, with emphasis on coal and platinum mining for local use and export. In KwaZulu Natal plans exist to strengthen the transport corridor between South Africa’s main industrial hubs, while improving access to Durban’s export and import facilities. Work will focus on strengthening maritime capacity in the Saldanha-Northern Cape linked region in the Western Cape.

Health Sector The government are implementing changes to transform the health sector, which specifically involves improving the quality of and management of health services for national health insurance (NHI). Other interventions include intersectoral collaboration with government departments responsible for key determinants of health such as education, water, sanitation and housing, as well as community participation and partnerships with civil society and the private sector. Expenditure in the health sector grew from R16,4bn in 2008/09 to R26bn in 2011/12 and is expected to increase over the medium term to R33,9bn. The 2012 Budget included new allocations of R97,6m in 2012/13, R618,4m in 2013/14 and R1,9bn in 2014/15. Of the Budget the following took priority, R100m, R150m and R200m was allocated to nursing colleges to plan and coordinate the upgrading, recapitalisation and maintenance of nursing colleges, R128m allocated to provide the first of 5 large hospital PPP’s under the Hospital Revitalisation Grant. Spending on infrastructure includes allocations for the hospital revitalisation, health infrastructure and nursing college grants.

The NHI will be implemented over a 14-year period, starting in 2012. Health Minister Aaron Motsoaledi identified 10 districts in the company for the awaited pilot of South Africa’s National Health Insurance (NHI) pilots would focus on the most vulnerable sections of society across the country, reduce high maternal and child mortality through district-based health interventions, and strengthen the performance of the public health system in readiness for the full roll-out of NHI. The districts are: OR Tambo (Eastern Cape), Gert Sibande (Mpumalanga province), Vhembe (Limpopo province), Pixley ka Seme (Northern Cape), Eden (Western Cape), Dr K Kaunda (North West), Thabo Mofutsanyane (Free State) and Tshwane (Gauteng).


2nd Quarter 2012


Table 16: Key Health Projects 2012Q1


(Current prices)

Awarded New Brits Hospital North West Brits R456m

Refurbishment of Mental Health facility Northern Cape Kimberley R400m

Additions to Thabazimbi Hospital-Phase 3 Limpopo Thabazimbi R160m

Additions to Vredenburg Hospital-Phase 2B Western Cape Vredenburg R150m

Structural Repairs –Prince Mshiyeni Memorial Hospital KwaZulu Natal Umlazi R142m

New Casualty/OPD-Frontier Hospital Eastern Cape Queenstown R137m

New Paediatric Wing-Frontier Hospital Eastern Cape Queenstown R135m

Tendered New Medi-Clinic Gauteng Centurion R230m

New Williston Health Care Centre-Phase 3 Northern Cape Williston R120m

Postponed - - - -


Education Sector

The 2012 Budget provides allocation over the MTEF period of R149,6m, R322,1m and R257,5m for a number of priorities including education infrastructure grant for disaster relief (R119,5m in 2012/2013 and R158,9m in 2013/2014).

The infrastructure grant to provinces in the National Treasury vote was phased out in 2011/12 and the education portion of this grant became the education infrastructure grant. This grant is used to supplement the ongoing infrastructure programme in provinces, including the construction of new schools and additional spaces such as specialist rooms, and the maintenance programmes of the new and revamped structures built from the schools infrastructure backlogs conditional grant. R18,3bn is allocated to this grant over the MTEF period.R13bn has been allocated over the MTEF period to the school infrastructure backlogs grant, a new grant introduced in 2011/12. The grant’s purpose is to eradicate and replace inappropriate school infrastructure such as mud schools and other unsafe structures, and to ensure that all schools have basic services like water, sanitation and electricity. These funds will be used to replace 395 mud schools, provide water to 1 307 schools, sanitation to 536 schools and electricity to 1 434 schools. Provincial education departments will ensure that the ongoing maintenance costs of these schools form part of their infrastructure plans. R663,7m has been allocated over the MTEF for the technical secondary schools recapitalisation conditional grant to build, refurbish and resource new and existing teaching spaces such as technology workshops and classrooms. Under this grant, 35 new workshops will be built, 124 workshops will be refurbished, 128 workshops will be provided with equipment and 445 technology teachers will be trained.

Table 17: Key Education Projects 2012Q1


(Current prices)

Awarded New Chemistry Building- University of Western Cape Western Cape Bellville R175m

Tendered - - - -

Postponed New Cedar Special School KwaZulu Natal Cedarville R250m



2nd Quarter 2012


Figure 49: Contracts Awarded: Health and Education (Databuild/Industry Insight)

Figure 50: Value of Contracts Awarded: Education and Health 2012Q1 (Databuild/Industry Insight)

The number of contracts awarded in the health

sector increased by 76,2% y/y in March 2012 to 222

(MAT) from 126 (Mar 11-MAT), while also measuring

a 3,3% m/m increase from 215 (Feb 12-MAT). The

number of projects awarded in the education sector

grew 51,0% y/y increase in March 2012 to 586 (MAT)

projects from 388 (Mar 11-MAT). The trend for

contracts awarded in education continues to

decelerate and remains on a downward trajectory.

On the other hand, project activity in the health

sector has picked up again and is currently moving

upward.

KwaZulu Natal held the largest construction

expenditure value by province of R589,6m for

contracts awarded in 2012Q1 in the health sector.

The Western Cape held the largest construction

expenditure value by province for contracts

awarded in the education sector amounting to

R582,9m for 2012Q1.

As depicted in figure 49, the value of health

contracts exceeded the value of education

contracts in 6 of the 9 provinces, indicating the

shift from focus on education to health projects.


2nd Quarter 2012


Building Renovations Table 18: SQM Approved: Renovations and Additions (Private Sector only)

Square meters Approved % Annual Change

Residential Non-residential Total Residential Non-residential Total

2007 5,123,325 1,421,398 6,544,723 -3.1% -0.7% -2.6%

2008 4,081,631 1,830,398 5,912,029 -20.3% 28.8% -9.7%

2009 3,317,821 1,664,577 4,982,398 -18.7% -9.1% -15.7%

2010 3,442,503 2,049,542 5,492,045 3.8% 23.1% 10.2%

2011Q1 750,154 214,869 965,023 -6.9% -19.8% -10.1%

2011Q2 790,849 224,896 1,015,745 -6.8% -17.2% -9.3%

2011Q3 814,379 271,049 1,085,428 -13.7% -49.6% -26.7%

2011Q4 804,534 331,276 1,135,819 -4.9% -11% -6.7%

2012Q1 737,989 193,969 931,958 -1.6% -9.7% -3.4%

(Source: Stats SA)

Figure 51: House Renovations vs House Price Growth

Figure 51: Renovations Market


2nd Quarter 2012


During late 2010 and most of 2011 the renovations market was a major segment in the building sector, with many contractors finding work only in the renovations market. The renovations market weakened throughout 2011, with the number of SQM building plans passed for both the residential and non-residential sectors reporting fairly high annual contraction rates. As seen in Table 18 above, the pace of contraction has slowed, however negative annual rates are still being reported. Renovations and additions in the residential market contributed 24,2% to the national total of SQM approved for the construction industry (excluding civil projects) in March 2012 compared to a 23,7% contribution measured in March 2011. The contribution of additions and renovations in the development of non-residential space measured 7,9% contribution to total national construction SQM approved for March 2012, slowing from the 8,2% contribution towards total SQM approved measured in February 2012. Given that a portion of the renovations market is unaccounted for due to what’s known as the “ghost market” one could assume that the contributions could be slightly higher than the values measured according to Stats SA.

