Infrastructure Inputs Monitoring Project

Infrastructure Inputs Monitoring Project

ANNUAL REVIEW 2008

Research Report (Draft for Comment)

November 2008

Disclaimer

This Research Report for the Infrastructure Inputs Monitoring Project has been prepared using market, referenced and proprietary information of The National Departments of the Government of South Africa and Industry participants. The market views expressed in this Research Report are not necessarily the views of SPAID, the Presidency, the Business Trust or the CSID and the University of the Witwatersrand. SPAID, the Presidency, Business Trust, the CSID and the University of the Witwatersrand cannot be held responsible for the historical accuracy of the data, facts and statements collated and represented in this Research Report for the Infrastructure Inputs Monitoring Project at the time of concluding the Research Report and for any subsequent changes and/or market developments, which may present influential material and substantive changes to the content.

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The Support Programme for Accelerated Infrastructure Development (SPAID) The Support Programme for Accelerated Infrastructure Development (SPAID) is a partnership between the Business

Trust and the Presidency of the South African Government. SPAID works to combine the resources of business and government to accelerate the achievement of the Government’s infrastructure development targets. SPAID comprises four programmes:

• A Project Preparation Fund to provide funded technical support to Municipalities in order to initiate and structure infrastructure projects to the point where they apply for and are granted funding.

• A Municipal Project Expediting System which provides planning and management support to Municipalities so as to enable them to more effectively eradicate water and sanitation backlogs.

• A Technical Assignment Programme which provides funding for short to medium-term strategic and technical interventions, so as to mobilise increased private sector contributions towards meeting the AsgiSA infrastructure targets.

• A Stakeholder Communications Programme to provide effective and regular communication and information sharing between senior government representatives and private sector stakeholders in the infrastructure sector.

Please visit the website for more information: www.spaid.co.za.

The Presidency Strategic objectives defined by South Africa’s Presidency include:

• Co-ordination, monitoring and communication of government policies and programmes;

• fostering nation building; • enhancing an integrated approach to governance for

accelerated service delivery and supporting and consolidating initiatives for building a better Africa and a better world;

• bringing government closer to the people; and • facilitating a Developmental State through accelerating economic growth,

interventions in the second economy, elimination of poverty and fostering nation building.

In line with these objectives, the Accelerated and Shared Growth Initiative for SA (AsgiSA) was launched in July 2005. The initiative falls under the responsibilities of the Presidency and particularly the Deputy President Baleka Mbete. The aim of the initiative is to guide and improve South Africa’s economic growth so as to achieve growth rates of 4.5% over the period 2005 to 2009, rising to an average of 6% between 2010 and 2014, with the aim of halving 2004 levels of poverty and unemployment by 2014. Initiatives being undertaken by AsgiSA fall into six broad categories; a massive investment in infrastructure, targeting economic sectors with good growth potential, developing the skills of South Africans and harnessing the skills already there, building up small businesses to

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bridge the gap between the formal and informal economies, beefing up public administration and creating a macroeconomic environment more conducive to economic growth. For more information on The Presidency and AsgiSA, go to: www.thepresidency.gov.za

The Business Trust The Business Trust combines the resources of business and government in areas of common interest to accelerate the achievement of national objectives. It focuses on creating jobs, building capacity and combating poverty.

The partnerships of the Business Trust are structured through:

• The corporate partners who fund the Business Trust. Over 140 of South Africa’s leading companies have committed over R1billion to the Business Trust since 1999.

• The board of the organization, made up of cabinet ministers and the heads of the major corporations who support the Business Trust.

• Sector specific partnership committees made up of business and government leaders, who oversee project implementation.

• A series of implementing partnerships with the agencies that implement Business Trust programmes.

The current programmes include:

• a partnership with the Department of Public Works for the expansion of the public works programme;

• a partnership with the Department of Provincial and Local Government for the development of South Africa’s poverty nodes;

• a partnership with the Presidency (in association with the Department of Provincial and Local Government and National Treasury) to accelerate infrastructure development;

• a partnership with the Presidency to finance the secretariat of the Joint Initiative on Priority Skills Acquisition;

• a partnership with the Department of Environmental Affairs and Tourism to develop enterprises in the tourism sector; and

• a partnership with the Department of Trade and Industry to develop the Business Process Outsourcing sector as a job creator for young unemployed South Africans.

The Support Programme for Accelerated Infrastructure Development (SPAID) was established by the Business Trust at the request of the President’s Big Business Working Group in order to develop innovative ways of combining the resources of Business and Government to accelerate the achievement of the Government’s infrastructure development targets. For more information go to www.btrust.org.za.

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The Infrastructure Inputs Monitoring Project 2008 Report was produced by the Corporate Strategy and Industrial Development Research Programme, School of Economic and Business

Sciences, University of the Witwatersrand, Johannesburg

The Corporate Strategy and Industrial Development research programme (CSID) was established by the School of Economic and Business Sciences (SEBS) at the University of the Witwatersrand, Johannesburg, in 2001. The objectives of the CSD are:

• To publish high quality research; • To develop a knowledge-base around corporate strategy and decision-making from

the perspective of industrial development. • To develop research capabilities and opportunities for students to participate in

applied research projects, especially those from historically disadvantaged groups. • To make inputs to economic policy debates in a practical and applied manner, and

support the development of public institutions. The CSID project has succeeded in establishing itself as a leading research programme in South Africa in its areas of specialisation. The main research themes are:

• Industrial development, and manufacturing sector/value chain studies • Local and regional economic development • Competition policy and regulation • Global financialization and corporate change, and the South African Economy • Macroeconomic environment, economic structure and industrial development.

For more information go to http://uamp.wits.ac.za/sebs/csid/ Project Team: Seeraj Mohamed, Ganief Bardien, Nyika Gwanoya, Gerald Mfongeh, Andrew Mukandila, Nepeti Nicanor

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Acknowledgments We thank the following Government Departments and Organisations for their participation and contribution toward this publication: Presidency of the Republic of South Africa Department of Housing Department of Public Enterprises Department of Sport and Recreation Department of Transport Department of Water Affairs and Forestry Department of National Treasury South African Reserve Bank (SARB) Gautrain (Pty) Ltd 2010 FIFA World Cup Local Organising Committee (LOC) Technical Team Eskom Holdings Eskom Enterprises South African National Roads agency Limited (SANRAL) Airports Company South Africa (ACSA) Coega Development Corporation (CDC) Industrial Development Corporation (IDC) Construction Industry Development Board (cidb) Statistics South Africa (STATSSA) Business Unity South Africa (BUSA) Capital Equipment Export Council South African Federation of Civil Engineering Contractors (SAFCEC) South African Iron and Steel Institute (SAISI) Mittal Steel South Africa Highveld Steel Cape Gate Columbus Stainless Cape Town Iron and Steel Corporation (CISCO) Association of Cement Manufacturing Producers (ACMP) Clay Brick Association (CBA) Concrete Manufacturers Association (CMA) Forestry South Africa (FSA) PFG Building Glass and South African Glass and Glazing Association (SAGGA) Aluminium Federation of South Africa (AFSA) Aluminium Extruders Association (AEA) South African Plastic Pipe Manufacturers Association (SAPPMA) Aggregate and Sand Producers Association of South Africa (ASPASA) South African Ready Mix Association (SARMA) South African Bitumen Association (SABITA) Road Freight Association (RFA) Road Rail Association (RRA) South African Capital Equipment Export Council (SACEEC) Nedbank Group Economic Unit Engineering News We gratefully acknowledge the following sponsors for their contributions toward the research and consultation processes that led to this publication: The Infrastructure Inputs Monitoring Project was funded by: The Business Trust and SPAID

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Abbreviations & Definitions AEA Aluminium Extruders Association ACMP Association of Cement Manufacturing Producers ACSA Airports Company South Africa ADT Articulated dump truck (capital equipment) AFSA Aluminium Federation of South Africa Aggregate Any hard, inert materials (sand, gravel or stone) used for

mixing with cementitious materials to form mortar or concrete AsgiSA Accelerated and Shared Growth Initiative for South Africa ASPASA Aggregate and Sand Producers Association of South Africa BBBEE Broad based black economic empowerment BEQ Imperial brick equivalent unit Bitumen Is a mixture of organic liquids that are highly viscous, black, sticky, entirely

soluble in carbon disulfide, and composed primarily of highly condensed polycyclic aromatic hydrocarbons. Bitumen is the residual (bottom) fraction obtained by fractional distillation of crude oil. It is the heaviest fraction and the one with the highest boiling point.

C&CI Cement and Concrete Institute CBA Clay Brick Association CCGT Combined Cycle Gas Turbine Cement Fine powdered materials which, when mixed with water, sets and binds

together to form a hard, solid material. It is used as a component of mortar and concrete

CETA Construction Education and Training Authority cidb Construction Industry Development Board CKD Completely Knocked Down (capital equipment) CMA Concrete Manufacturers Association Concrete A mixture of sand, stone, cement and water that sets and hardens CSID Corporate Strategy and Industrial Development Research Programme,

School of Economic and Management Sciences, University of the Witwatersrand, Johannesburg

DEAT Department of Environmental Affairs and Tourism DHA Department of Home Affairs DME Department of Minerals and Energy DoT Department of Transport DPW Department of Public Works DTI Department of Trade and Industry DWAF Department of Water Affairs and Forestry EBEPTT E Engineers, built environment professionals, technologists and technicians EC Eastern Cape (Province) ECSA Engineering Council of South Africa EIA Environmental impact assessment Empowerment An integrated and coherent socio-economic process, located in the context of

South Africa’s national transformation programme which is aimed at redressing the imbalances of the past by seeking to substantially and equitably transfer and confer the ownership, management and control of South Africa’s financial and economic resources to the majority of its citizens. As a process, it seeks to ensure broader and meaningful participation in the economy by previously disadvantaged people to achieve sustainable development and prosperity.

FBU Fully built-up units (capital equipment) FEL Front end loader (capital equipment) FS Free State (Province) FSA Forestry South Africa GDP Gross domestic product General Government Refers to the accounts of National Government, Provincial Government and

Local Government, the social security funds, extra-budgetary institutions, adjusted to net outflows between Government institutions

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GFCF Gross fixed capital formation Government of the Republic of South Africa GP Gauteng (Province) HDPE High-density polyethylene is a polyethylene thermoplastic made from

petroleum. It takes 1.75 kg of petroleum, in terms of energy and raw materials to make 1kg of HDPE

IDZ Industrial development zone JIPSA Joint initiative for priority skills acquisition kt Kilo ton kt/y Kilo ton per year KZ KwaZulu Natal (Province) LME London Metals Exchange LP Limpopo (Province) m Meter m2 or sq mt Square meter m3 or cub mt Cubic meter MOU Memorandum of understanding MP Mpumalanga (Province) MPRDA Mineral & Petroleum Resources Development Act mt Mega ton mt/y Mega ton per year MTEF Medium term expenditure framework NC Northern Cape (Province) NHBRC National Home Builders Registration Council NW North West (Province) OCGT Open Cycle Gas Turbine OH&S Occupation, Health and Safety PPI Producer price index PPP Public private partnership Project Proposal for the Infrastructure Inputs

Sector Strategy PVC Polyvinyl Chloride - is a widely used thermoplastic polymer in the

construction industry Rand or SAR Currency of the Republic of South Africa RFA Road Freight Association RRA Rail Road Association Sabita South African Bitumen Association SAISI South African Iron and Steel Institute SACEEC South African Capital Equipment Export Council SAGGA South African Glass and Glazing Association SANRAL South African Roads Agency Limited SAPPMA South African Plastic Pipe Manufacturers Association SARB South African Reserve Bank SARCC South African Rail Commuter Corporation SARMA South African Ready Mix Association SARS South African Revenue Services SEA South East Asia (South East Asian) SEIFSA Steel and Engineering Industry Federation of South Africa SKD Semi knocked down (capital equipment) SOE State owned enterprises StatsSA Statistics South Africa TLB Tractor-loader-backhoe (capital equipment) YoY Year-on-year WC Western Cape (Province)

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Note on Methodology The research is based on the baseline study (Research Report for the Infrastructure Inputs Sector Strategy) completed in June 2007 and research and interaction with the key private and public sector entities. The research was divided into quantitative and qualitative aspects to promote an understanding of critical challenges and success factors that would influence the demand for and supply of infrastructure inputs.

• From the demand perspective, Government, parastatals and agencies of Government that included Eskom, Transnet, the Department of Housing, the Gauteng Provincial Government (Gautrain), Coega Development Corporation, ACSA, SANRAL et al. were requested to provide quantitative annual expected demand capacity profiles for infrastructure inputs (consolidated for specific project categories) and assumptions and prioritisations made for the high level projections. They were also requested to indicate potential supply sensitivities and/or dependencies that are anticipated for specific infrastructure inputs.

• From the supply perspective, industry bodies, institutions and associations representing the relevant infrastructure input producers (and suppliers) of steel, cement and cement products, clay bricks, timber, float glass, plastic pipes, aggregate, concrete, bitumen, transportation services and capital equipment were requested to provide quantitative annual expected supply capacity profiles for infrastructure inputs (consolidated for specific product categories) as well as assumptions and prioritisations made for the high level projections. Furthermore they were asked to indicate infrastructure inputs supply challenges, sensitivities and dependencies including potential solutions to identify supply challenges, an assessment of the impact of current and future infrastructure input imports and an overview of critical considerations impacting on investment in infrastructure input capacity expansion.

The data collection process involved the development and submission of data collection questionnaires as well as face-to-face and telephonic interviews with key inputs suppliers, industry associations, government departments, regulatory bodies, the SOEs, academic institutions and other research entities. The project also reviewed existing projects and other data within government and its agencies as well as published StatsSA statistics. The specific approach to this project was as follows:

• A desktop analysis of existing statistical and project data, relevant literature and internet sources.

• Collection of supply-side information from the suppliers of the key inputs to the infrastructure projects involving:

Design of a questionnaire for interviews A pilot study to test the questionnaire with two industry associations Circulation of the questionnaire to industry associations Follow-up face to face and telephonic interviews Engagement with individual supplier firms where required

• Collection of demand-side information involving: Design of a questionnaire for interviews Face to face interviews with developers of infrastructure projects in the

public sector Ongoing engagement with key players including Transnet and Eskom

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Table of Contents 1 Foreword .........................................................................................................................1 2 Introduction ....................................................................................................................3 3 Macroeconomic Overview ..........................................................................................7 4 Infrastructure Investment Projects ........................................................................13

4.1 Eskom.......................................................................................................................13 4.1.1 Projections of Major Infrastructure Inputs........................................................ 13 4.1.2 Eskom - Summary........................................................................................... 31

4.2 Transnet ...................................................................................................................33 4.2.1 Transnet - Summary........................................................................................ 39

4.3 Gautrain....................................................................................................................40 4.3.1 Overview and Progress ................................................................................... 40 4.3.2 Gautrain Phases and Projects......................................................................... 40 4.3.3 Gautrain Input Requirements .......................................................................... 41 4.3.4 Problems and Possible Solutions.................................................................... 43 4.3.5 Summary ......................................................................................................... 43

4.4 2010 FIFA World Cup Preparation ......................................................................44 4.4.1 Background and overview ............................................................................... 44 4.4.2 2010 Project overview ..................................................................................... 45 4.4.3 Major Infrastructure Inputs Projections............................................................ 48 4.4.4 Analysis of major infrastructure inputs ............................................................ 58 4.4.5 Challenges and sensitivities ............................................................................ 58

4.5 National Roads Infrastructure...............................................................................59 4.5.1 South African National Roads Agency ............................................................ 59 4.5.2 Major Current Road Projects........................................................................... 60 4.5.3 Usage and prediction of major infrastructure inputs........................................ 67 4.5.4 Conclusions..................................................................................................... 71

4.6 Expanded Provision of Housing ...........................................................................72 4.6.1 Background ..................................................................................................... 72 4.6.2 Access to Finance ........................................................................................... 73 4.6.3 Projections of Major Infrastructure Inputs........................................................ 73 4.6.4 Conclusions..................................................................................................... 76

4.7 Airports Company of South Africa .......................................................................77 4.7.1 Background ..................................................................................................... 77 4.7.2 ACSA Project Overview .................................................................................. 78 4.7.3 Projections of Major Infrastructure inputs........................................................ 79 4.7.4 Inputs sensitivities, dependencies and potential solutions .............................. 80 4.7.5 Summary and conclusion ................................................................................ 80

4.8 Significant Provincial and Municipal Infrastructure Investments.....................82 4.8.1 Provincial Infrastructure Investments .............................................................. 82

4.9 Significant Investments by National Departments.............................................86 4.9.1 Department of Water Affairs and Forestry (DWAF)......................................... 86 4.9.2 Summary and Conclusion ............................................................................... 90

4.10 Infrastructure Investment Projects Demand Side Conclusion .....................91 5 Infrastructure inputs ..................................................................................................94

5.1 Steel..........................................................................................................................94 5.1.1 Steel Production .............................................................................................. 94 5.1.2 Projected Domestic Availability ....................................................................... 98 5.1.3 Supply Challenges, Sensitivities, Dependencies and Interventions.............. 102

5.2 Aluminium ..............................................................................................................109 5.2.1 Demand for Aluminium.................................................................................. 109

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5.2.2 Domestic Availability ..................................................................................... 109 5.2.3 Future capacity.............................................................................................. 110 5.2.4 The cost of aluminium ................................................................................... 111 5.2.5 Challenges facing the industry and possible solutions.................................. 111

5.3 Cement ...................................................................................................................112 5.3.1 Overview of Cement Industry ........................................................................ 112 5.3.2 Challenges and Sensitivities in the Industry.................................................. 115 5.3.3 Conclusion..................................................................................................... 115

5.4 Concrete Products................................................................................................115 5.4.1 Overview of the concrete products industry .................................................. 115 5.4.2 Import and export .......................................................................................... 117 5.4.3 Challenges and sensitivities .......................................................................... 117

5.5 Ready-mix Concrete ............................................................................................118 5.5.1 Overview of the Ready-mix Concrete Manufacturing Industry ...................... 118 5.5.2 Projection of Domestic Availability ................................................................ 119 5.5.3 Challenges and sensitivities .......................................................................... 121 5.5.4 Investment..................................................................................................... 122 5.5.5 Conclusion..................................................................................................... 122

5.6 Clay Bricks .............................................................................................................122 5.6.1 Overview of the Clay Brick Manufacturing Industry....................................... 122 5.6.2 Projected Domestic Availability ..................................................................... 123 5.6.3 Challenges and Sensitivities in the Industry.................................................. 123 5.6.4 Conclusion..................................................................................................... 124

5.7 Timber ....................................................................................................................124 5.7.1 Overview of the Timber Industry ................................................................... 124 5.7.2 30-year sawlog demand forecast .................................................................. 125 5.7.3 Supply Challenges, Sensitivities, Dependences and possible Interventions. 128 5.7.4 Summary and Conclusion ............................................................................. 131

5.8 Float Glass.............................................................................................................131 5.8.1 Domestic Availability Projection .................................................................... 132 5.8.2 Some Problems Identified and Potential Solutions ....................................... 133 5.8.3 Summary ....................................................................................................... 134

5.9 Plastic Pipes ..........................................................................................................134 5.9.1 Overview of the Plastic Pipe Industry............................................................ 135 5.9.2 Projected Domestic Availability ..................................................................... 136 5.9.3 Supply Challenges, Sensitivities, Dependencies and possible Interventions 137 5.9.4 Summary and Conclusion ............................................................................. 137

5.10 Aggregate and Sand ........................................................................................138 5.10.1 Overview of the Aggregate and Sand manufacturing industry .................. 138 5.10.2 Projection of Domestic Availability ............................................................. 140 5.10.3 Challenges and sensitivities ...................................................................... 141 5.10.4 Investment ................................................................................................. 141 5.10.5 Challenges................................................................................................. 142 5.10.6 Conclusions ............................................................................................... 142

5.11 Bitumen ..............................................................................................................142 5.11.1 Overview of the Bitumen Industry.............................................................. 142 5.11.2 Overview of Bitumen Supply...................................................................... 143 5.11.3 Overview of South African Bitumen Demand ............................................ 144 5.11.4 Capacity of South African Bitumen Suppliers ............................................ 144 5.11.5 Price Increases Over the Years................................................................. 145 5.11.6 Imports and Exports of Bitumen ................................................................ 146 5.11.7 Supply Challenges and Possible Interventions.......................................... 147 5.11.8 Summary ................................................................................................... 147

5.12 Capital Equipment (Yellow Metal) ..................................................................148

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5.12.1 Overview of the Construction Yellow Metal Industry ................................. 148 5.12.2 Projected Domestic Availability.................................................................. 148 5.12.3 Supply Challenges, Sensitivities, Dependencies and Possible Interventions 152 5.12.4 Impact of Imports ....................................................................................... 152 5.12.5 Investment in Capacity Expansion............................................................. 153 5.12.6 Summary and Conclusion.......................................................................... 153

5.13 Infrastructure Inputs Supply-side Conclusion...............................................155 6 Conclusions................................................................................................................158 7 References ..................................................................................................................160

