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Construction boom to last for while

06 Aug 2008
South Africa's construction and infrastructure sector boom, the fastest-growing economic sector, is expected to continue beyond 2010, said Peter Steyn, head construction and infrastructure at Absa Corporate and Business Bank, speaking at a presentation on Tuesday.

"It's not a 2010 story alone. South Africa has been under-spending. We are running out of production capacity. So it will be unrealistic to expect the economy to grow at 4% to 5% if we don't boost our capacity," said Steyn.

While the construction of support structures for the 2010 World Cup, which South Africa is hosting, is cited as catalyst for the boom, Steyn said future growth would be driven by investment-related activity such as power generation, road infrastructure and water-related investments by the public sector.

"A key driver will of future construction industry activity will be government's planned spend of around R600bn in infrastructural investment over the medium term," said Steyn.

The private sector, which has been driving the boom for the past 15 years, is likely to take the back seat, but pockets of fixed capital investment would be seen in the mining sector, Steyn said.

According to Absa Corporate and Business Bank, the construction sector has grown by 10% each year since 2000, compared with just 4% GDP growth since 2000.

However, Steyn noted shifts in the growth points in the construction industry, with the infrastructure and civil engineering sector of the industry accelerating while the building sector, particularly residential building, was experiencing a slowdown.

Steyn said that several challenges and vital trends would also emerge from anticipated industry growth.

The projects are likely to be more complex and large, creating capacity challenges such as a lack of skills, equipment and materials and would also heighten interest from international contractors, Steyn said.

"We are already seeing foreign contractors in some local projects," he said, adding that it would help transfer vital skills and knowledge to locals for future projects.

Steyn said skills shortages could be addressed by the development of more mid-sized contractors, which could be achieved through partnerships between aspirant market entrants and more experienced contractors.

"The aggregation of capacity will bolster South Africa's currently fragmented skills base within the sector and provide capacity that can meet the anticipated growth," said Steyn. – I-Net Bridge

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