During 2010 and 2011 when the renovations market was at a peak, the affordability of consumers to purchase new houses was limited, therefore consumers opted to renovate their homes in order to add value to their existing property. Renovations in both the residential and non-residential markets have slumped, with the non-residential sector recording a 30% y/y contraction in SQM approved for March 2012, the highest rate of decline measured since September 2010. One would anticipate that new Green Legislation on non-residential properties would maintain levels of renovations in the relevant sector, however the rejuvenation and retrofitting of such buildings, specifically within the inner city, are said to be highly costly and given liquidity constraints in the private sector there has been a slowdown. Total SQM approved for non-residential renovations in March 2012 amounted to 1 020 511m2 (MAT) from 1 457 336m2 (Mar 11-MAT).

Renovations within the residential sector have been fairly flat at contraction rates of between 7% and 8% y/y for the past 8 months. March 2012 recorded a decline in SQM approved of 7,4% y/y from 3 391 996m2 (Mar 11-MAT) to 3 142 424m2 (Mar 12-MAT). This rate grew from February 2012’s annual contraction of 7% y/y.

Figure 52: Contribution of Renovations to Total SQM approved


2nd Quarter 2012


Tourism Accommodation

Lonrho, an industrial conglomerate is partnering with global private investment company easyGroup to expand the easyHotel.com brand of hotels into Africa, starting in Johannesburg. The first easyHotel.com-branded hotel, which will be known as the "easyHotel Rissik Street", will the first of 50 hotels to be opened in Africa by 2016 under an exclusive 20-year master franchise agreement between Lonrho and easyHotel. The historic Stuttafords department building in Johannesburg will be completely revamped to become the "easyHotel Rissik Street", which is located in the city’s regenerated and rapidly expanding CBD. easyHotel's low-cost business model gives customers an international-standard bedroom at a highly competitive price. The "easy" brand is one of most recognised and successful value-for-money brands in the world.

In April this year an article was released by ‘How we made it in Africa’ which identified Africa’s top locations for new hotels. It stated that Nigeria-based W Hospitality Group conducted a survey on the international hotel brands’ development activities in Africa. At the beginning of 2012, hotel operators reported a total of 208 hotels, with just over 38,000 rooms, in their development pipelines in Africa. This means signed deals, but not necessarily foundations being laid. Pipeline work in Africa has seen a massive increase, with a 31% increase in hotels and a 21% increase in rooms. Development in North Africa historically outperformed other African regions, with the Arab Spring leading to delays and cancellations. The 2,4% increase in pipeline rooms in 2012 is eclipsed by the chains’ advances in sub-Saharan Africa where, after a reduction in 2011, this year sees a massive 42% increase in pipeline rooms. The survey revealed the Top 10 countries by number of rooms for hotel development in Africa 2012 as displayed in table 19 below:

Table 19: Top 10 Countries for Hotel Development in Africa: By number of rooms 2012

Rating Country Number of Hotels Rooms

1 Nigeria 43 6 808

2 Egypt 19 5 923

3 Morocco 35 5 809

4 Algeria 14 2 537

5 Tunisia 8 2 096

6 Ghana 11 1 752

7 Gabon 8 1 260

8 Libya 3 1 084

9 South Africa 8 990

10 Cote d’Ivoire 3 858

(Source: How we made it in Africa)

Nigeria, Africa’s largest country by

population, the powerhouse of West Africa

and is said to overtake South Africa this

decade as the largest economy on the

continent, has almost 7 000 rooms under

contract, up 2 000 on the 2011 figure. New

openings have recently included Radisson

Blu, Four Points by Sheraton, Ibis and Legacy

in Lagos. Many groups have hotels under

construction there, including Accor, Hilton,

IHG and Protea, the last named increasing

their presence in the country from 10 hotels

to 16 hotels in the next three years. Other

groups hoping to enter the Nigerian market

for the first time, and who have signed deals,

include Kempinski, Mantis, Marriott and

Wyndham.


2nd Quarter 2012


Table 20: Key Hotel Projects 2012Q1


(Current prices)

Awarded Urban Park Development KwaZulu Natal Umhlanga R100m

Tendered - - - -

Postponed New Apartment Hotel- Le Chateau North West Brits R300m


The number of contracts awarded for hotels in March 2012 increased by 64,3% y/y to 23 (MAT) projects from 14 (Mar 11-MAT). As indicated by the blue line in figure 54, the annual growth rate has decelerated and is currently on a downward trajectory, indicating a slowdown in demand for hotel development, supported by limited private finance. The value of these projects has therefore taken a negative turn and is also on a downswing. Albeit the downturn in value, March 2012 recorded a 1 248,4% y/y increase in the value of projects awarded from R196,8m (Mar 11-MAT) to R2 653,5m (Mar 12-MAT), bearing in mind this growth rate has come off of a very low base. It is important to recognise that given the state of global finances, the tourism industry internationally measured declines, specifically post the financial crisis from 2008 to 2010. The total number of foreign tourists who visited South Africa for holiday purposes measured a 96,4% y/y contraction in number in February 2012, to 21537 (Feb 12) from 598 173 (Feb 11) respectively. January and February 2012 have recorded the largest annual contractions to date of 98% y/y and 96,4% y/y. On the other hand, when looking at the number of travellers who entered South Africa, for whatever reason being holiday, business, study or transit, the number of individuals increased by 8,6% y/y in February 2012, growing to 677 674 from 631 351 (Feb 11).

Figure 53: Construction of tourist accommodation

Figure 54: Hotel Contracts Awarded: Value (R’m) vs Volume


2nd Quarter 2012


Figure 55: Foreign Travellers into South Africa Figure 56: Hotel construction postponement rate


2nd Quarter 2012


Longer term outlook: Investment in buildings

Table 21: Investment in Buildings: Rm, Constant 2005 prices: 2011-2016 (Base Case Scenario)

2011 2012 2013 2014 2015 2016

Residential 24372 24 902 25 660 26 741 27 718 29 050

% Change -3.1% 2.2% 3.0% 4.2% 3.7% 4.8%

Non-residential buildings 37180 38 031 39 058 40 965 42 598 44 797

% Change -6.5% 2.3% 2.7% 4.9% 4.0% 5.2%

Total Investment in Building 61552 62933 64718 67706 70316 73847

% Change -3.9% 2.2% 2.8% 4.6% 3.9% 5.0%

Based on key economic variables, predicted in the base case scenario outlook, investment in residential buildings is expected to increase by 2,2% y/y in 2012 after weakening during 2011. On average investment in residential building is expected to grow by an annual rate of 2,5%. Non-residential investment also softened during 2011 by 6,5% y/y, but is anticipated to improve in 2012 by 2,3%. Investment in non-residential buildings is expected to grow by an annual average of 2,1%. Growth forecasts for both the residential and non-residential sectors have been revised downward due to uncertain global and domestic market conditions, tight budgets in the private sector, higher administrative expenses and overall higher costs being relayed onto the consumer.

Figure 57: Investment in Building: Constant 2005 Prices (R'm) 2011-2016


2nd Quarter 2012


Medium term forecasts are underpinned by the following considerations:

Political environment – South Africa’s national government continues to strive for policies that drive change, encourage certain actions, while also preventing other actions. Policies that ensure allocation of resources and execution thereof are done so correctly. There remains a ‘rift’ in the ANC, encouraged after the expulsion of Youth League President Julius Malema. The most recent turmoil in the ANC in media releases was regarding “The Spear” painting of President Jacob Zuma caused much outcry of embarrassment, disgust and hurt towards the President himself, family members and avid ANC supporters. In addition police commissioner Bheki Cele has been probed with allegations of conduct in the awarding of a multi-billion rand lease tender to businessman Roux Shabangu, indicating corruption at high levels within government departments.

Economic environment –international economies continue to weaken, impacted directly by the negative effects taking place in the Euro zone area, with Greece having fallen back into recession. Domestic economic conditions are still dampened by global markets and growth prospects for 2012 going forward have been cut by organisations including the IMF and SARB. Business conditions are somewhat stable, given improvement in the confidence index; however volatility in other sectors relating to cost factors may impact the markets relatively easily.