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List of figures Figure 1: GDP growth rates and sector contributions to growth (percentage change) ............................. 7 Figure 2: Household saving and debt as percentage of disposable income (percentages) ..................... 9 Figure 3: GDP Capital stock of private and public sectors as percentages .............................................. 10 Figure 4: Top ten sectors by investment in 2006 .......................................................................................... 10 Figure 5: Eskom Approved Transmission Projects ....................................................................................... 30 Figure 6: Structure of Bombela operations .................................................................................................... 40 Figure 7: SANRAL Materials Input Prediction ............................................................................................... 67 Figure 8: SANRAL Yellow Metal Inputs Projection ....................................................................................... 68 Figure 9: SANRAL Transport Vehicle Inputs Projection ............................................................................. 69 Figure 10: SANRAL Skills Input Projection .................................................................................................... 70 Figure 11: Housing Statistics from 1999 to 31 March 2008 ........................................................................ 75 Figure 12: Infrastructure Inputs Annual Projections ..................................................................................... 76 Figure 13: Major Provincial Education MTEF Infrastructure Projects (by value)...................................... 83 Figure 14: Major Provincial Health MTEF Infrastructure Projects (by value) ............................................ 84 Figure 15: Major Provincial Road MTEF Infrastructure Projects (by value) .............................................. 85 Figure 16: Distribution of DWAF Dam Infrastructure Budget Projections by Year................................... 90 Figure 17: South Africa monthly Crude Steel production............................................................................. 95 Figure 18: SA-Real domestic carbon and alloy steel consumption ............................................................ 95 Figure 19: SA-sales of primary carbon steel products (1998-2008)........................................................... 96 Figure 20: SA-exports of primary carbon steel products (1998-2008) ....................................................... 96 Figure 21: SA-imports of primary carbon and alloy steel products (1998-2008) ...................................... 97 Figure 22: SA - Sales to industrial groups (2008) ......................................................................................... 98 Figure 23: Carbon Steel Flat Products domestic availability projection (2007 - 2018).......................... 100 Figure 24: Carbon Steel Domestic Flat Products domestic availability projection (2007-2018) .......... 100 Figure 25: Carbon Steel Long Products domestic availability projection (2007-2018).......................... 101 Figure 26: Stainless Steel Flat Products domestic availability projection (2007-2016)......................... 101 Figure 27: Annual Cement Production.......................................................................................................... 114 Figure 28: Projected availability of Cement ................................................................................................. 114 Figure 29: Current operating capacity - Concrete Products ...................................................................... 116 Figure 30: Availability projection of Concrete Products.............................................................................. 117 Figure 31: Ready-mix Producer Cost Index................................................................................................. 118 Figure 32: Combined Ready-mix production volume ................................................................................. 120 Figure 33: Combined fleet size units............................................................................................................. 120 Figure 34: Annual number of transport operators ....................................................................................... 121 Figure 35: Clay Brick Local Availability Projections .................................................................................... 123 Figure 36: Planted land for softwood and hardwood for 2007 .................................................................. 127 Figure 37: Sawlogs domestic availability projections (2004-2033)........................................................... 128 Figure 38: Float Glass Local Supply predictions......................................................................................... 133 Figure 39: Estimated plastic pipe projected domestic availability (2006-2016) ...................................... 136 Figure 40: Aggregate and Sand Producer Cost Index (PCI) ..................................................................... 138 Figure 41: Aggregate and Sand - Annual Production Value (2003-2008)............................................... 139 Figure 42: Aggregate and Sand Annual Production Volume (2003-2008).............................................. 140 Figure 43: Aggregate and Sand domestic availability projections ............................................................ 141 Figure 44: Bitumen Production in South Africa ........................................................................................... 143 Figure 45: Yearly Bitumen Output Projections ............................................................................................ 144 Figure 46: Comparative year-on-year Price Increases for Bitument, Crushed Stone and Cement..... 145 Figure 47: Percent of Bitumen consumed locally and exported ............................................................... 146 Figure 48: Earth moving vehicles domestic availability projections (2007-2018)................................... 150 Figure 49: Construction equipment (dumpers) domestic availability projections (2007-2018) ............ 151 Figure 50: Concrete mixers and plate compactors domestic availability projections (2007-2018)...... 151

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List of Tables Table 1: Contributions to GDP .......................................................................................................................... 8 Table 2: Grootvlei - Projections of Major Infrastructure Inputs.................................................................... 14 Table 3: Camden - Projections of Major Infrastructure Inputs..................................................................... 15 Table 4: Komati - Projections of Major Infrastructure Inputs ....................................................................... 17 Table 5: Majuba - Porjections of Major Infrastructure Inputs ...................................................................... 18 Table 6: Arnot - Projections of Major Infrastructure Inputs .......................................................................... 19 Table 7: Ingula - Projections of Major Infrastructure Inputs......................................................................... 20 Table 8: OCTG - Projections of Major Infrastructure Inputs ........................................................................ 21 Table 9: Gas 1 - Projections of Major Infrastructure Inputs ......................................................................... 23 Table 10: Lina - Projections of Major Infrastructure Inputs .......................................................................... 25 Table 11: Windfarm - Projections of Major Infrastructure Inputs ................................................................ 26 Table 12: Medupi - Projections of Major Infrastructure Inputs .................................................................... 27 Table 13: Kusile - Projections of Major Infrastructure Inputs ...................................................................... 28 Table 14: Nuclear 1 ........................................................................................................................................... 29 Table 15: Eskom Transmission Projects ........................................................................................................ 30 Table 16: Quantities of materials and services to be procured by Transet 2006-2011 ........................... 38 Table 17: Inputs to the Capex programme and the quantities to be used from 2007-2011 ................... 39 Table 18: Gautrain Civil, Electrical and Mechanical Projects ...................................................................... 41 Table 19: Gautrain Civil Works Input Requirements .................................................................................... 42 Table 20: 2010 FIFA World Cup project descriptions................................................................................... 47 Table 21: Soccer City Stadium infrastructure inputs projections ................................................................ 48 Table 22: 2010 FIFA World Cup Johannesburg Soccer City Nasrec Precinct Infrastructure................. 49 Table 23: Johannesburg Rapid Transit System infrastructure input projections ...................................... 50 Table 24: Ellis Park Stadium infrastructure inputs projections .................................................................... 51 Table 25: Ellis Park Precint infrastructure inputs projections ...................................................................... 52 Table 26: Moses Madhiba Stadium infrastructure inputs projections ........................................................ 53 Table 27: Moses Madhiba Prescient and People Park infrastructure inputs projections ....................... 54 Table 28: Loftus Versveld Stadium infrastructure inputs projections ......................................................... 54 Table 29: Loftus Versveld Precinct infrastructure projections ..................................................................... 55 Table 30: Peter Mokaba Stadium infrastructure inputs projections............................................................ 56 Table 31: Mbombela Stadium infrastructure inputs projections .................................................................. 57 Table 32: Mbombela Precinct infrastructure inputs projections .................................................................. 57 Table 33: Nelson Mandela Stadium infrastructure inputs projections........................................................ 57 Table 34: Free State Stadium infrastructure inputs projections .................................................................. 58 Table 35: South African National Roads Agency Limited (SANRAL) Public Infrastructure Inputs Matrix.............................................................................................................................................................................. 66 Table 36: Housing Statistics............................................................................................................................. 72 Table 37: Housing (Infrastructure Inputs Projections 2007/2008-2014/2015) .......................................... 75 Table 38: ACSA project descriptions 2 ........................................................................................................... 79 Table 39: ACSA Materials, Cranes and Skills Infrastructure Inputs Projections (2007-2015) ............... 80 Table 40: Major Provincial Education MTEF Infrastructure Deposits ........................................................ 82 Table 41: Major Provincial Health MTEF Infrastructure Projects................................................................ 84 Table 42: Major Provincial Roads MTEF Infrastructure Projects................................................................ 85 Table 43: Significant DWAF DM Infrastructure Projections (2006/07 - 2012/13)..................................... 89 Table 44: Consolidated peak demand of major infrastructure material inputs ......................................... 91 Table 45: Carbon and Stainless Steel projected domestic availability (2007-2018)................................ 99 Table 46: Imported steel products to South Africa in 2007 in percentage and volume terms.............. 105 Table 47: Domestic Aluminium output (2003-2008) ................................................................................... 110 Table 48: Estimated Aluminium Projextions (2009-2013).......................................................................... 110 Table 49: Annual projected cement production........................................................................................... 114 Table 50: National production and volume actual operating capacity ..................................................... 116 Table 51: Concrete products availability and projections .......................................................................... 117 Table 52: Ready mix PCI 2008 period.......................................................................................................... 119 Table 53: Ready mix production capacity .................................................................................................... 119 Table 54: Ready mix national outputs and projections .............................................................................. 120 Table 55: Clay Bricks production and projection......................................................................................... 123 Table 56: Sawn timber sales per annum (1994-2003) ............................................................................... 125 Table 57: Projected demand for sawlogs (2004-2033) .............................................................................. 126

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Table 58: Projected supply and demand for sawlogs (2006-2033) .......................................................... 127 Table 59: Float glass for building products 3mm - 19mm clear flot, bronze and grey float, as well as coated float ....................................................................................................................................................... 132 Table 60: Major Plastic Pipe Products.......................................................................................................... 135 Table 61: Estimated plastic pipe projected domestic availability (2006-2016) ....................................... 136 Table 62: Aggregate and Sand year-on-year change realised by SEIFSA............................................. 139 Table 63: Aggregate and Snad National output (2003-2008) ................................................................... 139 Table 64: Estimated Aggregate and Sand projected domestic availability ............................................. 140 Table 65: Maximum capacity of local Bitumen Producers ......................................................................... 145 Table 66: Estimated Capital Equipment projected domestic availability (2007-2018)........................... 149 Table 67: Supply side conclusion .................................................................................................................. 156

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1 Foreword The purpose of this study is to assess the increase in public sector demand and trends in supply for key infrastructure inputs. This study reports the projected demand for inputs of the key public sector infrastructure projects and the planned supply by suppliers of key inputs into the infrastructure projects. This report also identifies areas of concern and highlights years of peak demand and any risks that may be associated with mismatch between supply and demand for the key inputs into the infrastructure investment projects. This report follows the same format and methodology as the 2007 Research Report for the Infrastructure Inputs Strategy produced by Suren Singh, Executive Director of Sudeo International Business Consultants. We have attempted to use the same reporting style and approach to provide easy comparison between the 2007 report and this report. This report presents data collected from the infrastructure projects and suppliers of key inputs. We investigated the same key inputs reported in the 2007 report as these still seemed to remain of concern in 2008. The key inputs studied included steel, aluminium, cement, concrete products, ready-mix products, clay bricks, timber, float glass, plastic pipes, aggregate sand, bitumen and capital equipment. In most cases, the providers of this data have not updated their plans to take into account the impact of the global financial crisis on their activities. The data presented in this report is based on projections that had not allowed for the significant negative impact of the global financial crisis. For example, the data presented on the steel industry include projected supply numbers based on plans to substantially expand the production of steel in South Africa. This data was acquired before one of the major steel producers in the country announced that it would reduce supply by as much as 35 percent. Therefore, we ask that readers approach the numbers presented in this report with the due caution required when the global economy is in turmoil and the future filled with uncertainty. We found that most infrastructure projects were on schedule and did not report any serious obstacles to completion of their projects. Many had faced large levels of price escalation to keep their projects on schedule because of the shortage of key inputs and skills during the 2006 and 2007 period. It is too early to predict the effect of the global economic downturn on costs of inputs and skills, even though there are strong indications that the global financial crisis and the economic downturn have already negatively affected global demand for the key infrastructure inputs and skilled labour. Some of the infrastructure projects may face challenges because they are so dependent on imported inputs and skills. The projects that are scheduled for completion in 2010 and 2011 seem to face less risk than those that continue beyond 2011. The South African economy and the infrastructure projects face many challenges over the next few years. The uncertainty and risk of the global financial crisis and the worldwide economic slowdown are not to be underestimated. The public and private sectors, including financial institutions, should co-ordinate and meet regularly to ensure that the infrastructure projects are adequately financed and resourced. Skills development is still an important issue and even in the event of lower aggregate

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demand, the South African economy and the infrastructure projects will require a concerted effort to improve and increase the skills output of the country.

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2 Introduction The Government of South Africa has embarked on a massive infrastructure investment drive within the programme referred to as the Accelerated and Shared Growth Initiative of South Africa (AsgiSA). The overall aim of AsgiSA is to support the government’s drive to halve unemployment and poverty by 2014 and to create conditions in South Africa that will support economic activity and improve the competitiveness of South African business. The role of infrastructure provision is two-fold: first, infrastructure provides a stimulus to growth, investment and employment in the economy and second, infrastructure development can reduce costs and promote competitiveness of businesses based in South Africa. Of course, the infrastructure investments also help the government achieve a number of other goals. To provide a few examples:

• The preparation for the 2010 FIFA World Cup is an important event that will showcase South Africa to the world and hopefully promote South Africa as an investment and tourist destination. The World Cup also promotes national pride and builds social cohesion and morale in the country.

• Addressing the housing backlog and providing South Africans with decent

shelter not only tackles an important social need in South Africa. It helps to address a legacy of apartheid and provides people that were dispossessed and marginalised to create certainty and stability in their lives.

• The maintenance and expansion of roads infrastructure provides business

with the enhanced ability to trade domestically and to move their goods to ports. The new and improved roads network helps to connect people and provides isolated communities with a means to link with other communities, government and markets.

The global economy is drastically different to what it was when the Research Report for the Infrastructure Inputs Strategy was published in June 2007. There was a tone of optimism in the report because the global economy had just experienced a period of relatively high economic growth. It was believed that South Africa was en route to economic growth rates of six percent per annum. There was concern about shortages of key inputs and cost escalation as a result of these shortages. In fact, many of the infrastructure projects underway at present have had huge price escalation. Today, the global financial crisis has had a huge impact on global financial markets and it effects are already unmistakably present in the non-financial sectors of the economy. Global demand for key inputs has collapsed in a very short period. Inventories are high. Many suppliers are reporting that they are cutting production in response to the decline in demand. One expects that South Africa’s infrastructure projects will have access to more and cheaper inputs. However, within the current climate of economic uncertainty it is hard to predict anything. Most macroeconomic models assume economic stability and one would not trust their ability to forecast movements in key variables during times of turbulence. The responses by developed countries and the largest developing countries, such as China and India, to the global crisis are still works in progress. There have been

4

emergency bailouts within the financial sectors of these countries and one expects even more stimulus packages in the future. The responses in non-financial sectors have not been formulated. There are piecemeal plans in different countries, for example, there will be lots of support for the automobile industries of many developed countries, however, it is not clear whether this support will be extended to other manufacturing sectors. China has announced a large economic stimulus, including huge infrastructure investments, to help their economy weather the decline in their exports as a result of declining global aggregate demand. Therefore, while the first Research Report for the Infrastructure Inputs Strategy was concerned about shortages of key inputs and the need for a strategy to identify the impact of public sector infrastructure investment in this type of environment, this report comes at a time where there are many challenges and huge uncertainty facing the public and private sectors in South Africa. Overall peak demand, taking all the projects into account, is expected to occur between 2008 and 2010. The main projects influencing peak demand for inputs are with Eskom and the national housing programme. Eskom’s demand for steel peaks at 201kt in 2011, then declines to 100kt in 2012. Their requirement for aluminium, driven by demand from their distribution projects, grows from 31kt in 2011 to 47kt in 2012 and peaks at 65kt in 2013. The housing programme’s demand for steel and cement is projected to be 150kt and 1.7mt respectively for each year from 2009/2010 to 2014/2015. Overall, the housing programme where 500,000 houses will be built every year from 2009/2010 to 2014/2015 may be seen as the most important project affecting demand for key infrastructure inputs. Demand for cement is expected to peak in 2009 when Eskom, Gautrain, SANRAL and ACSA add a combined estimated demand of nearly 600mt on top of the 1.7mt that will be used in the housing programme. SANRAL’s demand for bitumen is expected to peak at 64.6kt in 2010. Eskom is the only other infrastructure project using a relatively large amount of bitumen. There is only one year, 2009, where Eskom requires a relatively large amount of bitumen (10.6kt). Therefore, 2009 and 2010 are peak years for projected bitumen demand. Projected demand by the housing programme will drive demand for infrastructure inputs such as plastic pipes, glass, timber and concrete products. There are plans to build 500,000 houses per year from 2009/2010 to 2014/15. One can expect that demand for these inputs will steadily increase until 2009/2010 and then stabilise until 2014/2015. Eskom and ACSA will also impact on demand for these products, especially during the period 2009 to 2011. Conditions with regard to supply of infrastructure inputs have changed drastically. Availability of inputs such as steel and cement were seen as an important area of sensitivity over the past few years. Today the problems in global property markets and the collapse in demand for many inputs have eased these concerns. Many global suppliers of infrastructure inputs have reported large inventories. Some domestic producers have already announced reductions in supply while others have told the media they are pondering reductions. At present it does seem that concerns about supply and price have eased. However, it is too early to tell how the responses of suppliers will affect availability and prices of inputs.

5

But it is not only unpredictability of input prices that may be a problem for the infrastructure projects. The high current account deficit, declining exports and lower levels of foreign capital inflows pose a very real challenge to current infrastructure investment plans. South Africa may be forced to lower imports to avoid balance of payments problems. This adjustment could be very painful for the economy. It could lead to further declines in economic growth and poses very real threats to the infrastructure projects, especially those most reliant on imported inputs. Given these potentially huge challenges, it is important that we recognise that the stimulus to South African aggregate demand from the infrastructure projects may be vital for the economy over the next few years, given slowing global demand and the high possibility of a global recession. Many countries will be resorting to similar types of stimulus packages to deal with their own economic downturns. For example, China recently announced a huge stimulus package that includes large allowances for expanding infrastructure and the US government is considering how to increase household consumption. There should be very careful consideration about how the infrastructure projects could be affected by economic downturn and tighter credit markets. The public and private sectors should jointly strategise about important issues such as rescheduling and possibly downsizing infrastructure projects should that need arise. There should also be caution which projects are downsized. We feel that the importance of certain infrastructure projects, such as the housing programme, is underappreciated and that they should be continued even when economic conditions are somewhat difficult. The importance of the national housing infrastructure programme is not adequately recognised. We often focus on Eskom and Transnet’s large infrastructure investment plans. While the Eskom and Transnet investments are important and provide much needed infrastructure for business, the national housing programme seems to have the highest multipliers, especially given the global financial crisis and economic slowdown. Building houses requires less imported content and potentially will employ more people than most of the other infrastructure projects. The housing programme, which will build 500,000 houses each year until 2014/2015 will provide relatively long-term and stable demand for key inputs (produced domestically) such as steel, cement, plastic pipes, glass etc. Further, the socio-economic benefits of the large-scale housing programme are not to be ignored. The programme will provide housing for the poorest South Africans. Most of the poorest members of our population do not have debt. A benefit of the economic downturn for the poor is that there should be price deflation. The reduction in the oil price and less speculation in futures markets for grain should reduce the costs of basic foods. Poor households may have more money to spend on non-food consumption. Those with incomes will invest in their homes and so stimulate domestic demand. We have also witnessed increased consumption in the poorest communities as a result of larger government grants. Access to housing will provide a large section of the South African population with more certainty and security. Households will invest more time and money to maintain relatively precarious informal dwellings and more on permanent formal housing. Houses are not only homes they are places where household members can engage in economic activities and learning.

6

A word of caution: In most cases, the providers of data for this 2008 report had not updated their plans to take into account the impact of the global financial crisis on their activities by the time of going to publication. In other words, the data presented in this report is based on projections that had not taken account of the significant negative impact of the global financial crisis. For example, the data presented on the steel industry include projected supply numbers based on plans to substantially expand production of steel in South Africa. This data was acquired before one of the major steel producers in the country announced that it would reduce supply by as much as 35 percent. Therefore, we ask that readers approach the numbers presented in this report with the due caution required when the global economy is in turmoil and the future filled with uncertainty.

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3 Macroeconomic Overview

Source: Own calculations using SARB data Figure 1: GDP growth rates and sector contributions to growth (percentage change) Both the National Treasury and the South African Reserve Bank predict poorer economic growth performance for the South African economy for 2008 and 2009. They have been revising their estimates downwards. The 2007 Research Report for the Infrastructure Inputs Strategy reported relatively high real economic growth rates for 2005 and 2006 of over five percent per annum. The 2007 real economic growth rate (not given in the 2007 report) was also around five percent (see figure 1). The expectation by government and the South African Reserve Bank when the earlier report was written was that the economy would continue to grow at over five percent per annum. The 2007 report expressed the belief that the recent levels of economic growth were sustainable. It stated, “These levels of sustained growth have been enabled, in part, by significant modernisation and restructuring of the economy together with a commitment from Government and State Owned Enterprises to expand infrastructure (p.4).” The 2007 report reflected the mood of optimism present in both government and business back then. Today we are forced to confront the fact that there will be huge challenges facing the infrastructure investment projects and the economy during the next few years. There is not that much to be optimistic about at present. We can expect the current downturn in the global and domestic economies to place serious impediments in the way of achieving the goals of halving unemployment and poverty by 2014. We cannot blame all of our current problems on the global financial crisis and slowdown, however. We have to take our share of the blame. We have to be honest about the high levels of economic growth in South Africa over the past few years.

Contributions to GDP growth rate (percentages)

0.1% -0.1%0.2% 0.2% 0.1% 0.3%

-0.2% 0.0%

1.6%

0.6%

0.7%

0.0%

1.1%1.1%

1.3% 1.2%

2.4%

2.1%

2.5%

2.7%

3.2%3.2%

3.7%3.5%

0.1%

0.1%

0.2%

0.2%

0.5%0.4%

0.5%

0.4%

-1%

0%

1%

2%

3%

4%

5%

6%

2000 2001 2002 2003 2004 2005 2006 2007

Other (Taxes & subsidies)TertiarySecondaryPrimary

4.2%

2.7 %

3.7 %

3.1%

4.9% 5.0%

5.4%5.1%

8

Elements of this growth were not sustainable and contribute to the problems we now face. There was too much debt creation in the South African economy and too large a share of this new debt was used to increase consumption instead of contributing to increased levels of productive investment. An examination of the kind of economic growth and investment over the past few years should increase our understanding of the domestic problems facing the economy that will make us more vulnerable to the global financial crisis and the downturn in global economic growth. Figure 1 shows the contribution to the annual rate of GDP growth of the primary, secondary and tertiary sectors. The poor performance of the primary sector, which includes mining and agriculture, forestry and fishing, is very evident in figure 1. Even though there were increases in commodities prices during 2006 and 2007, we see a negative contribution from the primary sector. The secondary sector, including manufacturing and construction, contributed 1.3 percent and 1.2 percent to the overall GDP growth rate for 2006 and 2007 respectively. The largest contributor to annual GDP growth has been the tertiary sector. Government services form a large part of the tertiary sector and finance, intermediation, insurance, and real estate services contribute considerably to the services sector. Other sectors in services are wholesale and retail trade services, communication services, and transport and storage services. The contribution of services to GDP growth grew to over 3 percent by 2004 and was 3.5 percent in 2007. The decline in GDP growth from 5.4 percent in 2006 to 5.1 percent in 2007 was a result of a 0.2 percent contraction in the contribution to GDP growth of the tertiary sector and a 0.1 percent decline by the secondary sector. With the high level of debt and tighter lending conditions set by the domestic banks one can expect an even larger decline in the contributions to GDP growth of services and the secondary sector. For example, there have been reports from StatsSA that retail sales have declined by approximately 5.5 percent over the past year (i.e. year on year growth for retailing was about -5 % at the end of September 2008). The decline in retail sales will affect the wholesalers, the transport and storage businesses and other services sectors. It will also affect manufacturing. Therefore, we can expect the poor retail performance this year to affect GDP growth in 2008 but also to have negative implications for growth next year.