Inflationary environment – inflation fell back into the 3% - 6% target bracket of the SARB in April 2012 and is expected to stabilise. The inflation outlook has improved in terms of both the projected level of the peak and the profile of returning to the target. There is upside risk to the inflation outlook with the main risks to the inflation outlook remaining the oil price, administered prices and the impact of global risk adjustments on the exchange rate.

Financial environment:

Lending rates – lending rates have been left unchanged for the past 18 months at 9%, the lowest level in 30 years. Given the economic conditions, the MPC wished to maintain its accommodative monetary stance and support expansion through favourable lending condition to consumers. TheMPC has made note of all vulnerabilities and uncertainties in global and domestic markets and monitor events closely in order to act in whichever direction deems fit.

Exchange rate – The exchange rate is being affected by changing investor sentiment in the international finance market. The rand volatility increased and it appreciated to a level of R7,65 against the US dollar before resuming a depreciating trend. “The exchange rate was given some impetus by the announcement in April of the possible inclusion of the rand in the Citibank World Global Bond Index.” Concerns surrounding the Euro zone outlook have caused the rand to depreciate further, feeding into the inflation outlook.

Consumer spending: Minister of Finance Pravin Gordhan noted in his Budget Vote speech in May 2012 that consumer spending and investment are were growing robustly as of the last quarter of 2011, however has shown signs of moderation. Household consumption expenditure is expected to contribute positively towards real GDE in the first quarter of 2012, but at a slower rate than measured in 2011.


2nd Quarter 2012


Civil Construction Expenditure

The civil industry consists mainly of investment in economic infrastructure such as transport, water & sanitation

services, energy and mining. Investment in civil works is funded primarily by government and state owned

enterprises including Eskom, Transnet and ACSA.

This section of the review aims to clarify some of the current trends in civil construction, as well as look at key

performance indicators affecting the short and near term outlook in the civil industry. These indicators are

monitored on a continuous basis.

Current market activity

Investment growth in civil works (including

professional and contracting fees) accelerated

somewhat in 2011Q4 to 2,3% y/y following a 1,7%

increase in the previous quarter. According to the

South African Reserve Bank, approximately R176bn

was spent on construction works during 2011, up

R10bn in nominal terms, compared to R166bn spent

during 2010. Spending on civil construction

(excluding spending on machinery and equipment)

stabilised in the fourth quarter following a 16% q/q

increase in the previous quarter (2011Q3). For the

year spending on civil contracting is estimated to

have increased by 6% y/y, compared to a 39%

decrease in 2010, according to surveys compiled by

SAFCEC. Data for the 1st quarter of 2012 was not yet

available at the time of publishing the review.

Figure 58: Civil infrastructure expenditure vs Economic production(SARB)

Table 22: Civil Investment

Figure 59: Source: South African Reserve Bank Quarterly Bulletin

Figure 60: GFCF: Civil Works, Rm 2005 prices The South African Federation for Civil Engineering

Contractors (SAFCEC) was initially more optimistic

regarding prospects for 2011 and 2012, supported

Current prices

2005 prices sea adj

annualised

Y/Y Change

Q/Q Change

Mar-09 41828 110751 47.1% 13.7%

Jun-09 40584 109698 33.5% -1.0%

Sep-09 40736 111355 18.2% 1.5%

Dec-09 42368 111880 14.9% 0.5%

Mar-10 42330 110368 -0.3% -1.4%

Jun-10 41149 108881 -0.7% -1.3%

Sep-10 40895 107798 -3.2% -1.0%

Dec-10 41893 107885 -3.6% 0.1%

Mar-11 43199 108434 -1.8% 0.5%

Jun-11 42588 109033 0.1% 0.6%

Sep-11 44276 109653 1.7% 0.6%

Dec-11 46315 110356 2.3% 0.6%


2nd Quarter 2012


by the announcement of several higher value

projects. However, delays in project

implementation, under spending on capital budgets,

and the recent shortage of bitumen, cold delay the

recovery for the foreseeable future. Based on a

recent survey, total investment in civil construction

is estimated to have increased by around 5,8% in

2011. Growth prospects are slightly higher for 2012,

but this will depend on government’s ability to

improve spending efficiency.

The current working environment is characterised

by tighter margins and much tougher working

conditions, including higher levels of competition in

tendering. Smaller firms have been experiencing

critical declines in volume of work for some time,

but larger players are now also feeling the pinch.

Figure 61: Nett profit or loss before taxation

Profitability hit rock bottom in 2011Q2, from 2,0%

in the previous quarter to 1,3%. Profitability

improved to 5,8% in 2011Q4, but dipped slightly to

5,6% in 2011Q4. Total expenditure by contractors

increased by 1,9% q/q in 2011Q4, translating to a

6,2% nominal increase compared to the same

quarter in 2010. Spending on interest increased by

30% y/y, while depreciation added 24,9% to total

expenditure (contributing 2,2% of total expenditure

in 2011Q4). Spending on capital expenditure fell by

40% y/y (2011Q4), after reporting a 6,5% q/q

increase, mainly related to increase spending on

motor vehicles. Fewer dividends were paid out,

down 80% y/y in 2011Q4. (Source Stats SA P0044)


2nd Quarter 2012


Figure 63: Pieter Snyman looks after stakeholder relations with a range of Northern Cape Communities. (www.ska.co.za)

Figure 62: Team currently working at SKA project in Northern Cape, Eskom, Conco and BV1 Consulting Engineers

South Africa was awarded the contract to host three

quarters of the Square Kilometre Array (SKA) project,

which means after nine years, this project can finally

move forward with detailed planning to get more

secure estimates of the cost of building, operating and

maintaining the SKA. This project could include the

construction of 3 000 radio telescope dishes, each 12 m

to 15 m in diameter, as well as other hybrid

technologies. The core of the SKA will be constructed at

a remote site 80km from Carnarvon, in the Northern

Cape. Construction is expected to start in 2013, and

achieve operational capability in 2016 and fully

operational by 2024.

Prospect suppliers registered on the SKA database, will

be preferred when tenders and quotations are issued.

For enquiries contact Mabela Satekge at 011 442 2434

or by email [email protected].

New tenders are being evaluated for buildings,

electrical infrastructure and specialist equipment to

manage and protect buildings against radio wave

interference. There are already 22 people working on

the site as at May 2012.

The contract specifications include strict adherence to

employment targets and contractors will be evaluated

on a monthly basis and penalised for non-compliance.

Maximising local labour is naturally a serious

consideration. It will be the responsibility of the

contractor (not SKA) to employ local labour and use

local suppliers. Now the search for funding begins.

R18,7bn –

R R27,5bn

Cost to construct

the SKA

Telescope

R1bn/year

estimate for

maintenance



2nd Quarter 2012


The economic implications for the Northern Cape

are significant. Sectors such as mining, construction

and science are expected to receive impressive

financial injections from the multi billion project.

Other major projects affecting the long term economic

outlook for the Northern Cape:

Apart from the SKA project, plans are

underway to build the solar park that will

generate an eighth of the country’s

electricity needs – 5000 MW in Uppington.

Eskom is leading the R150bn project, but it

is expected that smaller private companies

will also take advantage of the fact that the

area is already zoned for solar power

generation.

De Aar Freight Transport Hub to upgrade

De Aar’s status as a major railway junction.

De Aar has 110km of existing rail lines.

Douglas / Belmont Rail Branch line. Once

updated it will be more viable to build

food-processing plants in the area.

Uppington International Airport Cargo Hub.

The plan is to form a public private

partnership that would run the airport as a

transport cargo hub. Currently this airport

is used as a convenient entry point for

tourists.

Port Nolleth Harbour Development. The

Northern Cape does not have a major

harbour. Its main commodity, iron ore, is

exported through the Port of Saldanha, in

the Western Cape. Port Nolloth is

registered as a commercial port. The

provincial government is interacting with

national government to get the port

upgraded and therefore be able to play a

bigger part in the provincial economy.

Figure 64: Northern Cape Key infrastructure developments


2nd Quarter 2012


A few items that made headlines between April and May 2012:

In April 2012 Anglo American announced the final stage of the $1,4bn Scaw Metals Group disinvestment to an investment consortium led by state owned Industrial Development Corporation (IDC). (Ref: 15449)

The Gautrain may be extending its line to the east and west, but not any time soon. However plans are being considered to expand the existing railway network. (Ref: 15440)

Group Five continues to look off shore to offset the slow domestic growth. Africa is seen to host many exciting opportunities, according to Mike Upton, CEO Group Five (Ref: 154185)

Transnet is developing a new dig-out port on the site of the old Durban International Airport. Several separate tenders have been released. (Ref: 15417).

Transnet further announced the possible delay in the implementation of its R300bn seven year investment programme, due to the impact of the Euro zone crisis on domestic demand.

Koos Smit, a civil engineer, was appointed acting CE, of the embattled SANRAL, following the resignation of Nazir Alli. (Ref: 15512)

PPC reported better results for the half-year ended March, despite being tempered by weak demand in Western Cape and Botswana. Overall cement demand turned positive (albeit from a low base), and PPC is hopeful for this trend to continue. PPC’s revenue increased by 8% to R3,53 billion owing to favourable pricing on cement and lime products. Its profit rose to R407 million from R378 million in the first half of 2011. (Ref: 15561)

Evraz Highveld steel and Vanadium (Highveld) recorded a headline loss of R94-million for the three months ended March, mainly owing to lower sales volumes. The quarterly loss compares with a profit of R21-million in the first quarter of 2011. A marked increase in steel imports aggravated the local market situation. (Ref: 15570) They are currently implementing a cost reduction plan, which included labour restructuring. (Ref: 15515)

ArcelorMittal SA (Mittal) confirmed the acquisition of nearly 20% of an iron-ore exploration project in the Northern Cape. (Ref 15525). Mittal reported a rise in first quarter profit, but warned that a drop in domestic demand, lower steel prices and higher costs would hit the second quarter (Ref: 15520)

Global crude steel production increased by 1,1% to 376.8 million tons in the 1st quarter of 2012. (Ref: 15570)

World Steel association expects global steel consumption growth to slow to 3,6% in 2012 from 5,6% in 2011, as China enters a less steel-intensive growth phase and euro zone debt crisis uncertainties continue to persist (Ref: 15464). Steel consumption is expected to reach 1,42 billion tons in 2012.

Stefanutti Stocks is experiencing cash flow problems due to lack of skills, payment-system challenges and a high turnaround of staff at provincial government departments, according to Willie Meyburgh, CEO. Although payment is generally received in full, it is more often than not, late. (Ref: 15549)

Free State government owes Raubex several million rand for work done. (Ref: 15540)

Holcim is launching a targeted cost cutting programme aimed at increasing operating profit by at least 1.5 billion Swiss francs. (Ref: 15535)

Esorfranki civil engineering construction group expects earnings to bounce back. Earnings of a share is expected to increase by between 132% an 138% (Ref: 15493)

Sasol would inject R40 billion into its southern African operations over the next two years, ranging from expansion of wax production and exploration for natural gas, to investments in low carbon and renewable energy (Ref: 15587)

ACSA put out an invitation for the rehabilitation of the runway at the Cape Town International Airport. (Ref: 15584)


2nd Quarter 2012


Key Civil construction indicators

Figure 65: Civil construction activity

The nominal value of contracts awarded in the first

quarter of 2012 dropped by 24% compared to the

same period in 2011. A major shift was noted in

terms of expenditure from road construction (down

57%) to water (up 103%) and rail (up 237%). Rail

however has a very small contribution (less than 1%

of the total value of contracts awarded), while the

contribution of expenditure related to water

services increased to 44%. Road expenditure

contributed 67% of the total value of contracts

awarded in 2011Q1, but moderated to 37% in

2012Q1.

The real value of civil contracts awarded decreased

for the second consecutive quarter, down 2,5% in

2012Q1 following a 1,2% q/q contraction in 2011Q4.

On a year on year basis, smoothed over a five

quarter period, the annual growth slowed from 49%

in 2011Q4 to 21,5% in 2012Q1.

The number of civil contracts awarded however

increased in 2012Q1, up 4% q/q, which translated

into a 14% y/y annual growth. It would seem that in

recent quarters, activity levels may have improved,

but the size of contracts are smaller in rand terms.

Figure 66: Value of projects awarded: 2012Q1

Bulk of projects postponed during 2012Q1 related

to road projects, mostly in Kwazulu Natal.

Figure 67: Projects postponed 2012Q1 | Number

Fewer projects were postponed in 2012Q1, down

2,7% q/q, following a 12,7% q/q increase in 2011Q4.

However the annual growth rate compared over a

12 month period is still 31% higher. The impact of

postponements continues to weigh heavily on the

industry adversely affecting civil contracting

confidence. The postponement rate (the number of

projects postponed expressed as a percentage of

the number of tenders received during the same

period) remains above 13% for the overall civil

industry, compared to levels of around 5% in 2008.


2nd Quarter 2012


Figure 68: Civil projects postponed vs Postponement rate

Figure 69: Number of civil projects out to tender vs the number of civil projects postponed

Figure 70: Tendering activity: Civil: y/y change

Note: It is important to clarify the definition of

postponement, which is defined as any project for

which there has been a delay, (irrespective of the

time frame), indefinite postponement or

cancellation.


2nd Quarter 2012


Clients There wasn’t a major shift in terms of client

distribution based on the value of contracts

awarded, nor in terms of number of tenders issued

in the first quarter of 2012 compared to the same

period in 2011. Local government represented 65%

of the tenders in the first quarter of 2012, and 48%

based on the value of contracts that have been

awarded.

Figure 71: Client profile, value of civil contracts awarded (Rm): 2012Q1

Figure 72: Client profile, civil contracts out to tender (Number): 2012Q1

Nominal expenditure by central government,

corporations (including SANRAL) and provincial

government fell during the 1st quarter, down 24%,

53% and 37% respectively. Spending by local

government (contributing 48% of the total value of

contracts awarded during the 1st quarter) increased

by 19%, while the private sector (contributing only

5,7%) increased by 68%. Overall these two clients

did not have sufficient leverage to prevent the

overall contraction in the nominal value of contracts

awarded (down 24%).

The graph below shows the trend line of the various

client types, based on a 5-qtr moving average.

Figure 73: Civil contracts awarded (Rm, 5qtr avg), by client type

Figure 74: Civil projects out to tender by client

Tendering activity deteriorated in 2012Q (down

2,9%), lowering the annual growth rate in the trend

line from 18% in 2011Q4 to 16%. Bulk of the tenders

came from local government (64%), but this

declined by 2,4% q/q compared to the 1st quarter in

2011. The annual growth rate however for local

government tenders (5-qtr mov avg) were still 12%


2nd Quarter 2012


higher. Tenders by provincial government fell by

19% q/q, contributing 22% of the total number of

tenders received during 2012Q1. The number of

projects postponed fell by an overall rate of 11% q/q

in 2012Q1, but as stated before, the annual growth

rate smoothed over a 5-qtr period, was still 32%

higher. Nonetheless, fewer projects were

postponed in Q1 by central government (down

75%), corporations (down 64%) and the private

sector (down 45%). Local governments and

provincial departments reported an increase of 5%

and 22% respectively. Over a 5-qtr period,

postponements have increased by 281% in central

government, by 9% in corporations, and by 40% in

local government. Conditions were more stable in

terms of provincial postponements, falling only

marginally over the last 5 quarters, down 1,9%.