2000 2001 2002 2003 2004 2005 2006 2007 Household consumption 63.0% 63.4% 63.1% 63.4% 64.5% 65.6% 67.4% 68.6%

Government consumption 18.1% 18.2% 18.4% 18.9% 19.2% 19.2% 19.1% 19.1% Gross capital formation (Investment) 15.9% 15.4% 15.9% 17.0% 18.2% 18.2% 20.2% 20.9%

Exports less imports 3.0% 3.5% 2.4% 0.4% -2.5% -3.2% -6.9% -7.8%

Source: own calculations using SARB data Table 1: Contributions to GDP Table 1 above shows the contribution of household consumption, government consumption, investment and the trade deficit to GDP. An important characteristic of economic growth over the past few years was how much of it was due to household consumption growth. Household consumption as a percentage of GDP grew from 63 percent in 2000 to 69.6 percent in 2007. Most of the increase occurred from 2004

9

when it was 64.5 percent. At the same time, government spending as a percentage of GDP grew from 18.1 percent in 2000 to 19.2 percent in 2004 and declined to 19.1 by 2007. The trade deficit turned negative from 2004 and grew to a very large -7.8 percent of GDP in 2007. The good news seems to be the increase in gross capital formation (investment) as a percentage of GDP which grew from 15.9 percent in 2000 to 18.2 percent in 2004 and then to 20.9 percent by 2007. The main contributors to GDP over the last few years have been household consumption and gross capital formation.

Household debt and savings (percentages)

-10

0

10

20

30

40

50

60

70

80

90

2000 2001 2002 2003 2004 2005 2006 2007

Saving to disposable income of households Household debt to disposable income of households Source: SARB Figure 2: Household saving and debt as percentage of disposable income (percentages) The increase in household consumption has led to increased levels of household debt and lower levels of savings. Household debt as a percentage of disposable income climbed from 52.4 percent in 2003 to 76.5 percent in 2007. The already low levels of saving to disposable income turned negative in 2006. These numbers represent levels of debt and savings to disposable income for the entire country. When one considers that a large percentage of the population does not have access to bank accounts and credit then one realises that the debt problem of people with access to credit may be significantly worse than the national figures show. In short, we see that the growing contribution of household consumption to GDP over the past few years is associated with a sharp increase in household levels of debt and lower saving levels. We also know that the trade deficit increased during the same period, which leads us to infer that the increased trade deficit is associated with the higher levels of debt-driven consumption.

10

Private and General Government & Public Corporations capital stock as percentages of GDP, Real 2000 prices, Source: SARB

60%

70%

80%

90%

100%

110%

120%

130%

140%

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1995

1997

1999

2001

2003

2005

2007

Government & Public corporations Private

Source: Own calculations using SARB Figure 3: GDP Capital stock of private and public sectors as percentages Figure 3 shows capital stock of the public and private sectors as percentages of GDP from 1970 to 2007. There was a rapid decline in both levels of capital stock from 1993. The data seems to indicate that levels of investment in the economy during the 1990s and 2000s have not been adequate to keep the level of capital stock stable in South Africa. South Africa has had declining capital stock, which may indicate declining capacity to undertake production and economic expansion. Of particular concern is the huge decline in government and public corporation capital stock as a percentage of GDP. The decline in this public sector capital stock as a percentage of GDP from 2000 to 2007 was about 20 percent. The decline in private sector capital stock as a percentage of GDP for the same period was seven percent. The public sector had not carried out major privatisation during the 2000 to 2007 period.

2006 Top 10 sectors by investment (as a % of total investment)

A1321: Transport and storage [71-74], 8%

A1322: Communication [75], 8%

A1311: Wholesale and retail trade [61-63], 7%

A1331: Finance and insurance [81-82], 11%

A1343: General government services [99], 12%

A1332: Business services [83-88], 14%

A1123: Other mining [22/24/25/29], 4%

A1221: Electricity, gas and steam [41], 4%

A12131: Coke and refined petroleum products [331-333], 3%

A12181: Motor vehicles, parts and accessories [381-383], 3%

Cumulative investment of top 10 sectors = 77% of total investment

Source: Own calculations using Quantec data Figure 4: Top ten sectors by investment in 2006

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Figure 4 shows the top 10 sectors investment as a percentage of total investment. The combined investments of these top 10 sectors account for 77 percent of total investment in the country in 2006. The top 6 sectors by investment in 2006 were all services sectors. The non-services sector investment in the top 10 in 2006 were related to platinum mining, Eskom expansion, Sasol and the automobile industry. It seems that the bulk of services sector investments, other than general government services investment, are related either to the financial sector or to areas that would be associated with supporting household consumption growth. In other words, the largest part of investment in the country is going into services associated with household debt and consumption. Investment in manufacturing and other industrial sectors was a relatively small proportion of investment in the country. The decline in debt extension and household consumption could have a huge impact on investment levels over the next few years. Further, the declining debt and consumption will affect the automobiles and components sector as well. The global economic crisis will affect demand for platinum and coke and refined petroleum products. These developments highlight the importance of ensuring that the infrastructure investments continue. One would expect that other than infrastructure investments there will be a decline in investment levels in the country. The contribution of sectors in the top 10 investment sectors in 2006 will very probably decline. One of the largest challenges facing the South African economy over the next few years is the ability to maintain our balance of payments stability. The sudden decline in demand for minerals commodities will affect our export levels, which could further worsen the trade deficit. The global financial crisis has led to very tight global credit market conditions. South Africa, and other emerging markets with trade deficits, will face much harsher conditions with regard to foreign capital inflows in the future. As a result, we may be forced to adjust our economy to rely on lower levels of imports. The high current account deficit, declining exports and lower levels of foreign capital inflows, pose a very real challenge to current infrastructure investment plans. However, the stimulus to South African aggregate demand from the infrastructure projects seem vital for the economy over the next few years given slowing global demand and the high possibility of a global recession. The infrastructure investments could be an important new start for the economy. The projects are implemented to ease the logistical problems facing South African business and to address important socio-economic challenges. Unlike many of the investments over the past few years, the infrastructure investments were not responses to increased household consumption and a credit market bubble. They were forward looking projects that recognised the inadequate levels of investment to maintain and grow the country’s infrastructure base. The global financial crisis has shown that financial markets can easily lead economies into dangerous water. Huge increases in liquidity can cause severe economic destabilisation. Capital will be allocated towards the creation of asset price bubbles and away from investment in the productive side of the economy. Easier availability of credit will cause consumers to feel more affluent and cause increased debt driven consumption. The associated growth in aggregate demand will lead to

12

increased economic growth rates. Unfortunately, higher economic growth is seen as success even if it poses a significant danger to future economic performance. Misallocation of capital towards financial and property market speculation meant underinvestment in the industrial base of many countries, including South Africa. The global division of labour became such that Asia was seen as the manufacturing hub Africa and Latin America as the providers of raw materials. As a result of the consumption boom, investment in services in countries such as the US and also South Africa were geared towards services related to industry and building the productive abilities of economies but towards servicing unsustainable consumption and speculation. Many non-financial firms facing more global competition invested in financial assets, which had high returns, to keep profits high and shareholders happy. The infrastructure projects could be a new start because they could signify the beginning of an investment drive into industry and services that build the productive base of the South African economy. It is time for capital in South Africa to be allocated towards productive processes that create the opportunity for more sustainable economic growth and employment in the future. We require this reallocation of capital to ensure that we are better capable of halving unemployment and poverty even if there is a global economic downturn.

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4 Infrastructure Investment Projects

4.1 Eskom 4.1.1 Projections of Major Infrastructure Inputs In terms of the capital expenditure plan, Eskom’s infrastructure investment is aimed towards improving electricity generation capacity to meet the increasing demand for power. Eskom has also allocated additional expenditure towards the refurbishment, strengthening and maintenance of the distribution network. Eskom plans to spend R342,868 billion over the next five year period. In terms of the revised plan R249,752 billion will be spent on generation (including New Build Projects), R43,459 billion on transmission, R36,895 billion on distribution and R12,744 on corporate expenditure. A. Eskom Capex The infrastructure projections listed below are focused on generation and transmission projects. Generation Projects Include: • Return To Service • Peaking Projects

o Camden – RTS o Ingula – Pump Storage o Grootvlei – RTS o OCGT – Gas Turbine o Komati – RTS o Gas 1 – Gas Turbine Lima – Pump Storage

• Mpumalanga Project o Wind Farm (Awaiting Approval) o Majuba – Railway Link o Arnot – Capacity Increase • New Coal Projects

o Medupi • Nuclear Projects o Kusile

Nuclear 1 Transmission Projects analysed over a 2007 to 2013 period include: • 3,122km of 765kV transmission lines • 7,76 km of 400kV transmission lines • 310km of 275kV transmission lines • 293km of 132kV transmission lines B. Grootvlei -Return to Service (RTS) The Grootvlei return to service project in Mpumalanga (Dipaleseng Municipality) commenced in May 2004 and involves the repair and refurbishment of all six generating units, including the common plant, to a condition that will allow a 2-shift operating mode. The project also includes the installation of a new control and instrumentation system and upgrades to the gas cleaning plant at an approximated total cost to completion of R4.77 billion.

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Projections of Major Infrastructure Inputs

Eskom Grootvlei - Return To Service (Phase 2) Total 2007

2008 Peak Year

2009 Peak Year

2010

Materials

Steel (tons) 4,298 2,843 1,455 728 -

Cement (tons) 7,195 7,117 78 39 -

Clay Bricks (tons) 85 75 10 5 -

Concrete (tons) 750 750 - -

Timber (cub mt) 100 100 - -

Glass (sq mt) 30 30 1,200 1,100 100 50 -

Ceramic ware (tons) 555 533 22 11 -

Plastic Pipes (tons) 4 2 2 1 -

Roof Sheet Steel (sq mt) 7,700 5,500 2,200 1,100 -

Aggregate Stone Mix (tons) 113,100 112,800 300 150 -

Ready-mix Concrete (tons) 7,370 6,810 560 280 -

Bitumen (tons) 920 912 8 4 -

Copper and Steel Cables (million m) 1.05 1.05 - - -

Capital Equipment

Trucks (30t capacity) 10 10 - - -

Water Trucks 3 3 - - -

Graders 5 5 - - -

Rollers/compactors 5 5 - - -

Cranes

Crane (150t capacity) 1 1 1 1 -




Transport Equipment

Skills

General and Project Managers 50 50 50 50 -

Specialist Eng. and Designers 65 65 65 65 -

Architects 2 2 - - -

Quantity Surveyors 9 9 9 11 -

Planners 6 6 6 6 -

Table 2: Grootvlei - Projections of Major Infrastructure Inputs

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C. Camden - Return To Service (RTS) The Camden Return To Service project focuses on the refurbishment and commissioning of the Camden Power Station, located 15km outside of Ermelo on the N2. The project commenced in Nov 2003 and was completed in 2008 at an approximated total cost of R5.2 billion.

Projections of Major Infrastructure Inputs Eskom Camden - Return To Service (Phase 2) Total 2007 2008

Materials

Steel (tons) 5,397 62 5,335

Aluminium (tons) 1,5 - 1,5

Cement (tons) 1 - 1

Clay Bricks (tons) 121 80 41

Concrete Blocks (tons) 51 30 21

Glass (sq mt) 30 30 171 150 20.5

Ceramic ware including tiles (tons) 351.5 100 251.5

Plastic Pipes (tons) 701 500 201

Roof Sheet Steel (sq mt) 2,760 2,000 760

Ready-mix Concrete (tons) 1,300 780 520

Bitumen (tons) 1,500 1,000 500

Capital Equipment

Capital Equipment (unspecified) 1 - 1

Cranes

Crane (10t capacity) 1 1 1

Crane (8t capacity) 2 2 2

Trucks -unspecified capacity (units) Capacity of Total carrier (tons) 20 3,680 20 80 10 3,680

Rail (units) Capacity (tons) 10 500 - 10 500

Skills General and Project Managers 8 8 8

Specialist Eng. and Designers 30 30 30

Architects 2 2 2

Quantity Surveyors 3 3 3

Planners 3 3 3

Construction Managers/supervisors 63 63 63

Related Technologists 9 8 9

Artisans – Plumbers/turbine fitters 165 165 140

Artisans – Bricklayers 20 20 15

Artisans – Electricians 12 13 13

Table 3: Camden - Projections of Major Infrastructure Inputs

16

D. Komati – Return To Service (RTS) The return to service of Komati Power Station involves the repair and refurbishment of all nine generating units and the common plant to a condition that will allow base-load operation. Refurbishment commenced in Nov 2003 and is expected to be completed by 2011 at an approximated total cost of R6.06 billion. The project includes the installation of a new control and instrumentation system, upgrades to the gas cleaning plant and higher smoke stacks. Infrastructure input projections for Komati are expected to be similar to those for Grootvlei.

17

Table 4: Komati - Projections of Major Infrastructure Inputs

Projections of Major Infrastructure Inputs

Eskom Komati - Return To Service (Phase 2) Total 2007

2008 Peak Year

2009 Peak Year

2010

Materials

Steel (tons) 4,298 2,843 1,455 1750 -

Cement (tons) 7,195 7,117 78 30 -

Clay Bricks (tons) 85 75 10 5 -

Concrete (tons) 750 750 - 0

Timber (cub mt) 100 100 - 1

Glass (sq mt) 30 30 1,200 1,100 100 20 -

Ceramic ware (tons) 555 533 22 5 -

Plastic Pipes (tons) 4 2 2 1 -

Roof Sheet Steel (sq mt) 7,700 5,500 2,200 500 -

Aggregate Stone Mix (tons) 113,100 112,800 300 100 -

Ready-mix Concrete (tons) 7,370 6,810 560 300 -

Bitumen (tons) 920 912 8 2 -

Copper and Steel Cables (million m) 1.05 1.05 - 2 -

Capital Equipment

Trucks (30t capacity) 10 10 - - -

Water Trucks 3 3 - - -

Graders 5 5 - - -

Rollers/compactors 5 5 - - -

Cranes

Crane (150t capacity) 1 1 1 - -




Transport Equipment

Skills

General and Project Managers 50 50 50 - -

Specialist Eng. and Designers 65 65 65 - -

Architects 2 2 - - -

Quantity Surveyors 9 9 9 - -

Planners 6 6 6 - -

Construction Managers 2 2 2 - -

Related Technologists 5 5 5 - -

18

E. Majuba – Railway Link (Mpumalanga Projects) This project entails the construction of a 68km railway line between Ermelo and Volksrust. The primary purpose of this project is to transport coal to Majuba Power Station. Project completion is expected in November 2011.

Projections of Major Infrastructure Inputs Eskom Majuba - Rail Project Total 2008 2009

Peak Year 2010

Peak Year 2011 2012

Materials

Steel (kt) 78 - 13.5 13.5 51 -

Aluminium (tons) 246 - - 123.1 123.1 -

Cement (kt) 20,000 - 6,666.7 6,666.7 6,666.7 -

Clay Bricks (kt) 2 - 0.5 1.5 - -

Concrete Blocks (cum2) 3,682 - 500 1591 1591 -

Timber (cub mt) 0 - - - - -

Glass (sq mt) 30 30 0 - - - - -

Ceramic ware including tiles (tons) 0 - - - - -

Plastic Pipes (tons) 500 - - 500 - -

Roof Sheet Steel (sq mt) 0 - - - - -

Aggregate Stone Mix (kt) 36 - 12 12 12 -

Bitumen (tons) 800 - 400 400 - -

Cranes

Crane (30t capacity) 30 - 30 30 5 -

Transport Equipment

Number of load units ‘000 s (25 ton for each load)

5 - 1.66 1.66 1.66 -

Skills

General and Project Managers 20 - 20 20 20 -

Specialist Eng. and Designers 15 - 15 15 15 -

Quantity Surveyors 10 - 10 10 10 -

Planners 4 - 4 4 4 -

Construction Managers/Supervisors 50 - 50 50 50 -

Related Technologists 5 - 5 5 5 -

Artisans – Plumbers/turbine fitters 2 - 2 2 2 -

Artisans – Bricklayers 20 - 20 20 - -

Artisans – Electricians 8 - 0 8 8 -

Artisans – Welders 10 - - - 10 -

Artisans – Carpenters 5 - 5 5 - -

Table 5: Majuba - Porjections of Major Infrastructure Inputs

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F. Arnot (Phase 2) – Capacity Expansion (Mpumalanga Projects) The capacity increase project at Arnot Power Station commenced in September 2006 and is scheduled for completion in December 2010. The project is not expected to require a significant amount of input materials, capital equipment or skills (refer to the table below). Power generation capacity is expected to increase from 370MW to 400MW on six generating units at an approximated total cost of R1.048 billion.

Projections of Major Infrastructure Inputs Eskom Arnot -Capacity Increase (Phase 2) Total 2007

Peak Year 2008 2009 2010

Materials

Steel (tons) 2,503 503 800 800 400

Cement (tons) 3 3 - 1 1

Clay Bricks (tons) 2 2 - - -

Glass (sq mt) 30 30 30 30 - - -

Ceramic ware (tons) 0.5 0.5 - - -

Plastic Pipes (tons) 3 3 - - -

Roof Sheet Steel (sq mt) 46 46 - - -

Ready-mix Concrete (tons) 5 5 - - -

Cranes

Tower Crane (15t capacity) 1 1 - - -

Transport Equipment

Transport Vehicles (80-100t capacity) For the transport of HP, IP and LP Turbines 3 3 3 3 3

Skills

General and Project Managers 4 4 4 4 4

Specialist Eng. and Designers 19 19 7 5 3

Planners 2 2 2 2 1

Table 6: Arnot - Projections of Major Infrastructure Inputs

20

G. Ingula – Pumped Storage Scheme The Ingula pumped storage scheme, located 30km east of Van Reenen (ZN), is a greenfields pumped storage power plant that is currently under construction. The project commenced in April 2006 and is expected to be completed by December 2012 at a total cost of R8.9 billion.

Projections of Major Infrastructure Inputs Eskom Ingula - New Power Station Total 2009 2010 2011 2012 2013

Materials

Steel (kt) 75 10 15 20 20 10

Cement (kt) 150 20 30 40 40 20

Aggregate Stone Mix (kt) 150 20 30 40 40 20

Capital Equipment

Capital Equipment (unspecified) 100 20 20 20 20 20

Cranes

Crane (Unspecified capacity) 20 4 4 4 4 4

Crane (30t capacity) 5 1 1 1 1 1

Crane (15t capacity) 5 1 1 1 1 1

Skills

General and Project Managers 10 10 10 10 10 8

Specialist Eng. and Designers 5 5 5 5 5 3

Quantity Surveyors 5 5 5 5 5 5

Planners 3 3 3 3 3 3

Construction Managers/supervisors 181 181 181 181 181 181

Related Technologists 4 4 4 4 4 4

Artisans – Plumbers/turbine fitters 3 3 3 3 3 3

Artisans – Electricians 4 3 4 4 4 3

Artisans – Boilermakers 3 3 3 3 3 3

Artisans – Fitters 3 3 3 3 3 3

Artisans – Welders 3 3 3 3 3 3

Artisans – Carpenters 15 15 15 15 15 15

Table 7: Ingula - Projections of Major Infrastructure Inputs

21

H. OCGT – Peaking Projects A greenfields project comprising two gas fired Power Plants rated in total 1,042MW (Ankerlig – 3 x 149MW Units and 1x 148MW Gourikwa – 3 x 149MW Units). The Project was completed in June 2007 and handed over to the Generation division.

Projections of Major Infrastructure Inputs Eskom OCGT - New Power Station Total 2007 2008 2009

Materials

Steel (kt) 0 0.000 0.055 -

Cement (kt) 6 5.090 1.045 -

Clay Bricks (kt) 0 0.125 0.107 -

Concrete Blocks (kt) 0 0.050 0.001 -

Timber (cub mt) 9 5.000 4.000 -

Capital Equipment

Capital Equipment (unspecified) 7 6 1 -

Cranes

Crane (Unspecified capacity) 9 8 1 -

Crane (30t capacity) 6 5 1 -

Crane (15t capacity) 4 3 1 -

Transport Equipment


28 8 20 -

Skills

General and Project Managers 35 12 -

Specialist Eng. and Designers 28 5 -

Architects 5 2 -

Quantity Surveyors 14 7 -

Planners 9 5 -

Construction Managers/supervisors 16 7 -

Related Technologists 12 2 -

Artisans – Plumbers/turbine fitters 7 1 -

Artisans – Bricklayers 20 12 -

Artisans – Electricians 15 9 -

Artisans – Boilermakers 9 3 -

Artisans – Fitters 45 7 -

Artisans – Welders 35 5 -

Artisans – Carpenters 30 7 -

Table 8: OCTG - Projections of Major Infrastructure Inputs

22

I. Gas 1 – Peaking Projects Gas 1 project is to deliver 1036MW between December 2008 and May 2009. There are two Gas Fired Power Plants (Ankerlig – 5 x 148MW Units and Gourikwa – 2 x 148MW Units). Ankerlig site was accessed on 8th August 2007 and Gourikwa site on 24th September 2007. Site access was delayed by more than six months due to late ROD approvals.