Refer to tables below:

Table 23: 2012Q1 VS 2011Q1

Awarded Tender Postponed

Central -24.1% 16.7% -75.0%

Corp -53.4% 56.5% -64.3%

Local 19.6% -2.4% 5.1%

Private 68.9% 34.8% -45.5%

Provincial -37.7% -19.2% 22.2%

Total -24.0% -2.9% -11.8%

Table 24: 2012Q1 Annual percentage change (smoothed 5-qrt mov. avg.)

Awarded Tender Postponed

Central 336.8% 10.9% 281.3%

Corp 30.9% 13.8% 9.1%

Local 9.4% 12.4% 40.5%

Private -32.0% -19.4% -7.7%

Provincial 41.1% 41.0% -1.9%

Total 27.0% 16.2% 32.0%


2nd Quarter 2012


Confidence levels remain uncomfortably low

Figure 75: Civil Industry Confidence Indicators

There are mainly three data sets available to

monitor confidence levels in the civil construction

industry.

CESA’s consulting engineering confidence index (weighted) based on bi-annual surveys conducted amongst the CESA member firms.

SAFCEC’s contractors confidence index (weighted) based on quarterly surveys amongst their member companies

FNB/BER confidence indices, compiled from quarterly surveys amongst a sample of respondents including contractors, suppliers and professionals.

According to these three sets of indices, it is clear

that confidence levels have deteriorated

substantially over the last few years. Even though

consulting engineers have remained relatively

upbeat, even during the global economic recession,

contractors became increasingly pessimistic as

fewer projects progressed further than “sketch”

stage. Even those that did make it through to tender

or awarded stage, had a good chance to be

postponed or even cancelled. It is therefore not

surprising that the contractors were harder hit by

the economic slowdown which ultimately impacted

on capital funding to finance construction projects.

What is important to note looking at recent data, is

the seemingly sideways move in confidence, with

some level of volatility, encapsulating the level of

uncertainty being experienced in the industry.

Consultants remain optimistic, fee earnings haven’t

deteriorated by any significant measure, while the

satisfaction rate of contractors (from both SAFCEC

and FNB/BER) seem to start showing signs of having

reached the lower turning point. SAFCEC’s results

may be distorted by the opinions expressed by

larger firms enjoying the benefits of cross border

activities, but the underlying message seems to

carry through across majority of the firms, that

things are not as bad as what they were last year.

This of course does not mean working conditions

are “good”, simply just showing some improvement

from the bad times experienced during 2010 and

2011. The overall sentiment amongst most

stakeholders is that conditions will only show some

“real” improvement by 2013 (based on current

market expectations). For downstream suppliers it

means they may have to wait until 2014 to improve

sales volumes and increase revenue by more

meaningful measures.

Poor payment has also reared its ugly head again,

according to the latest CESA survey. Amidst financial

constraints and growing demand, this is likely to

remain an issue in the industry during the next few

years. Delayed payment increased to 24% of

consulting engineers’ fee earnings in the last 6

months of 2011.

For copies of the various State of the industry

reports please contact the relevant industry body:

CESA Bi-annual Economic and Capacity Survey www.cesa.org.za

SAFCEC State of the Civil industry www.safcec.org.za

http://www.cesa.org.za/

http://www.safcec.org.za/


2nd Quarter 2012


Table 25: Civil Industry Confidence Indices

Quarter FNB / BER Civil Construction Confidence Index

(Source: FNB / BER (http://www.ber.ac.za))

CESA Confidence SAFCEC Satisfaction

rate

Dec-2008 60.00 99.8 76

Mar-2009 60.00 99.8 88

Jun-2009 48.00 96.2 65

Sep-2009 29.00 96.0 55

Dec-2009 39.00 86.0 33

Mar-2010 25.00 87.1 73

Jun-2010 33.00 87.1 83

Sep-2010 28.00 86.7 33

Dec-2010 27.00 86.3 99

Mar-2011 21.00 83.2 57

Jun-2011 23.00 83.2 54

Sep-2011 21.00 87.4 42

Dec-2011 26.00 87.4 87

Mar-2012 34.00 89.0

(forecast)

64


2nd Quarter 2012


Tendering activity dissapoint in 2012Q1, but long term trend

line still on recovery path

The civil industry tender index(a measurement of

tendering activity for civil construction projects –

smoothed over a five quarter period)continued on a

“recovery road”, in spite of dissapointing numbers

for the 1st quarter of 2012. Actual tenders declined

by 1,8% in 2012Q1 comapred with the same quarter

in 2011, but over a 5 quarter period, tendering

activity has continued to show improvement,

reporting the fifth consecutive q/q increase in the

index, up 3,8% in 2012Q1. The annual growth rate

slowed marginally from 19% in 2011Q4 to 17,6% in

2012Q1. We hope that the temporary slowdown in

activity in the first quarter will not be setting the

pace for theremainder of the year.

Note:The project types included in the various

tender indices will be reviewed in the next quarter

publication, which could lead to a correction of the

activity indices. These revisions will not amend the

trend line, but will more than likely adjust the level

of the indices (to a lower level). Project types most

likely to be excluded include fencing, retaining walls,

security fencing, paving, landscaping and so forth. A

full list will be provided. The reasoning for this is to

to eliminate those projects that affect activity levels

that are not directly applicable to the contracting

fraternity, and by including these proejcts, will

provide a distorted view of current and projected

activity and mislead forecasting and strategic

information provided to clients.

Table 26: Civil Tender Index: 1998=100 (smoothed)

Source: Industry Insight Project Database

Table 27: Civil Tender Index: 1998=100 (smoothed): ANnual Change by quarter

2005 2006 2007 2008 2009 2010 2011 2012

Q1 1.0% 14.3% -6.1% 4.5% 7.0% -17.0% -6.5% 17.6%

Q2 6.9% 10.3% -1.7% 2.3% 7.3% -23.2% 7.8%

Q3 14.2% 4.2% 3.0% -0.5% 4.2% -23.4% 13.7%

Q4 19.2% -3.6% 1.8% 3.0% -4.5% -20.5% 19.5%

2005 2006 2007 2008 2009 2010 2011 2012

Q1 230.8 263.8 247.6 258.9 276.9 230.0 215.0 252.8

Q2 224.4 247.6 243.3 248.8 267.0 205.0 221.1

Q3 243.4 253.6 261.2 259.8 270.6 207.3 235.7

Q4 265.1 255.6 260.3 268.2 256.2 203.8 243.6

Annual Average 240.9 255.2 253.1 258.9 267.7 211.6 228.8 252.8

% Change 10.25% 5.90% -0.80% 1.6% 3.4% -20.9% 8.1% 10.4%


2nd Quarter 2012


Civil Engineering Price Indices

Table 28: Civil Engineering price indices (Stats SA)

Price indices affecting the civil

engineering industry include civil

materials, fuel, plant and labour.

These are combined in a weighted

composite index to get a general

view on the price pressures affecting

input costs in the civil engineering

industry (Refer table). Key drivers of

input cost inflation in the civil

engineering industry, currently, is

the cost of fuel, following an increase

in the price of oil and a weakening of

the currency. The fuel index

increased by 35% y/y in December

2011 but has moderated to an

increase of 10,7% in March 2012.

Hopefully we can expect a cut in the

fuel price during the month of June,

which could ease some of the price

pressures, as the international price

of oil has fallen in recent weeks. The

higher price of steel has increased

the overall trend in the civil

materials, but this too is expected to

subside as the overall price of steel

starts to decrease. With effect 1 May

2012, the price of rebar had already

fallen by around 3% on average. We

are a little concerned that the labour

index is not a true reflection of wage

agreements, distorting the impact

on input costs, while the trend

shown in the plant index is also

being questioned. Although no

longer in the red, the index does

show a very mild increase of just

0,5%, while the general perception

amongst plant hiring companies, as

well as two new plant indices compiled by Stats SA, earthworks and concrete work, show an increase of

1Composite index comprises of 30% materials, 10% fuel, 30% plant and 30% labour.