Projections of Major Infrastructure Inputs Eskom Gas 1 - New Power Station Total 2007 2008 2009

Materials

Steel (kt) 4 - 3.985 -

Aluminium (tons) 0 - - -

Cement (kt) 18 2.000 16.000 -

Clay Bricks (kt) 1 - 0.680 -

Concrete Blocks (kt) 0 - 0.240 -

Timber (cub mt) 34 - 34.000 -

Glass (sq mt) 30 30 225 - 225.000 -

Ceramic ware including tiles (tons) 34 - 34.000 -

Plastic Pipes (tons) 37 34.000 3.000 -

Roof Sheet Steel (sq mt) 11 - 11.195 -

Aggregate Stone Mix (kt) 169 6.000 163.000 -

Bitumen (tons) 2 - 1.874 -

Capital Equipment

Capital Equipment (unspecified) 7 - 5 2

Cranes

Crane (Unspecified capacity) 3 - 3 -

Crane (30t capacity) 7 - 7 -

Crane (15t capacity) 3 - 3 -

Transport Equipment


18 15 3 -

Skills

General and Project Managers 85 42 85 12

Specialist Eng. and Designers 40 18 40 5

Architects 5 5 5 2

Quantity Surveyors 20 14 20 8

Planners 12 10 12 5

Construction Managers/supervisors 35 20 35 9

Related Technologists 30 20 30 10

Artisans – Plumbers/turbine fitters 15 - 15 7

Artisans – Bricklayers 20 5 20 5

23

Artisans – Electricians 12 2 12 8

Artisans – Boilermakers 20 3 20 10

Artisans – Fitters 15 - 15 5

Artisans – Welders 45 2 45 5

Artisans – Carpenters 25 1 25 10

Table 9: Gas 1 - Projections of Major Infrastructure Inputs

24

J. Lima – Peaking Projects A pump storage scheme project comprising of 4 x 375MW units rated in total 1,500MW. The first unit is expected to be commissioned by 30

June 2014 with the

last unit scheduled for commissioning by 31 March 2015.

Projections of Major Infrastructure Inputs Eskom Lima - New Power Station Total 2009 2010 2011 2012 2013 2014

Materials

Steel (tons) 25,000 4100 3500 5800 5800 5800

Cement (tons) 164,000 100 26800 22960 38060 38040 38040

Clay Bricks (tons) 120 20 80 20

Glass (sq mt) 30 30 1,400 700 700

Ceramic fittings (tons) 550 50 200 200 100

Ceramic tiles (sq mt) 5 5

Roof Sheet Steel (sq mt) 5,300 5000 300

Sand (tons) 205,000 100 25000 65000 60000 44900 10000

Aggregate Stone Mix (tons) 322,000 500 50000 100000 100000 50000 21500

Bitumen (tons) 10,200 10200

Capital Equipment

Trucks (30t capacity) 10 10 - - - - -

Water Trucks 3 3 - - - - -

Graders 5 5 - - - - -

Rollers/compactors 5 5 - - - - -

Cranes

Crane (250t capacity) 2 - - 2 - - -



Transport Equipment

Road Transport (50t) (units) 10 2 10 10 10 10 -

Road Transport (230t) (units) 4 - - - 4 -

Skills

General and Project Managers

14 12 14 14 14 14 14 Specialist Eng. and Designers

50 25 50 50 40 40 25

Architects 2 2 2 - - - -

Quantity Surveyors 8 6 8 8 8 6 6

Planners 4 2 3 4 4 4 4

Construction Managers 24 24 24 24 20 18 10

Related Technologists 25 12 25 25 20 20 12

Artisans – Plumbers 10 - 4 4 10 10

25

Artisans – Bricklayers 10 2 6 10 10 10

Artisans – Electricians 15 4 6 6 6 15 15

Artisans – Fitters 10 - - 4 10 10 10

Artisans – Welders 10 - - 6 10 10 6

Artisans – Carpenters 8 - 4 8 8 6

Table 10: Lina - Projections of Major Infrastructure Inputs

26

K. Windfarm – Peaking Projects This is a renewable energy project of 100MW, situated on the West Coast of the country. The planned completion date for this project is 31

May 2010.

Table 11: Windfarm - Projections of Major Infrastructure Inputs

27

L. Medupi – New Coal The Medupi power station is a green fields direct dry-cooled power station comprising 6 x 750MW to 900MW pulverised coal fuel fired generators, that will be situated in the Lephalale area of Limpopo Province, 7km southwest of the existing Matimba Power Station. The project commenced on 1 October 2007 and is expected to be completed by December 2016 at an approximated total cost of R78.6 billion, without the inclusion of Fuel Gas Desulphurisation (FGD), and R85.6 billion including

FGD. Table 12: Medupi - Projections of Major Infrastructure Inputs

28

M. Kusile – New Coal The Kusile project is a new direct dry-cooled base load power station comprising 6 x 750MW to 900MW pulverised fuel fired generators, situated in the Witbank, Delmas, and Balmoral area of Mpumalanga province, approximately 20km northwest of the existing Kendal Power Station. The project is scheduled for completion by December 2016 at an approximated total cost of R84.8 billion including FGD. Due to similarities between the Medupi and Kusile power stations, the estimated infrastructure inputs projection profile will be similar.

Table 13: Kusile - Projections of Major Infrastructure Inputs

29

N. Nuclear 1 Project Quantity Surveying

(per nuclear unit)

Concrete m³ 289 000

Concrete Reinforcing t 39 500

Structural Steel t 15 213

LB Pipe m 70 129

Cable m 1 111 000

Balance of Plant Estimates

Concrete m³ 108 660 Concrete Reinforcing t 6 766 Structural Steel t 1 299 Small Bore Pipe m 12 836

LB Pipe m 163 914

Conduit m 381 256

Cable m 906 884 Table 14: Nuclear 1 Please note the following: 1. Site access to the Eskom preferred site is January 2010. The preferred site is not

yet known through the EIA process. 2. The final vendor has not been chosen for Nuclear1. 3. The number of nuclear units will vary between two and three depending on the

choice of vendor. 4. This is an EPC contract and we do not have a full list of the BOM. 5. Construction will start in 2011 and will be completed in 2015. The exact usage of

materials per annum is not known. 6. The exact number of Vendor employees with qualifications is not known. The

quantity of personnel between the two vendors also differs substantially.

30

O. Transmission Projects

Projections of Major Infrastructure Inputs Eskom Transmission Projects

Total 2008 2009 2010 2011 2012 2013 +

Transmission Lines

765 kV (km) 3,122 245 485 540 440 930 482

400 kV (km) 7,768 198 383 1,029 1,286 1,805 3067

275 kV (km) 310 2 4 26 61 140 77

132 kV (km) 293 0 108 104 36 20 25

TOTAL 11,493 445 980 1,699 1,823 2,895 3,651

Materials

Steel -Lattice towers (kt) 2 519.18 30.75 78.19 115.08 94.99 98.32 101.85

Steel – Conductors (kt) 45.70 1.49 3.14 6.41 7.41 11.26 15.99

Steel – Earth-wires (kt) 97.81 3.79 8.34 14.46 15.51 24.64 31.07

Aluminium – Conductors (kt) 189.14 6.52 13.95 27.02 30.43 46.51 64.71

Concrete (‘000 cub mt) 804.44 47.94 121.30 178.27 147.30 152.30 157.33

Table 15: Eskom Transmission Projects Figure 5 below is representative of the approved transmission projects:

Figure 5: Eskom Approved Transmission Projects

31

4.1.2 Eskom - Summary Eskom plans to spend R342.9 billion over the next five year period. In terms of their revised plan, R249.8 billion will be spent on generation (including New Build Projects), R43.5 billion on transmission, R36.9 billion on distribution and R12.7 billion on corporate expenditure. Notwithstanding the global financial crisis and the increased likelihood of a large downturn in the South African economy, Eskom is still under pressure to expedite its expansion plans to ensure supply reliability from the country’s national electricity grid. Government has recently reported that there may be supply problems again in early 2009 because of scheduled maintenance. Generation projects will include: a new nuclear project called Nuclear 1; Arnot capacity increase; Ingula pumped storage; completion of return to service projects at Grootvlei, Camden and Komati; and new coal base station projects, Medupi and Project Kusile. Eskom plans to erect 11.493km of transmission lines between 2008 and 2013. There is also talk of renewable energy projects in the southern African region. Overall peak demand for major infrastructure inputs for transmission and generation projects are expected to occur in 2010 and 2011. Steel (excluding roof sheet steel) demand is expected to peak in 2010 when 331kt will be required, including demand from the Medupi Power Station, Project Kusile and the construction of transmission lines. Total steel (excluding roof sheet steel) demand between 2007 and 2015 is expected to reach almost 1.3mt. We note that Eskom has reported a huge decline in estimated steel demand since the 2007 report. Almost all the estimated decrease in the demand for steel is from the new coal-fired power stations. The numbers reported by Eskom recently show that they estimate using about 2mt less steel than previously reported. Eskom’s projects will require substantial quantities of roof sheet steel, primarily for its Medupi Power Station and Project Kusile. From Eskom project input projections, it is estimated that approximately 780,000sqM (square meters) of roof sheet steel will be required between 2007 and 2014, with peak demand of 289,000sqM in 2011. The substantial increase again comes from the new coal power stations. Total cement demand from 2007 to 2015 is expected to be 807kt, with peak demand for cement occurring in 2009 (246kt). Peak demand for cement in 2008 will be driven primarily through demand from Medupi power station (210kt) and Kusile (210kt). Aluminium demand will peak in 2013 when 65kt will be required mainly for various transmission related projects. The total demand for aluminium is expected to reach 189kt between 2007 and 2015, with the highest demand occurring between 2011 and 2013 (31kt in 2011, 47kt in 2012 and 2013). Consistent demand of 46,892 cubic metres annually of clay bricks is expected between 2008 and 2010, resulting from the construction of the Medupi Power Station and Project Kusile. All the other projects will require quantities of clay bricks with a projected total of 416 tons between 2007 and 2013.

32

Bitumen demand will be greatest in 2009 (106kt) and 2007 (28kt) resulting from demand from the Ingula pumped storage scheme. Total bitumen demand is expected to be 143kt between 2007 and 2014. Nuclear 1’s inputs will mainly be concrete, steel and cable. Construction will start in 2011 and will be complete in 2015. The exact usage of materials per annum was not provided by Eskom. The peak demand year for 488 General and Project Managers will be 2010. 2009 will be the peak year for 315 Specialist Engineers and Plant Designers, 77 Quantity Surveyors and 62 Planners. Peak demand for Construction Managers and related Technologists is expected in 2010 when approximately 510 Construction Managers/Supervisors and 305 Technologists will be required. The most prominent artisan skill requirements are for electricians, boilermakers, fitters and welders. When interviewed for the 2007 Report, Eskom raised serious concerns about materials availability (especially steel and cement); specialist engineering suppliers; imported equipment delivery; project management, engineering and contractor skills availability; and artisan skills These concerns are still present at Eskom today but one has the impression that there has been much effort made to address these problems since they were last interviewed. As a result, our view is that the supply of materials and skills is less of a concern for Eskom than a year or two ago. One also hopes that the decline in global demand for inputs and skills will further ease these concerns.

33

4.2 Transnet Officially, Transnet has recognised an expenditure over the next four years of at least R76 billion, however, some estimates place it as high as R94 billion. The Transnet capex programme is focused on addressing the backlog in maintenance and upgrading and expanding of the Group’s asset base to meet the capacity demands of its customers. The capex programme commenced in 2006. It consists of expansion and replacement projects in the core business areas of ports, rail, pipeline and support services to be implemented over the next four years. The largest spend will be on rail operations and rail infrastructure. The next largest single spend will be on port infrastructure followed by port operations, pipelines, and rail engineering, while the smallest spend will be on fuel, engineering and corporate services. Transnet’s spending on inputs will consist of: structural steel, steel for wagons, rails, and tanks, bitumen, concrete and concrete piping, rock, ballast, brick walls, pre-cast sleepers and piping. In addition to the materials the Group will procure equipment such as a conveyer system, locomotives, wagons, ship-to-shore cranes, containers, stackers/reclaimers, tugs and RTGs. Furthermore the Group will procure services such as moving of earth, dredging, reinforcing of steel, removal of rocks and concrete. The major projects (and equipment purchases) are listed below: Rolling Stock: Fleet upgrade plan includes

• Upgrade of 100 GM diesel locomotives • Upgrade of 100 GE electric locomotives • 400 new locomotives • 7000 new wagons • Replacement of On-Trac machines

Infrastructure

• Coal Line expansion to 86 million tons per annum • Ore Line expansion • Eskom – Majuba coal supply • Coega Line • Substation upgrades

Port Equipment

• Straddle carriers • Rubber Tyred Gantries (RTGs) and cranes • Ship to Shore (STS) Cranes • Reclaim / reach / mobile stackers • Rail siding cranes • Haulers and trailers • Forklifts • Tug Boats

34

• Dredgers Pipeline

• New Multi-Purpose Pipeline (NMPP) from Durban to Johannesburg to replace current line

General Construction

• Construction of the Port of Ngqura • Harbour improvements in Durban and Cape Town (including widening and

deepening, quay refurbishment, increased terminal capacity) • Car port in Durban • Improved Durban Container Terminal (DCT) trucking access and throughput • Richards Bay Dry Dock Terminal Upgrade • Saldanha Bay upgrades

Quantities of major equipment Transnet planned to procure during 2006 to 2011were: 400 Locomotives (Line & Shunting); 7000 Wagons; 12 STS (Ship to Shore) Cranes; 30 RTGs; 6 Reach Stackers (containers); 1 Stacker / Reclaimer (Ore); 3 Tugs; and 1 Iron Ore Stockyard Conveyor System.

35

Estimated Material Quantities

Item No. Pa

ckag

e D

escr

iptio

n

Qua

ntity

(No)

Con

cret

e (m

3)

Stee

l Rei

nfor

cing

(to

ns)

Roc

k (m

3)

Bric

k W

alls

(m

2)

Stru

ctur

al S

teel

(to

ns)

Dre

dgin

g (m

3)

Eart

h M

ovin

g (m

3)

Roc

k /C

oncr

ete

Rem

oval

and

Dem

oliti

ons

(m3)

Pre-

cast

Sle

eper

s

(No)

Bal

last

s (m

3)

Bitu

men

(to

ns)

Form

wor

k (m

2)

Stee

l-Rai

l Wag

ons

(to

ns)

Stee

l Rai

ls (

tons

)

Con

cret

e Pi

ping

(m

)

1 STS GANTRY CRANES 12

2 RTG'S 30

3 RMG'S (RAIL YARD CRANES) 2

4 REACH STAKERS 6

5 TERMINAL HAULERS 60

6 BATHTUB TRAILERS 60

7 HAZMAT TRAILERS 2

8 TUGS 3

9 MAIN LINE LOCOS 44

10 SHUNTING LOCOS 3

11 RAIL WAGONS 895 17,900 12 DREDGING 1,365,000

13

MISCELLANEOUS BUILDING WORKS 32,000

14

CONTAINER TERMINAL PHASE 1 259,642 9,433 600 1,696,536 37,569 49,500 12,345

15

CONTAINER TERMINAL PHASE 2 173,095 1,131,024 25,046 2,005

16 DREDGING 7,000,000 17 BULK EXCAVATION 24,000

36

18 CIVIL WORKS 35,000

19

DEMOLITION OF QUAYS, WHARVES, POINT EDGE AND NORTH GROYNE 174,000

20

INFRASTRUCTURE WORKS ON THE CONTAINER TERMINAL 63,919 445 12,609

21

UPGRADE / REFURBISH EES & PIER 1 BUILDING / MODIFY WORKSHOP 15,980 500 297 600 11,162 8,406 865 1,687

22 CIVIL WORKS 208,500 632 1,800 23 DREDGING 215,000

24 CAR TERMINAL BUILDING 6,000 65,000 180,000

25 EARTH WORKS 74,500

26 EXCAVA-TIONS (LAND BASED)

27 DREDGING 15,000,000 28 BUILDINGS

29

RAIL CIVIL WORKS: TUNNELLING AND CONTAINER

30 TERMINAL 31 STS CRANES 900,000 32 RTGS

33

RMGS (RAIL MOUNTED GANTRIES)

34 CIVIL WORKS: QUAY WAITS

35 DREDGING 36 DREDGING 5,639,275 37 ROCK 835,000 38 PORT EXPANSION 240,000 4,664 3,500 30,000 89,825 20,162 57,676 4,680 39 ELECTRIC 12

37

LOCOMO-TIVES

40 PAYLOAD WAGONS 245 4,900

41

LENGTHEN 19 LOOPS AND PROVIDE ONE NEW LOOP 42,553 60,000 33,191 2,400

42 ELECTRIC LOCOMO-TIVES 30

43 PAYLOAD WAGONS ### 27,100

44

NEW LINES FOR DEPARTURE, ARRIVAL, STAGING AND SORTING 170,213 240,000 132,766 9,600

45 ELECTRIC LOCOMOTIVES 38

46 PAYLOAD WAGONS ### 89,140

47

CIVIL CONSTRUC-TION FOR RECLAMATION OF STOCKYARD NO. 4 1,500 300 733,623

48

CONVEYOR DESIGN, CONSTRUCT, SUPPLY AND ERECTION 400

49 SACKER-RECLAIMER 1

50

CIVIL AND INFRASTRUCTURE WORKS 2,000 50

51

DUST PLANT PNEUMATIC SYSTEM REFURBISHMENT 1

52

TRANSFER SPRAYS TO CONVEYORS DUST 1 Lot

38

SUPPRESSION

53 DUST COVERS - DUST MITIGATION 1 Lot 350

54

TIPPLER MODIFICATIONS FOR CR 12 WAGONS 1 Lot

55

SUPPLY OF A SPARE SLEW BEARING FOR METSO STACKER RECLAIMERS 1

56

SUPPLY OF TWO (2) BRAKE WAGONS FOR SALDANHA BULK TERMINAL 2

57

SUPPLY OF STOCKER RECLAIMER REPLACE-MENT GEARBOXES AT SALDANHA BULK TERMINAL 4

58 DUST EXTINCTION TESTING 1

59 SUPPLY OF RAIL MATERIAL 826,583 75,471

1,905,636 15,579 835,000 97,742 185,450 29,219,275 4,730,832 263,825 300,000 241,428 93,939 128,191 139,040 19,550 14,032

Source: Transnet (2007) Table 16: Quantities of materials and services to be procured by Transet 2006-2011

39

4.2.1 Transnet - Summary Inputs to be used in the Transnet capex programme include concrete, reinforcing steel, rock, brick walls, structural steel, dredging equipment, earth moving equipment, pre-cast sleepers, bitumen, steel rails and concrete piping. Construction work which will be undertaken will include civil works, port construction, demolition of quays, wharves, point edge and north groyne, upgrading and refurbishing of EES & Pier 1 Building, infrastructure works on the container terminals, rail civil works i.e. tunnelling and civil construction for reclamation of Stockyard No. 4, amongst many other tasks. In total the inputs listed in paragraph one for the period 2007 to 2011 will be used in the quantities shown in the table below Product QuantityConcrete (m3) 1905636

Steel Reinforcing (tons) 15579

Rock (m3) 835000

Brick Walls (m2) 97742

Structural Steel (tons) 185450

Dredging Equipment (m3) 29219275

Earth Moving Equipment (m3) 4946812

Pre-cast Sleepers (No) 300000

Bitumen (tons) 93939

Steel Rails (tons) 19550

Concrete Piping (m) 14032

Source: Transnet Table 17: Inputs to the Capex programme and the quantities to be used from 2007-2011 Data provided from Transnet shows that for construction work, port expansion will use up the most concrete amounting to 240,000m3. The bulk consumers of reinforcing steel will be container terminals amounting to 9433 tons for container phase 1 alone. The highest consumer of brick walls and structural steel will be the car terminal building amounting to 65,000m2 of brick walls and 180,000 tons of structural steel. The container terminal phases 1 and 2 will be the largest consumers of bitumen amounting to 62,615 tons of bitumen in total. One also notes that the bulk of the concrete piping will be used for the Container Terminal Phase 1 amounting to 12,345m of concrete piping.

40

4.3 Gautrain The projections presented here are similar to those in the previous report authored by Suren Singh. We were informed by Bombardier that the projections have not changed significantly since Singh’s report was published. The project is on schedule. 4.3.1 Overview and Progress Gautrain is a R25 billion rapid and sophisticated railway line, with average speeds of up to 160km/hour, which will provide a comfortable transport system for commuters between the cosmopolitan cities of Johannesburg and Pretoria, with several other stops in between. In total, there will be ten stations and 80km of rail between the three main stations which are Johannesburg Park Station, O.R. Tambo International Airport and Pretoria Station. The Gautrain Rapid Rail Link is organised in the form of a public private partnership between Bombela and the South African government. Bombela is the concession holder which has the obligation to design, build, part-finance, operate and maintain the project for a 20-year period. Bombela has four partners, namely Bombardier, Murray & Roberts Limited, Bouygues Travaux Publics and the Strategic Partners Group, which is the BEE partner. Each one has a 25% stake in the company. The partners together have to finance the project for R3.2 billion. 4.3.2 Gautrain Phases and Projects

Source: Bombela www.bombela.com Figure 6: Structure of Bombela operations The project is divided into the construction and operational phases. Bombela will manage the project for 20 years before handing it over to the government. The

41

construction phase of the project has two sub-projects, namely the Bombela Civils Joint Venture, which is in charge of the civil works and construction component of the project, and the Bombela Electrical and Mechanical works, which installs all the railway components.

Source: Gautrain Project Office Table 18: Gautrain Civil, Electrical and Mechanical Projects The operational phase will kick off after the construction and installation phases are over and will be handled by Bombela for 15 years. This phase will include maintenance of all the components of the project for the period and also the operation of a sophisticated bus service to complement the rail services. The project has two phases. Phase one, which includes the links between Sandton, Midrand and O.R. Tambo, is expected to be ready in time for the start of the FIFA World Cup in mid 2010. Currently phase one is about halfway through, on course to meet its deadline. Phase two involves the stretches linking Sandton to Johannesburg and Midrand to Pretoria and is expected to be completed by the end of 2011. 4.3.3 Gautrain Input Requirements Only the civil works project will be considered here as this study is solely focused on construction inputs at this time. The projections presented here are the same as

42

those in the previous report authored by Suren Singh. Bombardier has indicated that the projections have not changed significantly since Singh’s report was published.

Source: Gautrain Project Office Table 19: Gautrain Civil Works Input Requirements Gautrain is only one of the government’s major infrastructure projects under construction at the moment. The developers expect that the highest levels of input demand will occur between 2008 and 2009, especially as phase one of the project has to be completed by mid 2010. The table above shows that the highest levels of inputs such as steel (30,000 tons), cement (98,000 tons), aggregate stone and sand (310,000 and 261,000 tons respectively) and diesel (about 10 million litres), will be consumed in 2008. Clearly, 2008 is the peak year for inputs consumption.

43

4.3.4 Problems and Possible Solutions Skills Requirements At the inception of the project, Bombela pledged to use locally sourced skills for up to 90% of the all stages of the project. With the current skills shortages in South Africa, this was a challenging goal. Bombela engaged in a number of skills development programs, including learnerships in both the Civil Works and Electrical and Mechanical projects. They have also implemented skills initiative transfer programs for the transfer of skills to local workers by foreign experts. Project cost escalations At inception in 2002, the envisaged cost for the Gautrain project was R21.3 billion. Today, the estimated cost is about R25 billion. Although the input quantities have not changed much, inflation and escalating inputs costs are the biggest contributors to this cost escalation. A weaker rand also increases imported input costs. At the beginning of the project Gautrain bought forward cover in order to mitigate the exchange rate risk, but the extra costs will not be covered completely. 4.3.5 Summary Gautrain is a R25 billion project involving the construction of a rapid and sophisticated railway line on which trains will circulate at an average speed of 160km/hour. In total, there will be ten stations and 80km of rail between the three main stations which are Johannesburg Park Station, O.R. Tambo International Airport, and Pretoria. It is expected that the highest demand for inputs will be needed between 2008 and 2009 as phase one of the project has to be completed by mid 2010. Table 2 above shows that the highest levels of inputs such as steel (30,000 tons), cement (98,000 tons), aggregate stone and sand (310,000 and 261,000 tons respectively) as well as diesel (about 10 million litres) will be consumed in 2008, which is the peak year for input consumption. At inception in 2002, Gautrain was planned to cost R21.3 billion but its total cost currently stands at about R25 billion. Inflation and the fact that it becomes more expensive to import components as the rand weakens are the biggest contributors to this cost escalation. In order to mitigate this problem, Gautrain bought forward cover at the beginning of the project although it cannot completely cover the extra costs.

44

4.4 2010 FIFA World Cup Preparation By all indications, the stadium projects are on schedule. There have been some changes in the amount of material inputs for the projects but given the minor nature of the changes, updated projections were deemed unnecessary. The staff in the Department of Sport and Recreation, the host city offices and the project engineers claimed to be under extreme deadline pressure and felt that it would be superfluous to provide us with new data that would not have changed substantially. Therefore, the information provided in this section has been derived from face to face interviews with the Director of Project Facilitation in the Department of Sport and Recreation, Chief Directorate: 2010 Administration and Executive Support, and the previous report by Suren Singh, “Draft Research Report for the Infrastructure Input Sector Strategy”, published on 15 May 2007. 4.4.1 Background and overview South Africa is the host country of the 2010 FIFA World Cup, which will take place between 11 June and 11 July 2010. Ten stadiums, located in nine host cities, are the focus of development for the preparation of the event. The nine cities are Johannesburg, Cape Town, eThekwini, Tshwane, Port Elizabeth, Rustenburg, Mbombela, Polokwane and Mangaung. Hosting the event offers the country an opportunity to improve infrastructure in metropolitan areas and host cities. The investment targets a wide range of projects related to sport facilities and their accessibility, roads, airports and the public transport network. World Cup preparation projects can be described per their category and aim as follows: Categories: - Stadium Infrastructure - Precinct (Vicinity and Access) Aim: - Construction of new stadiums - Upgrading of existing stadiums - Development and upgrading of precinct infrastructure in preparation for the 2010 World Cup. Some of the critical dates for the preparation of infrastructure for the 2010 FIFA World Cup include:

• September 2008 FIFA inspection team reviews state of readiness • December 2008 Construction work on stadium complete • June 2009 South Africa hosts the Confederations Cup • December 2009 Stadiums and supporting infrastructure complete • June 2010 South Africa hosts the FIFA World Cup

45

4.4.2 2010 Project overview

Project Name Soccer City Stadium

Project Category Stadium Infrastructure

Spatial Location Johannesburg – Nasrec

Project Timing Start Date: February 2007 End Date: April 2009 Duration: 26 months

Project Description Major upgrading of existing Stadium Size: 95,000 seats

Project Value R1.967 billion

Project Name Nasrec Precinct – under city council responsibility

Project Category Precinct Infrastructure

Spatial Location Johannesburg – Nasrec

Project Timing Start Date: October 2006 End Date: December 2009 Duration: 35 months

Project Description Upgrading of the Nasrec Precinct and the bus rapid transit system

Project Value R600 million

Project Name Ellis Park Stadium


Spatial Location Johannesburg

Project Timing Start Date: July 2007 End Date: December 2008 Duration: 19 months

Project Description Upgrading the stadium to meet FIFA requirements (Minor Upgrade)

Size: 60,000 seats


Project Name Ellis Park Stadium – under city council responsibility


Spatial Location Johannesburg

Project Timing Start Date: April 2007 End Date: October 2009 Duration: 29 months

Project Description Upgrading the Ellis Park facilities (including parking facilities)


Project Name Moses Mabhida Stadium


Spatial Location eThekwini

Project Timing Start Date: January 2007 End Date: May 2009 Duration: 29 months

Project Description New Durban Stadium Size: 85,000 seats


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Project Name Moses Mabhida Stadium – Precinct and People’s Park – under city council responsibility


Spatial Location eThekwini

Project Timing Start Date: September 2008 End Date: March 2010 Duration: 18 months

Project Description Precinct and People’s Park for parking and entrance to the new Durban Stadium


Project Name Loftus Versfeld Stadium


Spatial Location Corner of Kirkness and Lynwood Road, Hatfield, Tshwane

Project Timing Start Date: May 2008 End Date: February 2009 Duration: 11 months

Project Description Upgrades Size: 45,000 seats


Project Name Loftus Regional Access– under city council responsibility


Spatial Location Vicinity of Loftus Stadium, Hatfield, Tshwane

Project Timing Start Date: March 2007 End Date: March 2009 Duration: 24 months

Project Description Upgrading of road access and streets (Charles, Pretorius, Schoeman, Duncan, and Glyn) in Tshwane


Project Name Loftus Access to Airport – under city council responsibility

Project Category Larger Precinct Infrastructure

Spatial Location Access from N4 toll road to Wonderboom Airport

Project Timing Start Date: July 2006 End Date: December 2009 Duration: 42 months

Project Description Provision of critical access from N4 toll road to Wonderboom Airport along new provincial road K97 (and Lintveld Road upgrades).


Project Name Royal Bafokeng Stadium


Spatial Location Phokeng, Rustenburg

Project Timing Start Date: October 2007 End Date: December 2008 Duration: 16 months

Project Description Upgrading and construction of additional 6,000 seats Size: 45,000 seats


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Project Name Peter Mokaba Sporting Complex


Spatial Location Polokwane

Project Timing Start Date: March 2007 End Date: June 2009 Duration: 22 months

Project Description New stadium adjacent to an existing one Size: 45,000 seats

Project Value R870.6 million

Project Name Mbombela Stadium


Spatial Location Nelspruit

Project Timing Start Date: February 2007 End Date: May 2009 Duration: 26 months

Project Description New stadium construction Size: 46,000 seats

Project Value R875 million project value (excl. VAT) R710.6 million value construction value (excl. VAT)

Project Name Nelson Mandela Bay Stadium


Spatial Location Port Elizabeth

Project Timing Start Date: March 2007 End Date: March 2009 Duration: 34 months

Project Description New stadium Size: 50,000 seats


Project Name Green Point Stadium


Spatial Location Cape Town

Project Timing Start Date: March 2007 End Date: December 2009 Duration: 34 months

Project Description New stadium Size: 80,000 seats


Source: Department of Sport & Recreation Table 20: 2010 FIFA World Cup project descriptions Sources funding stadium construction, other than the National Government, include city and provincial funding and amount to R1.5 billion. In the initial budget allocation (2005 Budget), R4.1 billion was made available for the 2010 World Cup. An additional R13.3 billion was allocated to the budget over the medium term.

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4.4.3 Major Infrastructure Inputs Projections At this stage, the construction of stadiums and precincts is advanced but we could not obtain updated data from host cities. Therefore we are using the same projections as reflected in the previous report, “Draft Research Report for the Infrastructure Input Sector Strategy”.

Projections of Major Infrastructure Inputs 2010 FIFA World Cup Johannesburg-Soccer city Stadium Infrastructure Total 2007

Peak Year 2008

Peak Year 2009 2010

Materials

Steels (tons) 7,000 4,900 2,100 - -

Aluminium Cladding (sq mt) 41,064 21,064 20,000 - -

Cement (tons) 42,000 29,040 12,600 - -

Clay Bricks (tons) 22,000 9,680 12,320 - -

Concrete blocks interlock (sq mt) 90,000 45,000 45,000 - -

Timber (mt) 150,000 60,000 90,000 - -

Glass (sq mt) 3,000 1,500 1,500 - -

Plastic pipes (m) 5,000 2,350 2,650 - -

Roof Membrane (sq mt) 40,000 27,200 12,800 - -

Aggregate- Stone Mix (cub mt) 70,000 63,000 7,000 - -

Ready-mix Concrete (cub mt) 100,000 85,000 15,000 - -

Bitumen (tons) 2 1 1 - -

Cranes

Tower Cranes (3 tons) 10 10 10 10 -

Mobile Cranes (35t) 3 3 3 3 -

Skills


Specialist Eng. and designers 2 2 2 2 -

Architects 6 6 6 6 -

Quality Survey 3 3 3 3 -

Planners 2 2 2 2 -

Construction Managers 3 3 3 3 -

Related Technologists 4 5 5 5 -

Artisans - Plumbers 10 10 10 10 -

Artisans - Bricklayers 50 50 50 50 -

Artisans - Electricians 10 10 10 10 -

Source: Host City – Johannesburg Table 21: Soccer City Stadium infrastructure inputs projections

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Projections of Major Infrastructure Inputs 2010 FIFA World Cup

Johannesburg-Soccer city Nasrec Precinct Infrastructure

Total 2007

2008 Peak Year

2009 Peak Year 2010

Materials

Steels (tons) 2,907 436 873 1,017 581

Aluminium (tons) 6 1 2 2 1

Cement (tons) 38,253 5,737 11,476 13,389 7,651

Clay Bricks (tons) 2,674 401 802 936 535

Timber (mt) 6 1 2 2 1

Glass (sq mt) 44 7 13 15 9

Ceramic ware-tiles (sq mt) 275 41 83 96 55

Plastic pipes (m) 264 40 79 92 53

Roof Sheet Steel (sq mt) 19,800 2,970 5,940 6,930 3,960

Aggregate- Stone Mix (cub mt) 25,740 3,861 7,722 9,009 5,148

Ready-mix Concrete (cub mt) 17,360 2,604 5,208 6,076 3,472

Bitumen (tons) 34,122 5,118 10,237 11,943 6,824

Capital Equipment Yellow metal (unspecified cat.) (units)

Cranes

Tower Cranes (3 tons) 10 4 10 10 6

Skills


Specialist Eng. and designers 7 7 6 3 2

Architects 3 3 3 3 2

Quality Survey 4 4 4 4 4

Planners 1 1 1 1 1

Construction Managers 6 6 6 6 6

Artisans - Plumbers 10 10 10 10 10

Artisans - Bricklayers 15 15 15 10 10

Artisans - Electricians 15 5 15 15 5

Source: Host City - Johannesburg Table 22: 2010 FIFA World Cup Johannesburg Soccer City Nasrec Precinct Infrastructure

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Projections of Major Infrastructure Inputs 2010 FIFA World Cup

Johannesburg Rapid Transit System Nasrec Precinct Infrastructure

Total 2007 2008 Peak Year

2009 Peak Year 2010

Materials

Steels (tons) 1,290 194 385 452 259

Aluminium (tons) 2 - 1 1 -

Cement (tons) 94,404 14,161 28,321 33,041 18,881

Plastic pipes (m) 2,481 372 744 869 496

Aggregate- Stone Mix (cub mt) 99,523 14,928 29,857 34,833 19,905

Ready-mix Concrete (cub mt) 38,809 5,971 11,943 13,933 7,962

Bitumen (tons) 159,236 23,885 47,771 55,733 31,847

Capital Equipment Yellow metal (unspecified cat.) (units)

3 0 3 3 1

Cranes Cranes unspecified categories (units)

15 5 15 15 5

Skills


Specialist Engineers. and designers

15 15 15 15 10



Planners 1 1 1 1 1





Source: Host City - Johannesburg Table 23: Johannesburg Rapid Transit System infrastructure input projections

Projections of Major Infrastructure Inputs 2010 FIFA World Cup Johannesburg-Ellis Park Stadium Infrastructure Total 2007

Peak Year 2008

Peak Year 2009 2010

Materials

Steels (tons) 300 100 200 - -

Aluminium (tons) 50 10 40 - -

Cement (tons) 1,000 500 500 - -

Clay Bricks (tons) 20,000 10,000 10,000 - -

Glass (sq mt) 1,000 300 700 - -

Roof Sheet Steel (sq mt) 2,500 500 2,000 - -

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Skills


Specialist Eng. and Designers 5 5 5 - -

Architects 3 3 3 - -

Quality Survey 2 2 2 - -

Planners 2 2 2 - -



Artisans - Plumbers 4 4 4 - -

Artisans - Bricklayers 20 24 20 - -

Artisans - Electricians 15 15 15 - -

Source: Host City - Johannesburg Table 24: Ellis Park Stadium infrastructure inputs projections

Projections of Major Infrastructure Inputs 2010 FIFA World Cup Johannesburg-Ellis Park Precinct Infrastructure Total 2007 2008

Peak Year 2009 2010

Materials

Steels (tons) 300 30 135 90 45

Cement (tons) 3,250 1,200 850 750 450

Clay Bricks (tons) 500 100 175 150 70

Concrete Blocks (tons) 2,235 300 900 690 345

Timber (cub mt) 60 18 20 13 9

Plastic Pipes (tons) 400 60 160 120 60

Aggregate – Stone Mix (tons) 20,000 4,200 6,800 6,000 3,000

Ready-mix Concrete (cub mt) 2,500 900 600 650 350

Bitumen (tons) 3,700 700 1,250 1,110 640

Cranes

Tower cranes (3 ton) 2 2 2 - -

Mobile cranes (35 ton) 2 2 2 - -

Skills


Specialist Eng. and designers 4 3 4 4 2




Related Technologists 9 5 9 9 6


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Source: Host City - Johannesburg Table 25: Ellis Park Precint infrastructure inputs projections

Projections of Major Infrastructure Inputs 2010 FIFA World Cup eThekweni Moses Mabhida Stadium Infrastructure Total 2007

Peak Year 2008

Peak Year 2009 2010

Materials

Steels (tons) 5,000 3,500 1,500 - -

Aluminium Cladding (sq mt) 1,300 - 1,000 300 -

Cement (tons) 4,500 2,000 1,500 1,000 -

Clay Bricks (tons) 12,000 6,000 4,000 2,000 -

Glass (sq mt) 5,300 300 3,000 2,000 -

Ceramic ware - Tiles (sq mt) 50,000 5,000 20,000 25,000 -

Plastic pipes (m) 40 15 20 5 -

Roof Steel Structure (imported) (sq mt)

6,900 4,000 2,900 - -

Roof Membrane (imported) (sq mt) 40,000 - 40,000 - -

Reinforced Concrete (tons) 6,800 3,000 2,300 1,500 -

Column Structure (tons) 1,200 800 40 - -

Capital Equipment

Trucks (10t capacity) 15 15 15 - -

Loader (10t capacity) 8 8 8 - -

Excavator (10t capacity) 6 6 6 - -

Dumpers (10t capacity) 7 7 7 - -

Cranes

Tower Crane (100t capacity) 2 2 2 - -




Mobile Crane (100t capacity) 3 3 3 - -




Transport Equipment

Trucks (20t and above) (20 units pa) 12,000 6,000 5,000 1,000 -

Skills

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Specialist Eng. and designers 65 65 65 65 -



Planners 3 3 2 1 -






Source: Host City - eThekwini Table 26: Moses Madhiba Stadium infrastructure inputs projections

Projections of Major Infrastructure Inputs 2010 FIFA World Cup eThekwini Moses Mabhida Stadium Infrastructure Total 2007 2008

Peak Year 2009 2010

Materials

Steels (tons) 40 - 40 - -

Aluminium Cladding (sq mt) 70 - - 70 -

Cement (tons) 400 - - 400 -

Clay Bricks (tons) 2,500 - 1,100 1,400 -

Paving (sq mt) 6,200 - - 4,700 -

Palisade fencing (m) 1,100 - - 1,100 -

Aggregate – Stone Mix (m) 22,300 - - 22,300 -

Ready-mix Concrete (tons) 2,100 - 800 1,300 -

Bitumen (tons) 1,900 - 1,500 400 -

Grassing (mt) 22,000 - - 20,000 2,000

Capital Equipment

Trucks (10t capacity) 3 - 3 2 -

Loader (10t capacity) 1 - 1 1 -

Dumpers (10t capacity) 3 - 3 1 -

Cranes

Mobile Crane (50t capacity) 3 - 3 3 -



Skills

General and Project Managers 2 - 2 2 -

Specialist Eng. and designers 2 - 2 1 -

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Architects 3 - 3 3 -

Quality Survey 3 - 3 3 -

Planners 1 - 1 1 -

Construction Managers 1 - 1 1 -

Artisans - Plumbers 20 - 15 20 -

Artisans - Bricklayers 30 - 30 20 -

Artisans - Electricians 25 - 15 25 -

Source: Host City - eThekwini Table 27: Moses Madhiba Prescient and People Park infrastructure inputs projections

Projections of Major Infrastructure Inputs 2010 FIFA World Cup Tshwane – Loftus Versfeld Stadium Infrastructure Total 2007 2008

Peak Year 2009 2010

Materials

Steels (2m x 4m x 30m) (units) 10 - 10 - -

Ceramic Tiles (sq mt) 400 - 400 - -

Roof Sheet Steel (sq mt) 5,00 - 5,000 - -

Cranes -

Mobile Crane (unspecified category) (units) 2 - 2 - -

Skills -



1 1 1 - -

Architects 1 1 1 - -

Quality Survey 1 1 1 - -



Artisans - Plumbers 2 - 2 - -

Artisans - Bricklayers 4 - 2 - -

Artisans - Electricians 4 - 2 - -

Source: Host City - Tshwane Table 28: Loftus Versveld Stadium infrastructure inputs projections

Projections of Major Infrastructure Inputs 2010 FIFA World Cup Tshwane – Loftus Versfeld Precinct infrastructure Total 2007 2008

Peak Year 2009

Peak Year 2010

Materials

Concrete Blocks (tons) 22,050 - 8,820 8,820 4,410

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Aggregate- Stone Mix (tons) 28,100 - 11,000 11,000 6,100

Ready-mix Concrete (tons) 12,100 - 5,000 5,000 2,100

Bitumen (tons) 330 - 140 140 50

Capital Equipment Capital Equipment (unspec. Categories. ( units)

5 - 4 5 -

Transport Equipment

Trucks (unspecified capacity) (units)

3 1 3 3 3

Skills



3 2 3 3 3

Planners 1 1 1 1


Related Technologists 6 4 6 6 6

Source: Host City - Tshwane Table 29: Loftus Versveld Precinct infrastructure projections

Projections of Major Infrastructure Inputs 2010 FIFA World Cup Polokwane – Peter Makaba Stadium Infrastructure Total 2007

Peak Year 2008

Peak Year 2009 2010

Materials

Steels – structural and rebar (tons) 10,900 5,000 5,900 - -

Cement (8 x 50 kg bag in a c) (tons) 23,000 9,000 14,000 - -

Clay Bricks (sq mt) 46,326 23,163 18,530 4,633 -

Timber (cub mt) 25 10 12 3 -

Glass (sq mt) 1,700 170 1,360 170 -

Ceramic ware – Tiles (sq mt) 9,346 934 8,411 -

Plastic pipes (all diameters incl.) (m)

17,399 5,801 5,799 5,799 -


Aggregate- Stone Mix (tons) 64,000 25,000 39,000 - -


Bitumen (tons) 1,200 - - 1,200 -

Cranes Cranes (unspecified categories.) (units)

12 12 12 - -

Skills



25 25 15 5 -



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Planners 2 2 2 2 -

Construction Managers 26** 26** 26** 26** -





Source: Host City – Polokwane Table 30: Peter Mokaba Stadium infrastructure inputs projections

Projections of Major Infrastructure Inputs 2010 FIFA World Cup Nelspruit – Mbombela Stadium Infrastructure

Total 2007 Peak Year

2008 Peak Year 2009 2010

Materials

Steels – structural (tons) 2,610 500 2,000 110 -

Steel - Reinforcing (tons) 9,947 3,500 5,947 500 -

Aluminium 8 - 8 - -

Cement (tons) 17,400 7,500 9,500 400 -

Clay Bricks (sq mt) 18,700 4,000 13,000 1,700 -

Concrete Blocks (incl. paver) (tons) 3,960 - 2,760 1,200 -

Timber (cub mt) 3 - 2 1 -

Glass (sq mt) 1,970 - 1,500 470 -

Ceramic ware – Tiles (sq mt) 2,900 - 2,500 400 -

Plastic pipes (tons) 8 - 8 - -


Aggregate- Stone Mix (tons) 20,700 4,000 14,000 2,700 -

Ready-mix Concrete (tons) 17,400 2,000 14,900 500 -

Bitumen (tons) 330 - 270 60 -

Cranes

Tower Cranes (unspecified categories.(units) 6 6 6 6 -

Skills



30 30 20 15 -



Planners 2 2 2 1 -





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Source: Host City – Nelspruit Table 31: Mbombela Stadium infrastructure inputs projections