Year Month Civil

Material

Fuel Civil

Engineering

Plant

Labour

(CPI)

Composite

Index1

2011 1 1.4% 19.3% -2.1% 3.7% 3.4%

2011 2 1.4% 27.0% -0.7% 3.7% 4.9%

2011 3 2.1% 33.5% -0.8% 4.1% 6.2%

2011 4 1.5% 33.8% -0.7% 4.2% 6.3%

2011 5 0.1% 28.9% -0.1% 4.6% 5.5%

2011 6 -0.3% 26.8% 0.7% 5.0% 5.4%

2011 7 2.3% 27.8% 1.1% 5.3% 6.4%

2011 8 3.3% 28.9% 1.4% 5.3% 7.0%

2011 9 3.6% 30.0% 1.3% 5.7% 7.3%

2011 10 3.7% 34.7% 0.4% 6.0% 7.9%

2011 11 4.8% 38.2% 0.1% 6.1% 8.8%

2011 12 4.9% 35.7% 1.4% 6.1% 8.9%

2012 1 4.2% 27.5% 2.4% 6.3% 7.9%

2012 2 5.0% 16.6% 1.5% 6.1% 6.3%

2012 3 5.0% 10.7% 0.5% 6.0% 5.0%

Figure 76: Civil Engineering price indices


2nd Quarter 2012


between 3% and 5%. This was raised with both SAFCEC and Stats SA. No response has been received from

either parties at the time of publication.

Outlook for civil engineering turnover

In summary, the start of 2012 was disappointing, with fewer awards and lower value projects. Confidence

levels remain muted, although showing signs of improvement. Consulting engineers are still busy, and

although larger firms are expanding into off shore opportunities, there are still domestic opportunities in terms

of higher levels of infrastructure expenditure in water services, health construction, rail and port upgrades,

and renewable energy. This year will probably be a year of “stabilisation” setting the pace for a more profound

recovery in 2013.

Challenges remain in terms of more effective spending of budgetary allocations, in particular spending by

municipal departments. More transparent procurement procedures and a clearer directive on the PPP policy

will also improve the current negative sentiment in the industry, particularly amongst the larger firms, who

have spent millions on failed PPP projects. Minister of Economic Development, Ebrahim Patel, acknowledged

problems in PPP implementation, stating that there are opportunities for the private sector to get involved in

the 17 identified strategic infrastructure projects (SIP), provided the risk in these projects are more equally

distributed. Patel argued that past policies had an unbalanced risk distribution towards government. The use

of pension funds to buy “equity” in infrastructure projects is also being considered, based on successful

implementation in other countries, but no further details are available at this stage.

Government is nonetheless acutely aware of the dire need for key critical infrastructure, and there seems to

be greater focus on effective planning going forward, as seen by the recent developments in the National

Planning Commission. Refer to the figure below outlining some of the key projects identified across the

country.

Investment in large capacity projects, such as Eskom is absolutely critical. According to a report by SAFCEC,

most of Eskom’s plant will reach the end of its efficient cycle by 2020 – 2025. Investment in these projects

requires substantial planning in advance and funding. Energy projects will continue to play a major role in

infrastructure in the future, whether it be coal fired, nuclear or renewable energy.

Based on SAFCEC’s estimates of total spending on civil contracting (excluding spending on machinary and

equipment related to the civil project), turnover is expected to increase by between 5% and 8% in real terms

during the next two years.

The outlook for 2012 and 2013 is therefore still influenced by:

- Weak contractor’s confidence - Fewer high value projects in the pipeline - Sharp contraction in government revenue available to finance infrastructure expenditure - Slower single digit real growth in overall government infrastructure expenditure in the next three

years - Review of state owned enterprises capital programmes - Lack of private sector expenditure - Inefficiencies within particularly provincial and local governments to spend infrastructure budgets


2nd Quarter 2012


- Poor payment from clients, this has particularly affected the consulting engineering industry, and is likely to play a greater role in the industry in 2012

- Poor policy formulation (ultimately affecting implementation) in terms of PPP projects affecting the implementation of Prison and Health PPP projects.

Figure 77: Presidential Infrastructure Coordinating Commission (Source Budget 2012/13)


2nd Quarter 2012


Statistical Table


2nd Quarter 2012


Table 29: Investment in construction Constant 2005 prices

Residential Non-residential Total buildings

Civil construction (Official SARB)

Total construction

2002 18340 21131 39471 27100 66571

2003 19586 22614 42200 34371 76571

2004 25877 24925 50802 38116 88918

2005 33455 26565 60020 40739 100759

2006 36198 29567 65765 47879 113644

2007 35882 33874 69756 65674 135430

2008 32965 36674 69639 87240 156879

2009 29986 39021 69007 110921 179928

2010 26093 37939 64032 108733 172765

2011 24372 37180 61552 109369 170921

Quarter Annualised

2008Q3 32770 37440 70210 94177 164387

2008Q4 31911 38587 70498 97369 167867

2009Q1 30550 39534 70084 110751 180835

2009Q2 30226 38606 68832 109698 178530

2009Q3 29820 38856 68676 111355 180031

2009Q4 29348 39088 68436 111880 180316

2010Q1 27857 37964 65821 110368 176189

2010Q2 26455 38163 64618 108881 173499

2010Q3 25233 38073 63306 107798 171104

2010Q4 24827 37556 62383 107885 170268

2011Q1 24553 37356 61909 108434 170343

2011Q2 24381 37199 61580 109033 170613

2011Q3 24262 37086 61348 109653 171001

2011Q4 24292 37079 61371 110356 171727

Source: South African Reserve Bank


2nd Quarter 2012


Table 30: Investment in construction Constant 2005 prices: Y-Y % chg

Residential Non-residential Total buildings Civil construction Total construction

2002 -1.8% -7.7% -5.1% 9.8% -1.6%

2003 6.8% 7.0% 6.9% 26.8% 12.0%

2004 32.1% 10.2% 20.4% 10.9% 17.6%

2005 29.3% 6.6% 18.1% 6.9% 15.1%

2006 8.2% 11.3% 9.6% 17.5% 11.6%

2007 -0.9% 14.6% 6.1% 37.2% 14.4%

2008 -8.1% 8.3% -0.2% 32.8% 10.4%

2009 -9.0% 6.4% -0.9% 27.1% 9.9%

2010 -13.0% -2.8% -7.2% -2.0% -4.9%

2011 -6.6% -2.0% -3.9% 0.6% -1.8%

Quarter

2008Q3 -7.9% 10.0% 1.4% 41.6% 20.8%

2008Q4 -7.7% 11.2% 2.6% 31.6% 17.2%

2009Q1 -10.0% 13.6% 1.4% 47.1% 25.6%

2009Q2 -9.1% 7.7% -2.0% 33.5% 18.0%

2009Q3 -9.0% 3.8% -2.6% 18.2% 9.5%

2009Q4 -8.0% 1.3% -2.4% 14.9% 7.4%

2010Q1 -8.8% -4.0% -4.4% -0.3% -2.6%

2010Q2 -12.5% -1.1% -5.9% -0.7% -2.8%

2010Q3 -15.4% -2.0% -7.5% -3.2% -5.0%

2010Q4 -15.4% -3.9% -5.2% -3.6% -5.6%

2011Q1 -11.9% -1.6% -4.2% -1.8% -3.3%

2011Q2 -7.8% -2.5% -2.7% 0.1% -1.7%

2011Q3 -3.8% -2.6% -1.7% 1.7% -0.1%

2011Q4 -2.2% -1.3% -0.9% 2.3% 0.9%

Source: South African Reserve Bank


2nd Quarter 2012


Table 31: Market Share by Type of Projects (based on nominal value of construction projects awarded)