Projections of Major Infrastructure Inputs 2010 FIFA World Cup Nelspruit – Mbombela Precinct Infrastructure


2008 Peak Year 2009 2010

Materials

Plastic pipes (tons) 35 15 20 - -

Ready-mix Concrete (tons) 2,300 800 1,200 300 -

Bitumen (tons) 1,600 - 800 800 -

Skills



15 12 15 10 -



Planners 4 4 2 2 -

Construction Managers 8 - 8 8 -

Related Technologists 40 - 40 40 -

Artisans - Plumbers 10 - 8 10 -

Artisans - Bricklayers 10 - 10 10 -

Artisans - Electricians 4 - 2 4 -

Source: Host City – Nelspruit Table 32: Mbombela Precinct infrastructure inputs projections

Projections of Major Infrastructure Inputs 2010 FIFA World Cup Port Elizabeth – Nelson Mandela Stadium Infrastructure


2008 Peak Year 2009 2010

Materials

Steels – structural (tons) 350 TBA TBA TBA TBA

Steel - Reinforcing (tons) 2,200 TBA TBA TBA TBA

Aluminium 21,000 TBA TBA TBA TBA

Clay Bricks (‘000) 3.314 TBA TBA TBA TBA

Clay Bricks Paver (‘000) 1,378 TBA TBA TBA TBA

Membrane for roof (PVC) (sq mt) 20,000 TBA TBA TBA TBA

Concrete (tons) 31,000 TBA TBA TBA TBA

Source: Host City - Nelspruit Table 33: Nelson Mandela Stadium infrastructure inputs projections

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Projections of Major Infrastructure Inputs 2010 FIFA World Cup Magaung – Free State Stadium Infrastructure


2008 Peak Year 2009 2010

Materials

Steels (tons) 2,100 850 1,250 - -

Aluminium (tons) 40 15 25 - -

Cement (tons) 180 70 110 - -

Clay Bricks (‘000) 2,400 950 1,450 - -

Glass (sq mt) 3,000 1,200 1,800 - -

Ceramic-ware (sq mt) 4,200 1,700 2,500 - -

Roof Sheet Steel (sq mt) 6,600 2,600 4,000 - -

Ready-mix (tons) 7,600 3,000 4,600

Source: Host City – Mangaung Table 34: Free State Stadium infrastructure inputs projections 4.4.4 Analysis of major infrastructure inputs It was expected that the overall peak demand for infrastructure inputs relating to 2010 would occur between 2007 and 2008. Steel Given the data available, the estimated total steel demand for reinforcing and structural use was expected to be around 58kt with the highest demand occurring in 2007 and 2008 (above 25kt per year). It is also understood that the demand for steel will decrease after 2008 as most construction will be close to completion. Cement Considering the data available, the estimated total demand for cement is expected to reach 325kt. The peak period was expected to be between 2007 and 2008 with estimated annual consumption being above 100kt. As in the case of steel, the demand for cement due to stadium construction will decrease after 2008, but still be high due to stadium upgrades which will be undertaken until 2010. 4.4.5 Challenges and sensitivities The projects are well advanced and within schedule. The Nelson Mandela Bay Stadium is on course to becoming the first new stadium to be completed. Over 90% of that stadium’s work is already complete (October 2008). Some major complications were noticed at Soccer City including additional work to the original structure which could not have been foreseen during the design. Additional piles and columns for the roof had to be added in the design. Transporting the roof structure

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manufactured in Italy was a challenge to overcome. The roof is now halfway to completion, a progress applauded by the FIFA Secretary-General at his recent visit. Feedback from host cities did not highlight any new challenges. Therefore, we are unable to discuss any further challenges that may develop at this advanced stage of the projects. It was reported that all stadium’s works had been affected by rising construction costs in the past year, with steel inputs costs alone increasing by 70%. The dynamics of construction vary from host city to host city. The challenges noted in 2007, related to the supply of certain inputs, seem to have been adequately addressed. Given the efforts to ensure supply of materials by each of the host cities at the inception of the projects, and declining global demand for these inputs, one does not envisage major new problems with regard to inputs.

4.5 National Roads Infrastructure 4.5.1 South African National Roads Agency All the information reported below was provided by the South African National Roads Agency (SANRAL). The main mission of SANRAL is to finance, improve, manage and maintain the national road network of South Africa. This includes a national road network stretching 16,150km with an asset value of R6.5 billion. It is fully owned by the South African government, which explains why fiscal spending is the only source of funding for non-toll roads, while toll roads’ maintenance and construction is financed by capital markets. The South African road network has expanded vastly over the last few years and reasons for this include:

Higher traffic volumes than anticipated, in particular in Gauteng (where annual traffic growth stands at an average of 7.2 percentage points higher than the 5% that had been anticipated1).

Investment related to the 2010 FIFA World Cup – its success will depend largely on the accessibility of stadiums.

Need for continuous repairing and improvement of the road network, as is the case with any other structure, so that it does not go into a dilapidated state.

In its endeavour to carry out its mission, SANRAL has broken down its activities into the following functional areas:

1. Routine maintenance: this involves the continuous patching and repairing of roads. The cost of such maintenance is usually modest.

2. Periodic road maintenance: this usually occurs every six to eight years and involves minor patching and crack repairs. Periodic maintenance takes place while the road is still in a reasonably good condition, its main objective being to resurface the road for routine maintenance.

1 Engineering News., 2008: Busiest freeways in Southern Hemisphere, 26 September 2008

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3. Ad hoc maintenance: this is light weight work that involves land marking and the replacing of old road signs.

4. Re-strengthening: occurs when a road has reached the end of its life cycle or is in a very bad shape. This occurs every 15 to 20 years in which the old road is improved or totally remade. Also, new lanes are typically added during this type of work.

5. New roads.

4.5.2 Major Current Road Projects

This report has only considered the major projects that SANRAL is currently busy with or that has been commissioned and will be underway soon. Projects included in this study generally have values of at least R250 million and a lifespan of more than two years. Also, these projects are at various stages ranging from the tender stage to award, design and construction.

PRESIDENTIAL STUDY INFRASTRUCTURE INPUTS SECTOR STRATEGY Major SANRAL Infrastructure Investment Projects (planned and current projects)

Assumptions and Prioritisations of the data set

Only a snapshot of SANRAL projects currently in construction, tender and design stages are listed.

Project Name N.011-050-2002/1: DSRGS: Volksrust to Amersfoort

Project Category (roads, facilities, other) Roads – Construction Stage

Spatial location of Project N11 between Volksrust and Amersfoort Project Timing (start date/end date/duration)

Start Date: April 2006 End Date: December 2008 Duration: 30 months

Project Description (<50 words)

Rehabilitation (rework 300mm of existing layers by adding cement, add new 150mm G1 base layer, followed by new surfacing) of 42.1 km of the N11 between Volksrust and Amersfoort

Project Value R 259 842 802

Project Contact Person Name: Hennie Kotze

Position: Project Manager

Tel: 012 4266200

E-mail: [email protected]

Project Name N.011-067-2003/9: DSRGS: Amersfoort to Ermelo

Project Category (roads, facilities, other) Roads – Construction Stage

Spatial location of Project N11 between Amersfoort and Ermelo Project Timing (start date/end date/duration)

Start Date: August 2007 End Date: August 2010 Duration: 36 months


Rehabilitation (rework 300mm of existing layers by adding cement, add new 150mm G1 base layer, followed by new surfacing) of 57.8 km of the N11 between Amersfoort and Ermelo.

Project Value R399 948 361

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Project Name N.002-090-2000/1: DIAHV: Tsitsikamma – Witelsbos

Project Category Roads – Construction Stage

(roads, facilities, other (specify))

Spatial location of Project

N2 between Plettenberg Bay and Jeffreys Bay

Project Timing Start Date: March 2007 End Date: October 2009 Duration: 30 months

(start date/end date/duration) Upgrading (widen the road and rework 300mm of existing


followed by new surfacing) of 13.9 km of the N2 between Plettenberg Bay and Jeffreys Bay

Project Value R 330 051 875

Project Contact Person Name: Roland Thompson Position: Project Manager Tel: 012 4266200

Project Name N.001-156-2006/1: DICAL: Glen Lyon to Zandkraal



Spatial location of Project N1 between Bloemfontein and Wi b

Project Timing Start Date: April 2007 End Date: December 2009 Duration: 32 months

(start date/end date/duration)

Project Description (<50 words) Upgrading (add additional lanes

followed by new surfacing) of 38.9 km of the N1 between Bloemfontein and Winburg

Project Value R357 604 770 E-mail: [email protected]

Project Contact Person Name: Corne Roux Position: Project Manager Tel: 033 3928100

Project Contact Person Name: Hennie Kotze


Tel: 012 4266200


Project Name N.012-120-2006/1: DSRGS: Beefmaster i/s to Bloemhof Project Category (roads, facilities, other (specify))

Roads – Construction Stage

Spatial location of Project N12 between Christina and Bloemhof Project Timing (start date/end date/duration)

Start Date: April 2007 End Date: April 2010 Duration: 36 Months


Rehabilitation (rework 300mm of existing layers by adding cement, add new 150mm G1 base layer, followed by new surfacing) of 40.2 km of the N12 between Christina and Bloemhof.

Project Value R316 623 152

Project Contact Person Name: Alan Agaienz


Tel: 012 4266200


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Project Name R.040-020-2006/1: DIAHV: Hilltop (km 13, 94) to Barberton (km 39, 32)



Spatial location of Project R40 between Nelspruit and B b t

Project Timing Start Date: July 2007 End Date: May 2009 Duration: 23 months



followed by new surfacing) of 25.4 km of the R40 between Nelspruit and Barberton.

Project Value R351 397 659 E-mail: [email protected]

Project Contact Person Name: Etienne Terblans Position: Project Manager Tel: 012 4266200

Project Name N.001-130-2004/1: DSRGS: Oranjerivier to Springfontein



Spatial location of Project N1 between Colesberg and

Project Timing Start Date: June 2007 End Date: December 2008 Duration: 30 months



Rehabilitation (rework 300mm of existing layers by adding cement, add new 150mm G1 base layer, followed by new

surfacing) of 48 km of the N1 between Colesberg and Springfontein.

Project Value R 313 335 950 E-mail: [email protected]

Project Contact Person Name: Stewart Wilson Position: Project Manager Tel: 033 3928100

Project Name N.005-040-2008/1: DSRGS: Senekal to Vals rivier



Spatial location of Project N5 between Senekal and

Project Timing Start Date: May 2007 End Date: Feb 2009 Duration: 21 Months


Project Description (<50 words) Rehabilitation (rework 300mm of

surfacing) of 40 km of the N5 between Senekal and Bethlehem.


Project Contact Person Name: Corne Roux Position: Project Manager Tel: 033 3928100

Project Name N.012-190-2000/4: DICAL: Jan Smuts/R21 to Tom Jones (N.019-190-2008/3)

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Spatial location of Project N12 between R21 I/C and Tom Jones

Project Timing Start Date: May 2008 End Date: Jan 2011 Duration: 32 months



of 9.14 km of the N12 between R21 I/C and Tom Jones I/C.

Project Value R 1 363 055 112 E-mail: [email protected]

Project Contact Person Name: Willem vd Merwe Position: Project Manager Tel: 012 4266200

Project Name N.012-190-2000/3: DICAL: Gillooly's - Jan Smuts/R21 (N.019-190-2008/3)

Project Category Roads – Design Stage


Spatial location of Project N12 between Gillooly's I/C and

Project Timing Start Date: Jan 2009 End Date: Jun 2011 Duration: 30 Months



of 13.1 km of the N12 between R21 I/C and Tom Jones I/C.

Project Value R 1 350 539 981 E-mail:[email protected]


Project Name N.012-190-2000/5: DICAL: Tom Jones – Daveyton (N.019-190-2009/5)

Project Category Roads – Design Stage


Spatial location of Project N12 between Tom Jones I/C and

Project Timing Start Date: Apr 2009 End Date: Mar 2011 Duration: 24 months



of 10.3 km of the N12 between Tom Jones I/C and Daveyton I/C.



Project Name N.001-192-2005/1: DNND2: Gauteng Toll Road Scheme (Phase 1)



Spatial location of Project Gauteng Province

Project Timing Start Date: Jun 2008 End Date: Oct 2010 Duration: 26


Project Description (<50 words) Upgrading (adding lanes to N1 N3

Project Value R 11 520 000 000 E-mail: [email protected]

Project Contact Person Name: Alex v Niekerk

Position: Project Manager Tel: 012 4266200

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ROAD INFRASTRUCTURE INVESTMENT (1) (Consolidated for all SANRAL Related Projects) 2008 2009 2010 2011 2012 2013 2014 2015 Construction Materials Steel Demand Projection (tons): Assumptions: 39,999 50,270 33,942 23,224 23,356 24,757 26,243 27,817 Aluminium Demand Projection (tons): Assumptions: - - - - - - - - Cement and cement products Demand Projection (tons): Assumptions: Layer Stabilization, Structures 107,848 160,098 153,610 152,940 157,939 167,415 177,460 188,108 Clay Bricks Demand Projection (tons):

Assumptions: Plaza Buildings/ Traffic Control Centres 1000 1000 1000 1000 500 500 500 500 Concrete Blocks Demand Projection (tons)

Assumptions: Plaza Buildings/ Traffic Control Centres 350 350 350 350 200 200 200 200 Timber Demand Projection (cub mt): Assumptions: Negligible - - - - - - - - Glass Demand Projection (sq mt): Assumptions: - - - - - - - - Ceramic-ware (including tiles) Demand (tons & sq mt): Assumptions: - - - - - - - - Plastic Pipes Demand Projection (tons): Assumptions: - - - - - - - - Roof Sheet Steel Demand Projection (sq mt): Assumptions: 600 1200 1200 200 200 100 100 100 Roof Tiles Demand Projection (sq mt): Assumptions: - - - - - - - - Aggregate Stone Mix Demand Projection (tons) Assumptions: 2,875,396 4,319,767 3,889,458 3,826,735 3,909,446 4,144,013 4,392,654 4,656,213 Ready Mix Concrete Demand Projection (tons) Assumptions: 136,980 207,328 163,984 159,071 159,972 169,570 179,745 190,529 Bitumen Demand Projection (tons) Assumptions: 36,854 54,846 64,621 65,404 68,609 72,725 77,089 81,714 List any other significant MATERIAL INPUTS 2008 2009 2010 2011 2012 2013 2014 2015 Yellow Plate Equipment Demand Projection (units)

List per type of yellow plate equipment (units) Bulldozers 7 10 10 10 11 12 12 13 Graders 21 31 31 31 33 35 37 39 Front End Loaders 39 57 66 66 69 74 78 83

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Excavators 43 63 63 63 65 69 73 78 TLB's 112 166 198 201 211 224 238 252 Pneumatic Rollers 78 115 132 132 139 147 156 166 Steel Drum Rollers 78 115 132 132 139 147 156 166 Water Cars 71 102 115 105 109 115 122 130 Bitumen Distributor Trucks 30 44 53 54 56 60 63 67 Chip Spreaders 21 31 37 38 40 42 45 47 Asphalt Pavers 9 14 17 17 18 19 20 21 Cranes Demand Projection (units)

List per type of crane with respect to capacity in tons (units) – 30ton

11 16 16 16 16 17 18 19

Pavement Recyclers 11 16 17 16 17 18 19 20 Milling Machines 11 16 17 16 17 18 19 20 Tractors 39 57 66 66 69 74 78 83 Projections of Major Inputs ROAD INFRASTRUCTURE INVESTMENT (2) (Consolidated for all SANRAL Related Projects) 2008 2009 2010 2011 2012 2013 2014 2015 List any other significant

CAPITAL GOODS INPUTS Transport Equipment Road 233 344 395 397 417 442 468 497 Number of carrier units Demand Projection (units) Assumptions: (10m3 Tipper Trucks) Capacity of carrier units Demand Projection (tons) Assumptions: Rail

Number of carrier units Demand Projection (units)

Assumptions: Capacity of carrier units

Demand Projection (tons) Assumptions:

List any other significant TRANSPORT EQUIP INPUTS

Skills General and Project Managers 231 341 255 235 235 249 264 280 Demand Projection (no.) Assumptions: Specialist Engineers and Designers 231 341 255 235 235 249 264 280 Demand Projection (no.) Assumptions: Architects 10 10 10 10 10 10 10 10 Demand Projection (no.) Assumptions: Quantity Surveyors 10 10 10 10 10 10 10 10 Demand Projection (no.) Assumptions: Planners Demand Projection (no.)

Assumptions:

Construction Managers 116 170 128 118 117 124 132 140 Demand Projections (no.) Assumptions:

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Related Technologists

Demand Projection (no.) Assumptions:

Related Artisans Plumbers

Demand Projection (no.)

Assumptions:

Related Artisans Bricklayers


Assumptions:

Related Artisan Electricians


Assumptions:

List any other significant

SKILLS INPUTS

Assumptions: Based upon Table 18 Site Agent 116 170 128 118 117 124 132 140 Surveyors 116 170 128 118 117 124 132 140 Technician 347 511 383 353 352 373 396 420 Occupational Health & Safety Officer 231 341 255 235 235 249 264 280 Senior foreman 347 511 383 353 352 373 396 420 Foreman 462 682 511 470 470 498 528 559 Skilled artisan 116 170 128 118 117 124 132 140 Artisan 925 1,363 1,022 940 939 996 1,055 1,119 Semi-skilled artisan 1,387 2,045 1,532 1,411 1,409 1,493 1,583 1,678 Ganger 693 1,022 766 705 704 747 792 839 Small plant operator 925 1,363 1,022 940 939 996 1,055 1,119 Skilled labourer 1,387 2,045 1,532 1,411 1,409 1,493 1,583 1,678 Contract workers (local) 8,322 12,269 9,194 8,464 8,454 8,961 9,499 10,069

Table 35: South African National Roads Agency Limited (SANRAL) Public Infrastructure Inputs Matrix Comparing the tables above to those provided by SANRAL in 2006, it is evident that most of the projects they listed back then are still at the centre of their major infrastructure works. The important thing to note is that the current report updates schedule and projects are at different stages than what was envisaged in the 2006 tables.

The costs of most of the projects have not increased considerably and some have actually diminished, the most notable being the Gauteng Toll Road Scheme where projected costs have declined by about R5 billion. The project completion times remain stable. The Volkstrust – Amersfoot Project was completed on schedule.

Other prominent projects New major projects that did not feature on the above list include:

• Nelspruit ring road (valued at R800 million for all three phases); • The last section of the Eastern ring road around Polokwane (valued at

R600 million); and • N17 East upgrading from Springs to Omerall (valued at R1.5 billion and

consisting of six stages.

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4.5.3 Usage and prediction of major infrastructure inputs

National Roads Material Infrastructure Inputs

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

2008 2009 2010 2011 2012 2013 2014 2015

Tons

0

50,000

100,000

150,000

200,000

250,000

Aggregate Stone (lhs) Cement (rhs) Ready Mix Concrete (rhs) Bitumen (rhs) Source: SANRAL Figure 7: SANRAL Materials Input Prediction

Steel The table above shows that steel usage will be at its highest in 2009 with a huge increase in steel usage from the previous year, then decreasing to figures identical to past years. Because South Africa’s steel production is very small compared to world production, the price of steel is determined by international markets. So while steel availability is not a big problem for SANRAL, the price of securing adequate steel has been exorbitant. Cement Cement is another very important input for all construction projects. Usage is also expected to be at its highest level in 2009 but SANRAL does not expect any shortages because the construction of houses has slowed down recently compared to previous years2. However, they report that there are still some problems at times with obtaining the right type of cement for certain specialised works. There was also an increase in the capacity of cement production which has helped alleviate some of the problems in terms of availability. Distribution techniques have also improved leading to an overall better service by suppliers.

2 Indicated by SANRAL

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Bitumen Although the usage of bitumen seems to generally increase year by year, it is clear that the rate of increase will be highest between 2008 and 2009, with a peak in 2009. South Africa is a net bitumen exporter and availability is generally not seen as a problem. However, the cost of bitumen has been an issue. SANRAL reports that the price has gone up by about 70% in recent years, in large part due to the exorbitant cost increases of crude oil. Now that oil prices have declined, one may expect bitumen prices to reduce to previous levels. The other problem that makes bitumen so expensive is logistics and transportation which account for about 22% of the total increase in cost. Yellow metals The years 2009 and 2010 seem to be the peak years for yellow metal usage for road construction. For almost all equipment, there seems to be a sharp increase in usage projected between 2009 and 2010, which levels off after 2011. TLBs, Steel Drum Rollers, Front End Loaders, and tractors feature prominently among the metals most used.

SANRAL Yellow Metals Input Usage

0

100

200

300

400

500

600

700

2008 2009 2010 2011 2012 2013 2014 2015

Uni

ts U

sed

TLB's Steel Drum Rollers Front End Loaders Tractors Source: SANRAL Figure 8: SANRAL Yellow Metal Inputs Projection

Transport Equipment Transport vehicle equipment data released by SANRAL only showed figures for carrier units and it generally shows an increase in usage each year. However, the biggest change from year to year seems to be from 2009 to 2010 and so it is suggested that the peak year will be 2010.