Sector Project Type 2011 2011 Q4

2012 Q1

Change in Market Share

2012Q1 vs 2011Q1

Change in Market Share

2012Q1 vs 2011Q4

Bu

ildin

g

Building Other 1.1% 1.6% 1.6% 0.4% 0.0%

Commercial 19.7% 20.7% 15.3% -10.9% -5.4%

Education 13.3% 12.1% 13.9% -0.2% 1.7%

Entertainment 1.1% 1.0% 1.5% 1.1% 0.5%

Gambling 0.4% 0.0% 0.0% 0.0% 0.0%

Health 11.8% 11.2% 22.5% 16.4% 11.3%

Hotels 6.4% 16.0% 1.1% 0.5% -14.9%

Housing 16.1% 11.4% 7.4% -18.8% -4.1%

Industrial 8.8% 0.9% 3.7% -0.8% 2.8%

Low-income housing 4.1% 3.3% 4.5% -0.2% 1.2%

Protective 4.5% 4.0% 8.0% 0.6% 4.1%

Retail 12.8% 17.8% 20.5% 11.8% 2.7%

Civ

il

Air 1.0% 3.2% 0.8% 0.2% -2.4%

Bridges 2.6% 2.3% 1.8% -0.2% -0.5%

Civil Other 6.1% 5.1% 6.5% -2.5% 1.4%

Power 5.9% 5.1% 7.3% 2.2% 2.2%

Rail 1.5% 6.3% 0.8% 0.6% -5.5%

Road 54.0% 51.8% 38.2% -28.7% -13.6%

Water 28.8% 26.2% 44.6% 28.3% 18.4%

Building Projects

53.2% 57.5% 61.5% 7.1% 3.9%

Civil Projects

46.8% 42.5% 38.5% -7.1% -3.9%

Source: Industry Insight project database


2nd Quarter 2012


Table 32: Large Construction projects awarded: Jan - Mar 2012 (Databuild)

Sector Description Rm,

current prices

Period Province Company

Building New Cradlestone Shopping Mall 850 21 Gauteng Sasol Pension Fund (Investments)

Civil New Combustion Waste Terrace - Kusile

Power Station 700 52 Mpumalanga ESKOM

Building New Brits Hospital 456 24 North West

Province

Department of Public Works Roads

and Transport

Building Ceres Golf Estate 445 60 Western

Cape Orange Tree Developments

Building Refurbishment to the Mental Health

Facility - Kimberley 400 24

Northern

Cape

Northern Cape Province - Transport

Roads and Public Works

Building New Office Building for Government

Department - Agrivaal 365 26 Gauteng Public Works Department (National)

Building New Burgersfort Regional Mall - Phase 1 300 15 Mpumalanga Resilient Properties

Building New Platinum Square 240 10 North West

Province Unknown client in the private sector

Building New Apartments - Cara Blu 203 14 Gauteng Summercon

Building New Alice Lane Offices - Phase 1 200 18 Gauteng Abland (Pty) Ltd

Building New Office Blocks - First Rand Bank 200 12 Western

Cape Eris Properties

Building Redevelopment of Brooklyn Mall 200 20 Gauteng Atterbury Properties

Civil Rehabilitation of Road 190 25 Free State South African National Roads Agency

Limited

Civil New Dual Carriageway - R82/K57 181 18 Gauteng Gauteng Province - Department of

Roads and Transport

Building New Protea Glen Mall 180 14 Gauteng Retail Network Services

Building Rob Ferreira Hospital Phase 4E (Part 1) -

New Residence 178 21 Mpumalanga

Independent Development Trust -

Mpumalanga

Building New Chemistry Building - University of

Western Cape 175 30

Western

Cape University Of The Western Cape

Building Additions to Thabazimbi Hospital - Phase

3 160 18 Limpopo

Department Of Health And Social

Development

Civil Rehabilitation of National Road - Route

N5 160 24 Free State

South African National Roads Agency

Limited

Civil Upgrading of Road - Main Road 269 154 30 Western

Cape

Western Cape Province - Department

of Public Works and Transport

Building Additions to Vredenburg Hospital - Phase

2B 150 8

Western

Cape

Western Cape Province - Department

of Public Works and Transport

Building New Head Office for GCIS at Hatfield

festival 150 14 Gauteng Growthpoint Properties

Building New Makro Store - Bloemfontein 150 9 Free State Unknown client in the private sector

Civil Improvement and Upgrade of National

Route 1 - Section 20 150 9 Gauteng

South African National Roads Agency

Limited


2nd Quarter 2012


Building Structural Repairs - Prince Mshiyeni

Memorial Hospital 142 10

Kwazulu

Natal

Department of Public Works -

Ethekwini Regional Office

Building New Casualty/OPD - Frontier Hospital 137 27 Eastern

Cape Coega Development Corporation

Building New Paediatrics Wing - Frontier Hospital 135 18 Eastern

Cape

EASTERN CAPE PROVINCE -

WORKS DEPARTMENT

Building New Massbuild Distribution Centre 130 9 Gauteng Atterbury Property Developments

(Pty) Ltd

Civil Upgrading of Road - Atlantis Integrated

Rapid Transport Corridor 112.8 18

Western

Cape Cape Town Administration

Civil New C6 Pipeline 106 28 Gauteng RAND WATER

Civil New Outfall Sewer and Pump Station -

Memel/Zamani 105 4 Free State Phumelela Local Municipality - Vrede

Civil New Steel Pipelines - Luvhuvu River GWS 104 10 Limpopo Department of Water Affairs and

Forestry - Tender Office

Building Urban Park Development 100 14 Kwazulu

Natal Misty Blue Investments

Civil New Electrical and Auxiliary Power -

Kusile Power Station 85 60 Mpumalanga ESKOM

Civil Extension Of The Hannes Van Niekerk

Wastewater Treatment Plant - Civil Works 75 24 Gauteng Westonaria Local Municipality

Building Blouberg Mall 70 8 Limpopo Mc Cormick Property Development

Building Mixed-use Development - 22 Bree Street 0 18 Western

Cape Abland Group

Building New Dimension Data Office 0 12 Kwazulu

Natal J T Ross and Son (Pty) Ltd

Building New Low Cost Houses - 3200 Units -

Pelican Park 0 54

Western

Cape Cape Town Administration

Building New Shopping Centre - Caledon Mall 0 9 Western

Cape Harry Viljoen Properties

Source: Databuild, Industry Insight


2nd Quarter 2012


High profile Projects announcements: 1st Quarter 2012

Figure 78: High impact construction projects announced 2012Q1

Table 33: High Profile Projects announcements: 2012Q1

Province / Project Rm

Eastern Cape 10120

Improvement of Coega Industrial Development Zone 8100

Ethanol plant 2000

New Umzimvubu Dam 20

Gauteng 1706

Gauteng Department of Education to build 79 new schools -

512 new flats for Soweto 1000

New Biological Nutrient Removal Plant -

New Denneboom Taxi Retail Park 526

New Offices - Athol Towers - Phase 2 180

New Soccer Stadium - Giant Stadium -

Kwazulu Natal 21300

Transnet National Ports Authority development of Durban

Harbour 21300

Jozini Community Health Centre -

Mpumalanga 17000

SA - Swaziland New greenfield railway link 17000


2nd Quarter 2012


Western Cape

New Pinehurst Shopping Centre - Western Cape -

Grand Total 50126

Tender indices Table 34: Construction Tender Index 1999=100, by quarter: y/y% chg

Quarter Formal Residential

Housing

Low-income Housing

Non-residential

Buildings (Excl education)