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SANRAL Transport Vehicle Inputs USAGE

0

100

200

300

400

500

600

2008 2009 2010 2011 2012 2013 2014 2015

Uni

ts

Source: SANRAL Figure 9: SANRAL Transport Vehicle Inputs Projection

Skills The issue of skills shortage at SANRAL is severe and will not get better in the near future. It is expected that 20% of engineers will retire by the end of 2011 and it is evident that they will not all be replaced given the current rate at which new engineers are being trained. The problem is further compounded by the fact that a lot of experienced engineers and graduates are moving abroad due to the better salaries offered there. At the moment, there are only two qualified engineers in the Department of Transport which is reason for concern. The table above shows that the demand for skills is expected to peak in 2009, as experts in every stage of road construction will be most needed, with the exception of project managers and specialist engineers. Contract workers (12,269), artisans (170), foremen (682), and even skilled labourers (2,045) will all be required at record levels.

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SANRAL Skills Requirement Projections

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2008 2009 2010 2011 2012 2013 2014 2015

Num

ber o

f wor

kers

0

500

1,000

1,500

2,000

2,500

Contract Workers (local) (lhs) Skilled Labourers (rhs) Artisans (rhs) Foremen (rhs)

Source: SANRAL Figure 10: SANRAL Skills Input Projection

4.5.2. Other problems and potential solutions

Some issues facing SANRAL One of the most serious problems facing the industry is that investments are not evenly spread across the years but vary from being substantial in certain years to very small in others. The problem here is that when huge investments are made at certain points, it usually leads to a shortage of inputs. Another matter for concern is that, due to the lack of skills in the industry, inexperienced and ill-qualified engineers are asked to carry out projects which they would otherwise not be allowed to execute. Potential solutions

• Both road construction and maintenance should be done on a continuous basis and not cyclically as is currently the case. Population growth is steady and traffic problems are growing faster than anticipated and so investment in roads should be ongoing. This eliminates the problem of companies needing so many workers at certain points and laying off some when there is very little economic activity.

• More should be done by the government to address the skills shortage problem in the future through the institution of more apprentice programmes and laws that require engineering firms to make training of

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new professionals compulsory. In order to solve the problem in the short term, retired engineers should be re-hired to train up-newly qualified engineers.

• Finally, professionals could be brought in from outside the country.

4.5.4 Conclusions The South African Road Agency Limited (SANRAL) finances, improves, manages and maintains the national road network which stretches over 16,150km with an asset value of R6.5 billion. It has expanded vastly over the last few years and reasons for this include higher traffic volumes than anticipated, in particular in Gauteng; investment related to the 2010 FIFA World Cup; and the need for continuous repairing and improvement of the road network, as is the case with any other structure. When compared to 2006, most of the then-listed projects are still ongoing, with costs usually unchanged except for the substantial drop in the cost of the Gauteng Toll Road Scheme, whose value has dropped by about R5 billion. New major projects include: the Nelspruit ring road (valued at R800 million for all three phases); the last section of the Eastern ring road around Polokwane (valued at R600 million); and the N17 East upgrading from Springs to Omerall (valued at R1.5 billion and consisting of six stages). SANRAL expects the peak of inputs usage for road construction to be between 2009 and 2010 as most projects will be gaining momentum in order to be completed in time for the World Cup. The issue of skills shortage at SANRAL is severe and will not get better in the near future. It is expected that 20% of engineers will retire by the end of 2011and it is evident that they will not all be replaced given the current rate at which new engineers are being trained. The problem is further compounded by the fact that a lot of experienced engineers and graduates are moving abroad due to the better salaries offered there. At the moment, there are only two qualified engineers in the Department of Transport. The demand for skills is expected to peak in 2009 as experts in every stage of road construction will be most needed, with the exception of project managers and specialist engineers.

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4.6 Expanded Provision of Housing The information contained in this sub-section is sourced from data provided by the National Department of Housing and Thubelisha Homes. Infrastructure inputs demand projections for 3.5 million houses are based on the very ambitious targets reported by the Department of Housing to provide 500,000 low-cost housing units annually from 2009/2010 to 2014/2015. In 2006/2007 the Department of Housing reported that it delivered 271,219 houses, falling slightly to 248,850 houses in 2007/2008. We have been warned by several experts on housing in South Africa that, even though there has been institutional improvements and increased financial and other resources committed to housing, it would be extremely hard to achieve the ambitious housing programme targets. 4.6.1 Background Housing Policy The Reconstruction and Development Programme (RDP), an integrated socio-economic policy framework adopted in 1994, sets out policy targets for Government (Housing White Paper). The RDP set a goal of 300,000 houses to be built annually. A minimum of one million low-cost houses were expected to be constructed within five years. The target was not reached due to large construction companies withdrawing from low-cost housing projects. The Department of Housing announced the establishment of a Housing Development Agency, aiming to double the current annual delivery to 500,000 low-cost homes in an effort to eradicate informal settlements by 2014, at a cost of R345 billion. Housing Statistics

Total Housing units completed between 1994 - 1998/1999 721, 813

Total Housing units completed/ in process between 1998/1999 -2007/2008 184,6249

Total Housing units projected between 2007/2008 - 2014/2015 2,500,000

Number of homes still needed 2,000,000 to 3,000,000

Number of families still in need of adequate housing 2,400,000

Source: Department of Housing Table 36: Housing Statistics Adequate Housing - Law of the Land Section 26 of the Constitution of the Republic of South Africa (1996), states that everyone has the right to have “access to adequate housing”. It is the government’s duty to take reasonable legislative and other measures, within its available resources, to achieve the progressive realisation of this right. Provincial legislatures and local government share responsibility with the national government for delivery of adequate housing.

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The population of South Africa is estimated at 47.4 million, with population growth estimated at 1.06%, which is likely to decline according to a StatsSA July 2006 publication. The result is that the number of households is increasing rapidly relative to the number of houses built annually. Thus housing demand and delivery is a need that is continuously growing, despite the substantial housing delivery over the past 14 years. It is estimated that the absolute number of households increased by 30% while an increase of 10% was expected, expanding the number of households living in informal settlements to 2.4 million. Urban and Provincial Ratios

Each province is significantly different from any other with specific needs to be taken into account. It is noted that 53.7% of the population lives in urban areas. Gauteng is the most urbanised of provinces (97%), followed by the Western Cape (88.9%). The least urbanised is Limpopo Province with 11%, according to “Housing in South Africa” compiled by Richard Knoght (2001). The average household size also varies significantly. For example in Gauteng average household size is estimated at 3.6 persons as compared to 5 persons in KwaZulu Natal. KwaZulu Natal has the largest population (9.924 million), followed by Gauteng (9.526 million).When household income is taken into consideration, it is noted that 32% of households in the Eastern Cape earn less than R500 per month compared to just 5% in Gauteng.

Housing Development Agency (HDA) The HDA, with the aim of developing, managing and co-ordinating development across the country, will assist the Housing Department in its efforts to double the number of houses built and to meet its target of eradicating informal settlements by 2014. According to the department, a delivery rate of around 500,000 housing units per year would eliminate the backlog by 2014 at cost of between R345- and R548-billion. 4.6.2 Access to Finance The major challenge to low-cost housing development remains access to finance. It is estimated that at least 70% of South Africa's population is unable to access finance, while between 10% to 15% will only be able to afford limited finance, most likely from nontraditional lenders. The government has established a series of programs to help people financing the acquisition of houses. Over one million housing subsidies have been provided. This includes the Rural Housing Loan Fund that has financed some 25,000 loans for low-income housing. 4.6.3 Projections of Major Infrastructure Inputs Between 2004 and 2007/2008, the Government increased housing expenditure from R4.8 billion to R9 billion, representing 23.2% of average growth per year.

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Spending on housing grew from R9 billion last year to R10.6 billion in 2008. By 2010 to 2011 it is projected to increase at an average of 19.4% a year. The goal remains the eradication of informal settlements by 2014. According to the strategy designed by the Department of Housing, 500,000 new units are planned to become available annually.

Projections of Major Infrastructure Inputs Department of Housing

Total 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15

Number of Houses 3,548,970 248,850 300,120 500,000 500,000 500,000 500,000 500,000 500,000

Materials

Steels (tons) 1,064,691 74,655 90,036 150,000 150,000 150,000 150,000 150,000 150,000

Aluminium Cladding (tons)

Cement (tons) 11,889,050 833,648 1,005,402 1,675,000 1,675,000 1,675,000 1,675,000 1,675,000 1,675,000

Clay Bricks (tons) 1,064,691 74,655 90,036 150,000 150,000 150,000 150,000 150,000 150,000

Concrete blocks Interlock (sq mt)

12,421,395 870,975 1,050,420 1,750,000 1,750,000 1,750,000 1,750,000 1,750,000 1,750,000

Timber (sq mt)

Glass (sq mt) 15,970,365 1,119,825 1,350,540 2,250,000 2,250,000 2,250,000 2,250,000 2,250,000 2,250,000

Plastic pipes–40 mm (m) 35,489,700 2,488,500 3,001,200 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000

Plastic pipes-100 mm (m) 35,489,700 2,488,500 3,001,200 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000

Steel Roof sheets (sq mt) 141,958,800 9,954,000 12,004,800 20,000,000 20,000,000 20,000,000 20,000,000 20,000,000 20,000,000

Concrete Roof Tiles (sq mt) 17,744,850 1,244,250 1,500,600 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000

Aggregate – Stone Mix (cu mt)

24,842,790 1,741,950 2,100,840 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000

Ready – mix Concrete 28,391,760 1,990,800 2,400,960 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000

Bitumen (tons)

Toilets 3,548,970 248,850 300,120 500,000 500,000 500,000 500,000 500,000 500,000

Wash and Basins 3,548,970 248,850 300,120 500,000 500,000 500,000 500,000 500,000 500,000

Cranes

Cranes (10 ton) 100 50 60 100 100 100 100 100 100

Trucks (20 ton) 7,500 3,733 4,502 7,500 7500 7500 7500 7500 7500

Skills General and project Managers

1,500 747 900 1,500 1,500 1,500 1,500 1,500 1,500

Specialist Eng. and design 500 249 300 500 500 500 500 500 500

Architects 50 25 30 50 50 50 50 50 50

Quality Surveyors 50 25 30 50 50 50 50 50 50

Planners 150 75 90 150 150 150 150 150 150

Construction Managers 5,000 2,489 3,001 5,000 5,000 5,000 5,000 5,000 5,000

Related Technologists 1,000 498 600 1,000 1,000 1,000 1,000 1,000 1,000

Artisans -Plumbers 2,500 1,244 1,501 2,500 2,500 2,500 2,500 2,500 2,500

Artisans -Bricklayers 25,000 12,443 15,006 25,000 25,000 25,000 25,000 25,000 25,000

Artisans -Electricians 500 249 300 500 500 500 500 500 500

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Labourers 75,000 37,328 45,018 75,000 75,000 75,000 75,000 75,000 75,000

Major Infrastructure Inputs

Steels 1,064,691

Cements 11,889,050

Skills 36,250

Source: Department of Housing and Thubelisha Home Table 37: Housing (Infrastructure Inputs Projections 2007/2008-2014/2015) The housing demand projections have been based on the Housing Development Agency estimated costs of R345 billion by 2014. The Department of Housing delivered 271,219 houses in 2006/2007 and the delivery decreased in 2007/2008 to 248,850 houses.

Source: Department of Housing Figure 11: Housing Statistics from 1999 to 31 March 2008 With the establishment of the Housing Development Agency, the number of houses delivered is expected to rise to 300,120 units in 2008/2009 and reach a peak point of 500,000 units between 2009/2010 and 2014/2015. The escalation of housing delivery from an average of 240,000 units over the past three years to 500,000 units will impact the current capacity of inputs productions. An average of a 120% increase will be observed in all infrastructure inputs related to housing. The peak demand period will be between April 2009 and March 2015 with 0.150 million tons of steel, 1.675 million tons of cement, 1.750 million square metres of concrete blocks, 10 million metres of plastic pipes (40mm and 100 mm) and 20 million tons of steel roof sheets. The demand in the peak period for infrastructure inputs will be increased by more than 100% compared to the current level.

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Cement is the primary material input in construction and the cement industry must be prepared to raise its capacity to produce the 5,189,050 tons of cement needed to satisfy the housing demand.

Infrastructure Inputs Annual Projections

500,0001,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,000

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15

Concrete (tons) Glass (sq mt) Concrete Roof Tiles (sq mt) Aggregate (cu mt)

Source: Department of Housing Figure 12: Infrastructure Inputs Annual Projections As a result of increased housing delivery, skill demands also rise considerably. Construction managerial skills reach peak demand at 5,000 by 2009/2010, doubling the current demand. In the period under review there will be demand for 15,490 construction managers. Specialised skills needed for the period will be 36,250 workers, including technologists, with artisans-bricklayers being the most in demand (25,000 in total). In terms of job creation, 75,000 labourers will be needed in total. 4.6.4 Conclusions Infrastructure inputs demand projections for 3.5 million houses are based on the strategy designed by the Department of Housing to provide 500,000 low-cost housing units annually from 2009/2010 to 2014/2015. In 2006/2007 the Department of Housing delivered 271,219 houses, falling slightly to 248,850 houses in 2007/2008. Housing-based demand for material inputs is expected to peak from 2009/2010 to 2014/2015 at 150,000 tons of steel, 1,675,000 tons of cement, 20,000,000 square meters of roof sheet steel, 2,250,000 square meters of glass, and 10 million meters of plastic pipes of various sizes. Likewise demand for skills will peak from 2009/2010 to 2014/2015 with the need for 5,000 construction managers, 1,500 general and project managers and 25,000 artisan bricklayers. The demand for labourers is expected to be 75,000 during the peak period. In total, housing employment between 2009/2010 and 2014/2015 inclusive is expected to be 111,250.

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4.7 Airports Company of South Africa The content of this subsection has been derived from consultation with and contributions from the Airports Company of South Africa (ACSA). 4.7.1 Background The Airports Company of South Africa (ACSA) operates South Africa's ten principal airports, which include the three major international airports at O.R. Tambo, Cape Town and Durban, and seven domestic airports at Bloemfontein, Port Elizabeth, East London, George, Kimberley, Upington and Pilansberg. ACSA is a globally competitive company and it is the largest airports authority in Africa. The company’s 10 airports processed more than 36 million departing and arriving passengers and 291,000 aircraft landings from nearly 50 international destinations, connecting Africa with all other continents, in its 2008 financial year. ACSA’s infrastructure plans are as a result of the rate of growth being experienced at its airports, which are almost double the national GDP. This growth is due to an increase in international visitors, but mainly due to exponential growth in domestic travel and in particular the low-cost carriers. These growth projections for air travel indicate the need for the expansion in capacity by ACSA in order to accommodate this increase. ACSA is already close to completing the infrastructure necessary to facilitate the 2010 FIFA World Cup and demand beyond the event, and while 2010 is having an impact on ACSA's development plans in the short term, it has not had a major impact on ACSA's medium- to long-term plans, which stretch out to 2020 and 2035. Some of the projects are almost close to completion and some will be completed by the end of next year. O.R. Tambo International, currently a puzzle of different pieces, will come together through six development projects into one of the finest international airports of its kind in the world and ready to serve up to 25 million passengers a year. ACSA will also be refurbishing and expanding runways, developing its new international pier (to accommodate the Airbus A380), and upgrade its runways. Cape Town International will be expanding, dramatically increasing its current capacity of 6.5 million passengers to 12 million passengers by 2009. The airport will also be getting a facelift and additional parking and roadways. Durban will be getting a brand new international airport at La Mercy, which will increase Durban's current capacity from 4 million to 7.5 million passengers by 2010. Built to integrate with a trade and commercial centre called the Dube Tradeport, the new airport will grow tourism and enable growth in trade and business development for KwaZulu Natal.

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The capacity of ACSA's domestic airports is also being expanded and enhanced as these airports grow at twice the rate of ACSA's international airports, albeit from a smaller base. 4.7.2 ACSA Project Overview Infrastructure projects at ACSA are focusing on airport development, terminal facilities, parking facilities and runway maintenance and expansion. The table below discusses the current and future projects which ACSA is undertaking. Project Name Midfields Developments

Project Category Passenger terminal, structured parking, aprons, taxiways, access and service roads (Phase 1)

Spatial location of Project O.R .Tambo International

Project timing Start Date: 2012/13 End Date: 2014/15 Duration: 4 years

Project Description Complete new terminal complex with associated pavements, access roads etc.

Project Value R 8bn Project Name La Mercy – Development of New International Airport

Project Category New Airport

Spatial location of Project La Mercy – Durban

Project timing Start Date: 2007/8 End Date: 2010 Duration: 3 years

Project Description New airport development

Project Value R 7bn Project Name Central Terminal Building

Project Category Facilities – building and frontage roads

Spatial location of Project O.R. Tambo International

Project timing Start Date: 2005 End Date: 2010 Duration: 4 years

Project Description New central terminal building between domestic and international terminal with associated frontage roads

Project Value R 2bn Project Name Multi Storey Parkade 2

Project Category Facilities

Spatial location of Project O.R. Tambo International


Project Description Second multi story vehicle parkade – 5000 parking bays

Project Value R 500m Project Name Multi Storey Parkade 2


Spatial location of Project Cape Town International

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Project Description Second multi story vehicle parkade – 4000 parking bays

Project Value R 500m Project Name Various Upgrades


Spatial location of Project Domestic Airports i.e. Bloemfontein, Upington and East London


Project Description Upgrade and refurbishment (including minor extensions) of facilities at domestic airports

Project Value R 300m Project Name Cape Town Runway

Project Category New runway

Spatial location of Project Cape Town

Project timing Start Date: 2010/11 End Date: 2015 Duration: 4 to 5 years

Project Description Construction of new runway at the Cape Town International Airport with associated taxiways

Project Value R1.5 bn Source: ACSA Table 38: ACSA project descriptions 2 4.7.3 Projections of Major Infrastructure inputs Projections of the major infrastructure projects include projects from 2008 to 2015. The projections also show the delay in the Midfields Developments Project. Most of the current projects will be completed in 2009. The peak year in terms of demand is 2008. The year 2009 will also see a strong demand in the inputs to the various infrastructure projects.

Projections of Major Infrastructure Inputs ACSA Infrastructure Projects 2007 2008 2009 2010 2011 2012 2013 2014 2015

Materials (Buildings and Facilities)

Steel (tons) 16,984 28,683 25,231 8,621 11,726 11,726 11,726

Aluminium (tons) 156 263 231 79 107 107 107

Cement (tons) 31,480 51,579 46,223 16,061 17,765 17,765 17,765

Clay Bricks (tons) 18,179 30,701 27,005 9,228 12,551 12,551 12,551

Timber (cub mt) 437 739 649 222 302 302 302

Glass (sq mt) 13,970 23,596 20,755 7,092 9,647 9,647 9,647

Ceramic Fittings (tons) 26.5 44.8 39.73 14 18 18 18

Ceramic Tiles (sq mt) 62,664 105,831 93,073 31,810 43,266 43,266 43,266

Plastic Pipes (tons) 88.8 150.8 132.5 45 62 62 62

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Roof Sheet Steel (sq mt) 52,361 88,431 77,787 26,580 36,153 36,153 36,153

Aggregate Stone Mix (tons) 276,721 515,795 484,265 228,793 39,164 39,164 39,164

Ready Mix Concrete (tons) 199,458 335,909 295,468 101,750 136,766 136,766 136,766

Bitumen (tons) 14,478 21,151 19,452 12,496 675 675 675

Materials (Aprons)

Steel- edge reinforcing (tons) 99 165 149 99 TBA TBA TBA

Cement- stab layers wk (tons) 12,000 20,000 18,000 12,000 TBA TBA TBA

Concrete Blocks (tons) 930 1,550 1,395 930 TBA TBA TBA

Plastic Pipes- water sleeves (tons)

10 16 14 10 TBA TBA TBA

Aggregate Stone Mix- L wks (tons)

96,540 160,900 144,810 96,540 TBA TBA TBA

Ready Mix Concrete (tons) 16,500 27,500 24,750 16,500 TBA TBA TBA

Bitumen (tons) 690 1,150 1,035 690 TBA TBA TBA

Cranes

Cranes (units) 23 26 27 10 8 8 8

Skills

Architects 56 50 45 20 21 18 15

Quantity Surveyors 28 25 22 10 11 9 8

Project Managers 19 17 15 7 7 6 5

Specialist Engineers 55 68 44 30 46 12 10

Construction Managers 151 152 120 63 82 42 36

Source: ACSA Table 39: ACSA Materials, Cranes and Skills Infrastructure Inputs Projections (2007-2015) 4.7.4 Inputs sensitivities, dependencies and potential solutions ACSA maintains that they do not have a problem getting access to material inputs. However, they did confirm that the increase in the cost of the inputs to their projects has been extraordinary. They also stated that the shortage of skills has been detrimental in the sense that it has led to an increase in costs as they can only obtain labour at higher costs. The increased demand in the construction market is the main driver of increase in the price of inputs. 4.7.5 Summary and conclusion The Airports Company of South Africa (ACSA) operates South Africa's ten principal airports, which include the three major international airports at O.R. Tambo, Cape Town and Durban, and seven domestic airports at Bloemfontein, Port Elizabeth, East London, George, Kimberley, Upington and Pilansberg. The growth of the South African economy has resulted in planned expansions of ACSA’s buildings and facilities throughout the country. The expansions include substantial investments in passenger terminal, parking, aprons, taxiways, access

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and service roads. Maintenance and rehabilitation of existing runways at the airports in South Africa are also part of the comprehensive infrastructure upgrade package. The table on inputs shows that the inputs use is expected to peak in 2008. A strong demand is also expected in the years 2007 and 2009. The Midfield Developments Project has been delayed by two years and will therefore commence in 2012. In 2008 the demand for the key inputs will be as follows: steel (28,683 tons), aluminium (263 tons), cement (51,579 tons) ,clay bricks (30,701 tons), timber (739 cub mt), glass (23,596 sq mt), ceramic fittings (44.8 tons), ceramic tiles (105,831sq mt), plastic pipes (150.8 tons), roof sheet steel (88,431 sq mt), aggregate stone mix (515,795 tons), ready-mix concrete (335,909 tons) and bitumen (21,151 tons). The demand for construction managers and specialist engineers will peak in 2008 at 152 and 68 respectively. In 2007, 56 Architects, 28 quantity surveyors and 19 project managers will be required in preparation for the rollout of significant expansionary development and facilities related projects. ACSA’s infrastructure rollout and expansion plans for buildings and facilities could be sensitive to the costs of and to some extent availability of certain critical input materials, including steel, cement, clay bricks, glass, ceramic tiles, roof sheet steel, aggregate stone mix and bitumen, (given the large demand volumes during the 2008 peak), and therefore any shortages could potentially result in project delays to ACSA’s critical path infrastructure rollout plan.