Total Buildings (excl

education)

Civil Contracts Total Construction

2006 -10.3% -1.3% 5.1% 1.1% 14.3% 9.2%

-12.4% -10.2% 2.5% -2.0% 10.3% 5.4%

-8.5% -18.9% 3.9% -0.4% 4.2% 2.4%

2.1% -10.0% 3.3% 1.1% -3.6% -1.9%

2007 3.2% 7.3% -0.8% -0.7% -6.1% -4.2%

-6.3% 0.6% 1.9% -1.2% -1.8% -1.5%

-17.4% 19.0% -5.3% -7.7% 3.0% -1.0%

-26.0% 27.1% -8.6% -10.5% 1.8% -2.7%

2008 -43.1% 14.3% -13.8% -17.5% 4.5% -3.6%

-52.3% 11.9% -16.4% -20.4% 2.3% -6.1%

-51.1% 18.9% -12.8% -16.7% -0.5% -6.2%

-51.3% 13.1% -6.8% -13.3% 3.0% -2.5%

2009 -61.1% 2.7% -1.7% -11.7% 7.0% 1.1%

-55.9% 22.5% 1.8% -6.3% 7.3% 3.1%

-51.7% 10.9% -1.3% -8.4% 4.2% 0.3%

-53.6% -2.9% -13.7% -17.0% -4.5% -8.3%

2010 -44.5% 0.5% -19.7% -18.0% -17.0% -17.3%

-44.8% -10.6% -26.4% -24.5% -23.2% -23.6%

-50.4% -30.9% -24.3% -24.4% -23.4% -23.7%

-44.9% -20.9% -13.9% -14.6% -20.4% -18.8%

2011 -32.4% 4.7% 0.8% -0.2% -6.4% -4.7%

-23.4% -2.1% 13.1% 9.5% 7.8% 8.3%

-10.7% 23.4% 22.2% 21.1% 13.7% 15.8%

-16.7% 28.9% 25.1% 24.0% 19.5% 20.8%

2012 -10.4% 2.5% 0.0% 17.3% 14.6% 14.0%


2nd Quarter 2012


Table 35: Construction Tender Index 1999=100, by quarter: Smoothed

Quarter Formal Residential

Housing

Low-income Housing

Non-residential Buildings (Excl

education)

Total Buildings (excl education)

Civil Contracts Total Construction

2006 280.00 120.00 267.34 252.40 263.83 259.63

294.00 126.40 258.40 249.58 247.63 248.34

290.00 113.60 277.64 260.68 253.57 256.18

292.50 115.20 278.05 258.70 255.65 256.77

2007 289.00 128.80 265.18 250.71 247.63 248.76

275.50 127.20 263.28 246.66 243.26 244.51

239.50 135.20 262.87 240.55 261.21 253.63

216.50 146.40 254.20 231.51 260.34 249.76

2008 164.50 147.20 228.46 206.9 258.9 239.8

131.50 142.40 220.19 196.4 248.8 229.6

117.00 160.80 229.13 200.5 259.8 238.0

105.50 165.60 236.86 200.8 268.2 243.4

2009 64.00 151.20 224.53 182.7 276.9 242.3

58.00 174.40 224.25 184.1 267.0 236.6

56.50 178.40 226.15 183.5 270.6 238.7

49.00 160.80 204.47 166.6 256.2 223.3

2010 35.50 152.00 180.35 149.8 230.0 200.5

32.00 156.00 165.04 138.9 205.2 180.9

28.00 123.20 171.27 138.7 207.3 182.1

27.00 127.20 176.02 142.2 203.9 181.3

2011 24.00 159.20 181.84 149.5 215.2 191.1

24.50 152.80 186.59 152.1 221.3 195.9

25.00 152.00 209.35 167.9 235.7 210.8

22.50 164.00 220.19 176.4 243.8 219.0

2012 21.50 163.20 76.00 213.28 171.3 245.2


2nd Quarter 2012


Macro-Economic Base Case Scenario

GDP (2005PRICES) 2011 2012 2013 2014 2015 2016

Real Gross Domestic Product (Rm) 1 900 805 1 955 608 2 016 427 2 067 422 2 149 883 2 250 759

% Change 3.7% 2.9% 3.1% 2.5% 4.0% 4.7%

HOUSEHOLD CONSUMPTION Real Household Consumption

Expenditure 1 238 940 1 294 984 1 335 070 1 384 124 1 442 440 1 505 949

% Change 4.6% 4.5% 3.1% 3.7% 4.2% 4.4%

Non-durable goods 432 465 450 629 470 006 488 806 510 802 534 299

% Change 3.0% 4.2% 4.3% 4.0% 4.5% 4.6%

Semi-durable goods 143 735 155 090 155 090 162 845 172 127 182 282

% Change 8.0% 7.9% 0.0% 5.0% 5.7% 5.9%

Durable goods 131 907 134 545 133 065 133 065 136 126 139 801

% Change 6.9% 2.0% -1.1% 0.0% 2.3% 2.7%

Services 530 833 554 720 576 909 599 409 623 385 649 567

% Change 4.5% 4.5% 4.0% 3.9% 4.0% 4.2%

FIXED CAPITAL FORMATION Real Gross Domestic Fixed

Investment (GDFI) 379617 387 183 404 491 432 363 465 753 504 272

% Change 4.4% 2.0% 4.5% 6.9% 7.7% 8.3%

Residential 24372 24 902 25 660 26 741 27 718 29 050

% Change -3.1% 2.2% 3.0% 4.2% 3.7% 4.8%

Non-residential buildings 37180 38 031 39 058 40 965 42 598 44 797

% Change -6.5% 2.3% 2.7% 4.9% 4.0% 5.2%

Machinery and equipment 115142 123 317 130 593 137 122 146 721 156 698

% Change 10.0% 7.1% 5.9% 5.0% 7.0% 6.8%

Computers and related equipment 30695 34 133 37 000 40 367 44 767 50 587

% Change 10.0% 11.2% 8.4% 9.1% 10.9% 13.0%

Transport equipment 55801 64 618 72 953 82 583 94 145 106 195

% Change 11.0% 15.8% 12.9% 13.2% 14.0% 12.8%

Construction Works 109369 95 260 92 022 96 899 101 550 108 049

% Change -2.0% -12.9% -3.4% 5.3% 4.8% 6.4%

Civil Turnover SAFCEC 15 888 16 428 17 381 18 615 19 807 21 352

% Change 1.90% 3.40% 5.80% 7.10% 6.40% 7.80%

Transfer pricing 7058 6 923 7 206 7 686 8 255 8 896

Inventory Investment 5 000 8 000 18 500 -5 000 -4 999 -4 998

Real Government Consumption Expenditure

399 318 421 281 446 979 471 116 493 729 519 897

% Change 4.2% 5.5% 6.1% 5.4% 4.8% 5.3%

Residual -8 000 -6 000 -4 500 -4 500 -5 000 -5 000

Real Gross Domestic Expenditure 2 017 529 2 105 449 2 200 540 2 278 104 2 391 923 2 520 120

% Change 4.5% 4.4% 4.5% 3.5% 5.0% 5.4%

Real Exports of Goods and Services 453 208 482 213 511 146 544 371 582 477 624 415

% Change 7.5% 6.4% 6.0% 6.5% 7.0% 7.2%

Real Imports of Goods and Services 569 932 632 055 695 260 755 052 824 517 893 777

% Change 10.00% 10.90% 10.00% 8.60% 9.20% 8.40%

PRICES Prime Overdraft Rate (%) - End of

period 9.05 10.42 11.58 12.00 11.50 12.50

Rand/Dollar Exchange Rate - Average 7.07 7.40 7.93 8.25 8.10 8.00

CPI Inflation Rate (% year-on-year) 4.8 5.5 5.7 5.9 5.5 5.2

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