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4.8 Significant Provincial and Municipal Infrastructure Investments 4.8.1 Provincial Infrastructure Investments

The purpose of this section is to provide an estimate of the value of government investment in some of the most important sectors, including education, health and road construction over the medium term 2008/2009 to 2010/2011. Consultations were carried out with officials from the National Treasury, who provided most of the information presented below. Rather than do an analysis of projects undertaken in each province, this examination offers a holistic perspective by examining the top 20 projects in value terms across South Africa, in each of the three sectors mentioned. This approach was adopted because it is our opinion that all projects, regardless of location, compete for the same resources. Following identification of the top 20 most financially valuable projects across the country, the projects were then aggregated according to the relevant province responsible and the total for each province was then calculated. Provincial Education Infrastructure Projects

The focus of provincial expenditure in education over the period was on providing certain basic services, especially to the rural areas of most provinces. Investments have included construction of new infrastructure, refurbishing old facilities and a great deal of maintenance. The focus was primarily on the following areas:

• Constructing new schools

• Constructing new youth centres

• Repairing classrooms damaged by disasters

• Water and other major services provision

• Mobile classrooms

• Maintenance and routine repairs

Average expenditure for the period 2008/2009 to 2010/2011 is shown in the table below. As noted in other sectors below, the peak year of expenditure is 2009, as more resources will be needed than in other years. The total value of the top 20 projects for the medium term indicates that total investment in education projects stands at about R880.4 million, which is very low relative to total expenditure on education.

2008/2009 2009/2010 2010/2011 Total

R’000 R 448,012 R 225,951 R 206,478 R 880,441

Source: National Treasury Provincial Infrastructure Database, September 2008 Table 40: Major Provincial Education MTEF Infrastructure Deposits

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On a province-by-province basis during the period under review, the Eastern Cape (R619.9 million) and Gauteng (R219 million) have by far the highest investment in education. The Eastern Cape concentrated on developing Youth Centres and repairs and maintenance, while in Gauteng, the focus was on building new schools and maintenance of existing facilities.

Major Provincial Infrastructure Projects for Education

0

100

200

300

400

500

600

700

EC GP LP WC KZN NC

R m

illio

n

Source: National Treasury Provincial Infrastructure Database, Sepetember 2008 Figure 13: Major Provincial Education MTEF Infrastructure Projects (by value) Provincial Health Infrastructure Projects

The foci of investment in health projects were on a variety of areas including the following:

• Investment in established hospitals

• Building new structures

• Upgrading and maintenance

• Mental health facilities

• Provision of specialist components such as boilers to hospitals

A surprising observation based on the data available is that the projected amount of spending during this period is lower than the projections made two years ago. In 2006, expenditure for the period 2008/2009 was estimated at R2.9 billion and was expected to be the peak year but that was not the case. The actual expenditure is now estimated to only be R2.2 billion, which provides support for the case made by

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the National Treasury that provinces and municipalities are not able to spend money allocated to them. Also, while 2008/2009 was expected to be the peak year for investments, spending actually peaked in 2007/2008.

2008/09 2009/10 2010/11 Total

R’000 R 2,213,106 R 1,410,968 R 1,478,503 R 5,102,577

Source: National Treasury Provincial Infrastructure Database, September 2008 Table 41: Major Provincial Health MTEF Infrastructure Projects In terms of the provincial investment, Gauteng (R3.4 billion) had the largest portion of government expenditure on health projects. Most of the money was used for the refurbishment of already established hospitals and for maintenance. KwaZulu Natal, the Western Cape and the Eastern Cape also made substantial investments in health structures. Areas of focus included hospital upgrades and provision of specialised equipment.

Total Value of Major Provincial Health Projects

0

0.5

1

1.5

2

2.5

3

3.5

4

GP KZN WC EC NW LP NC

R b

illion

Source: National Treasury Provincial Infrastructure Database, September 2008 Figure 14: Major Provincial Health MTEF Infrastructure Projects (by value) Provincial Roads Infrastructure Projects

The focus of the South African National Roads Agency Limited (SANRAL) which is responsible for the upkeep and construction of all roads in South Africa, has been on routine, adhoc and periodic maintenance, re-strengthening and the construction of new roads. However, within the provinces, construction of roads is generally for developmental reasons. Roads were constructed to improve accessibility to hospitals and other local facilities.

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The total value for the top 20 projects in road construction over the period 2008/2009 to 2010/2011 is R5.9 billion and 2008/2009 has again been identified as the peak year for expenditure.

2008/09 2009/10 2010/11 Total

R’000 R 2,750,222 R 2,163,105 R 1,007,230 R 5,920,557

Source: National Treasury Provincial Infrastructure Database, September 2008 Table 42: Major Provincial Roads MTEF Infrastructure Projects In terms of investment by individual provinces, KwaZulu Natal is expected to outspend every other province by a sizeable amount. KwaZulu Natal is expected to spend R3.1 billion, which will be focused on new roads, upgrades and roads designed to encourage development. The Western Cape (R1.1 billion) will focus on special projects and maintenance and the Eastern Cape (R 541 million) will pay attention to intra-city and developmental roads.

Total value for Provincial Investments in Road Construction

0

0.5

1

1.5

2

2.5

3

3.5

KZN WC FS EC NC GP MP LP

R b

illion

s

Source: National Treasury Provincial Infrastructure Database, September 2008 Figure 15: Major Provincial Road MTEF Infrastructure Projects (by value) Summary

The focus of provincial expenditure in education over the period 2008/2009 – 2010/2011 will be on providing certain basic services, especially to the rural areas of most provinces. Investments have included construction of new infrastructure, refurbishing old facilities and a great deal of maintenance. The peak year of expenditure is 2009 as more resources will be needed than in other years.

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For education investments, the Eastern Cape (R619.9 million) and Gauteng (R219 million) have by far the highest budgets. More investments were made in the health sector, with Gauteng (R3.4 billion) getting the biggest share of the budget. Finally, KwaZulu Natal had bigger investment in road construction than any other province.

4.9 Significant Investments by National Departments This section provides a broad overview of significant National infrastructure projects for the medium term and beyond. Important infrastructure projects for the Department of Water Affairs and Forestry and the Department of Public Works are presented and analysed in the section below. 4.9.1 Department of Water Affairs and Forestry (DWAF) Outlined below is the list of major projects undertaken by DWAF which have either been completed, are under construction or are going to start in the near future. The projects are either being funded directly by the government or funding has been obtained or is to be obtained in the financial markets. The estimated cost of all the water resources and infrastructure projects undertaken by DWAF is expected to range between R20 billion and R30 billion. SCHEMES COMPLETED DATE COMPLETED Luvuvhu River GWS: Xikunda Weir and Water Treatment Works (Limpopo) 2005 ~ R315Million Mooi-Mgeni Transfer Scheme Phase 1 (Kwazulu-Natal) 2004 ~ R100 Million Usutu-Vaal Scheme: Morgenstond-Jericho Emergency Pump Station (Mpumalanga) 2005 ~ R28 Million Luvhuvhu River GWS: Nandoni Dam (Limpopo) 2005 ~ R574 Million Sabie River GWS: Inyaka Raw Water Pumpstation (Mpumalanga) 2006 ~ R22 Million Olifants River Water Resources Development Project (Phase 1): Raising of Flag Boshielo Dam (Limpopo) 2006 ~ R235 Million SCHEMES UNDER CONSTRUCTION EXPECTED COMPLETION Berg Water Project: Dam and Supplement Scheme (Western Cape) 2008 ~ R2.5 Billion Augmentation of Eastern Vaal Subsystem (VRESAP Pipeline) (Gauteng/Mpumalanga) 2008 ~ R2.6 Billion Luvuvhu River GWS: Nandoni Water Treatment Works (Limpopo) 2008 ~ R295 Million Olifants River Water Resources Development Project Phase 1: De Hoop Dam (Limpopo) 2012 ~ R2.6 Billion Luvuvhu River GWS: Bulk Distribution Works (Limpopo) 2012 ~ R530Million Sabie River GWS: Inyaka Water Treatment Works (Mpumalanga) 2012 ~ R283 Million Inyaka PH 1 Comp 2005 Inyaka PH 2 Comp 2008 Inyaka PH 3 Comp 2010 Inyaka PH 4 Comp 2012 SCHEMES PLANNED TO BE COMMENCED UP TO 2009 PLANNED COMMENCEMENT Olifants River Water Resources Development Project Phase 2: Distribution Works (Limpopo) 2008/9 ~ R 5 275 million Mdloti River Development: Raising of Hazelmere Dam (Kwazulu-Natal) 2008/9 ~ R 60 million Mgeni River Augmentation: Spring Grove Dam (Kwazulu-Natal) 2008/9 ~ R 409 million Mzimkhulu Off-Channel Storage (Kwazulu-Natal) 2009/10 ~ R 230 million

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Groot Letaba River Development: Nwamitwa Dam (Limpopo) 2009/10 ~ R 1 100 million Lusikisiki Regional Water Supply: Zalu Dam (Eastern Cape) 2009/10 ~ R 70 million Raising of Clanwilliam Dam (Western Cape) 2009/10 ~ R 580 million Amatole GWS: Extensions (Pipeline and Bridges) (Eastern Cape) 2009/10 ~ R 285 million New Projects The Lesotho Highlands Phase 2 project is currently in the negotiation stage. The estimated value of the project, if it comes to fruition, will be R8 billion if increases in input costs are taken into account. Project Name Olifants River Water Resource Development Project (ORWRDP), Construction of De Hoop

Dam and associated Bulk Distribution Infrastructure (ORWRDP Phase 2)

Project Category Dam Infrastructure

Spatial Location of project Limpopo Province

Project Timing Start Date: 2008/2009

Project Description Phase 2 of the Olifants River Water Resources Development Project will consist of a dam (at De Hoop on the Steelpoort River), pumping stations and some 300km of bulk supply mains from the town of Steelpoort to Olifantspoort near Lebowakgomo on the Olifants River and from Flag Boshielo Dam to Mokopane. The storage capacity for the dam is 350 million m³.

Project Value R 5,275 million Project Name Mokolo River Water Resource Augmentation Project

Project Category Raising of Dam Wall

Spatial Location of project Mpumalanga

Project Timing Start date: 2008/2009

Project Description

The infrastructure options considered to address water demands as a result of future developments are (a) raising of the Mokolo Dam wall or (b) an inter-basin transfer from the Crocodile (West) River catchment to the Mokolo River catchment.

The option considered most feasible is the inter-basin transfer of 45x106 m3/a from the Crocodile (West) River catchment to the Mokolo River catchment.

Project Value TBA Project Name Groot Letaba River Water Resource Development Project (Construction of Nwamitwa

Dam)Project Category Dam Construction

Spatial Location of project Limpopo Province


Project Description

The project entails construction of a dam situated just below the confluence of the Groot Letaba and the Nwanedzi Rivers on a site known as Nwamitwa. The dam at Nwamitwa site will have a storage capacity of 144 million m3 and an estimated yield of 47 x 106 m3/a. Raising the storage capacity of the Tzaneen Dam from 157 x 106 m3/a to 203 x 106 m3/a is a feasible option that may be considered to improve management of the water resources.

Project Value R 1 100 million Project Name Mgeni River Water Resource Augmentation Project (Construction of Spring Grove Dam)

Project Category Dam Construction

Spatial Location of project KwaZulu Natal

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Project Description

The project entails the construction of the Spring Grove Dam, which has been sited some 8km south (upstream) of the existing Mearns Weir and Pumping Station on the Mooi River in the KwaZulu Natal Midlands. A new pump station downstream of the dam and a pipeline will also be constructed to transfer water from the Mooi River to the Mgeni System. In addition, an about 5m high concrete weir will be required upstream of the dam on the property Vaalekop 3297/46 (“Coldstream”). This weir will act as a barrier to prevent smallmouth bass fish from entering the brown trout fish waters above Inchbrakie Falls

Project Value R409 million Project Name Mdloti River Water Resource Development Project (Raising of Hazelmere Dam)

Project Category Raising of Dam Wall

Spatial Location of project KwaZulu Natal


Project Description

The Hazelmere Dam is situated on the Mdloti River 5 km north of Verulam in KwaZulu-Natal. The scheme will consist of the manufacture and installation of seven 13m long radial crest gates on the currently uncontrolled spillway of the Hazelmere Dam. Provision for installation of radial crest gates was already made during the initial design and construction of the dam. The installation of radial gates will increase the full supply level of the dam by 7m thus increasing the storage capacity from 15.2 million m3 to 33.5 million m3.


Project Name Mzimkulu River Water Resource Development Project (Construction of Mzimkulu Off-channel Storage Dam)


Spatial Location of project Southern KwaZulu Natal


Project Description

A recent pre-feasibility study into the water resources of Southern KwaZulu Natal area has indicated a need to ensure supply from run-of-river abstractions works on the Mzimkhulu River by constructing an off-channel storage dam and an associated abstraction weir. Such an off-channel storage dam site has been identified on the Gugamela River, a tributary of the Mzimkhulu River, about 30km upstream of the river mouth. During periods of high flows, water will be pumped from the Mzimkhulu River at the abstraction weir into this storage dam. When flows in the Mzimkhulu River deteriorate below acceptable levels, water will be released from the off-channel storage dam down the Mzimkhulu River to be abstracted at the existing Mzimkhulu abstraction works.


Project Name Orange River Water Resource Development Project (Construction of a Dam on the Lower Orange River)


Spatial Location of project TBA

Project Timing

The Joint Pre-feasibility study was undertaken during 2003 and 2004 and confirmed that a Feasibility Study into a dam at Vioolsdrift was required. The Feasibility Study is to be commissioned during 2007/2008 after certain baseline monitoring for environmental needs has been performed. Indications are that the increase in yield of the Orange River will be required by about 2013/2014.

Project Description

The project involves constructing a dam to re-regulate the Orange River and possibly to also provide storage to increase the yield of the system. Initial studies show that a site located on the lower Orange River upstream of the village of Vioolsdrift is best suited for a re-regulating dam, but may also be built to also serve as a storage dam. Alternate sites for storage dams are being investigated.

Project Value TBA Project Name Lesotho Highlands Water Project Phase 2 (LHWP2)

Project Category Augmenting the Vaal River System

89

Spatial Location of project Lesotho

Project Timing The starting date is difficult to assess, as current studies have just started. As indicated above, it may be possible to take a decision on the implementation of this project during 2008/2009.

Project Description Phase 2 of Lesotho Highlands Water Project involves constructing storage dam/s and transfer systems (e.g. tunnels, pipelines, pump stations etc) to increase the yield of the integrated Vaal River System. The project is a joint undertaking by RSA and the Government of Lesotho (GoL).

Project Value TBA Project Name Olifants/Doring River Water Resource Development Project (Raising of Clanwilliam Dam)

Project Category Raising Dam

Spatial Location of project


Project Description The work will involve a thickening of the dam wall on the downstream side combined with a rising probably in the order of 5 to 10m. A deviation of the N7 National Road, as well as the gravel road skirting the eastern side of the dam, will probably be required.

Project Value R 580 million Source DWAF Table 43: Significant DWAF Dam Infrastructure Projects

Project Name Total 2006/2007 2007/2008 2008/2009

2009/2010Peak Year

2010/2011 Peak Year

2011/2012 2012/2013

R millions Mgeni River augmentation (Spring

450 112 226 112

Lower Orange River development

1,400 400 600 400

Eastern Vaal sub-system augmentation

2,600 1,100 1,200 300

Groot Letaba River development

1,142 90 280 322 280 170

Mokolo and Crocodile River water

3,140 140 1,750 1,250

Olifants River water resources

5,275 340 680 710 800 1,335 610 800

Total 14,007 1440 1880 1352 3056 3419 1490 1370

Source: DWAF Table 43: Significant DWAF DM Infrastructure Projections (2006/07 - 2012/13)

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National Infrastructure Major DWAF Infrastructure Capex

1440

1880

1352

3056

3419

14901370

0

500

1000

1500

2000

2500

3000

3500

4000

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

R m

illio

ns

Source: DWAF Figure 16: Distribution of DWAF Dam Infrastructure Budget Projections by Year From the projections made available by DWAF, the peak years for the projects will be the financial years 2009/2010 and 2010/2011. The largest demand for the above mentioned projects will be for cement, aggregate and reinforcing steel. 4.9.2 Summary and Conclusion The highlighted projects by the Department of Water Affairs and Forestry are mainly large scale infrastructure investment projects related to dams (either construction or raising). DWAF has nine major projects planned for the period 2008/2009 to 2014/2015. The combined value of current and future projects (whose value have been ascertained) will range between R20 billion and R30 billion. The peak years for the six projects mentioned in table 2 and outlined in figure 1 are the financial years 2009/2010 and 2010/2011.

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4.10 Infrastructure Investment Projects Demand Side Conclusion

Source: Own calculations aggregation from Infrastructure Report Notes: (1) National Treasury Provincial Infrastructure Database, September 2008 Table 44: Consolidated peak demand of major infrastructure material inputs Peak demand years The table above provides a summary of key infrastructure inputs (such as steel, cement, and bitumen) for the infrastructure projects. The peak years of demand are estimated using these summaries. For the provincial projects estimates are based on data from the National Treasury’s Infrastructure Database. Overall peak demand, taking all the projects into account, is expected to occur between 2008 and 2010. Eskom’s demand for steel peaks at 201kt in 2011 then declines to 100kt in 2012. Their demand for aluminium, driven by demand from their distribution projects, grows from 31kt in 2011 to 47kt in 2012 and peaks at 65kt in 2013. The housing programme will be the other important infrastructure project, influencing demand for

Peak Demand for Major Infrastructure Material Inputs Infrastructure Investment Drives 2007 2008 2009 2010 2014

Eskom

Steel: 6 kt Cement: 21 kt Bitumen: 2.8 kt

Steel: 22 kt Cement: 48 kt Bitumen: 0.5 kt Aluminium: 7 kt

Steel: 121 kt Cement: 246 kt Bitumen: 10.6 kt Aluminium: 14 kt

Peak Year Steel: 195 kt Cement: 230 kt Bitumen: 0.4 kt Aluminium: 27 kt

Steel: 6 kt Cement: 38 kt Aluminium: 0 kt

Transnet No timeline data available

Gautrain

Steel: 20 kt Cement: 62 kt Agg Mix: 362 kt

Peak Year Steel: 30 kt Cement: 98 kt Agg Mix: 571 kt

Steel: 30 kt Cement: 94 kt Agg Mix: 539 kt

2010 FIFA World Cup Preparation

Steel : 26.4 tt Cement: 100 kt

Peak Year Steel: 28 kt Cement: 114 kt

SANRAL

Steel: 40 kt Cement: 107.8 kt Agg Mix: 2.9 mt Bitumen: 36.9 kt

Peak Year Steel: 50.3 kt Cement: 160 kt Agg Mix: 4.3 mt Bitumen: 54.8 kt

Steel: 33.9 kt Cement: 153.6 kt Agg Mix: 3.9 mt Bitumen: 64.6 kt

Housing

Steel: 74.7 kt Cement: 0.83 mt Ready-mixed: 2.0 mt

Steel: 90 kt Cement: 1 mt Ready-mix: 2.4 mt

Peak Year Steel: 150 kt Cement: 1.7 mt Ready-mix: 4 mt



ACSA (Building facilities and aprons)

Steel 17 kt Cement 31.5 kt Agg Mix 277 kt

Peak Year Steel 29 kt Cement 51.6 kt Agg Mix 516 kt

Steel 25.2 kt Cement 46.2 kt Agg Mix 484 kt

Steel 8.6 kt Cement 16 kt Agg Mix 229 kt

Steel 11.7 kt Cement 17.8 kt Agg Mix 39 kt

Provincial Educations1 Peak Peak

Provincial Health1 Peak Peak

Provincial Roads1 Peak Peak

Municipalities (N/A) No timeline data available

DWAF Peak Year Peak year

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key inputs after 2010. Demand for steel and cement is projected to be 150kt and 1.7mt respectively for each year from 2009/2010 to 2014/2015. Overall, the housing programme where 500,000 houses will be built every year from 2009/2010 to 2014/15 may be seen as the most important project affecting demand for key infrastructure inputs. Further, the housing project will sustain demand for key inputs until 2014/2015 creating more certainty for suppliers. It seems that the importance of the housing programme in South Africa’s economic development over the next few years is underappreciated. Critical Material Demand Spikes This section will provide a summary of estimate peak demand years for key inputs required by the infrastructure projects. Steel and aluminium As mentioned above, steel demand from Eskom’s infrastructure projects is estimated to peak at 210kt in 2011. Steel demand from the housing infrastructure programme is estimated to be 150kt in 2011. Therefore, peak demand for steel for the infrastructure investment is expected to be in 2011. Overall demand from steel will remain relatively high through to 2014/2015 because of the housing infrastructure programmes. Further, steel inputs for Eskom’s transmission expansion will make a fairly sizable contribution to steel demand until 2013. Projected demand for aluminium will be driven by demand from Eskom’s distribution projects. Estimated demand is estimated to grow from 31kt in 2011 to 47kt in 2012 and peaking at 65kt in 2013. The demand for steel by Eskom’s infrastructure projects presented in this report is much lower than that of the 2007 report. Almost all the estimated decrease in the demand for steel is from the new coal fired power stations. The numbers reported by Eskom recently show that they estimate using about 2,000kt less steel than previously reported. Cement The housing programme’s demand for cement is very large relative to the demand from other projects. Cement demand is projected to increase to 1.7mt from 2009/2010 and to remain at that level until 2014/2015. Demand for cement is expected to peak in 2009 when Eskom, Gautrain, SANRAL and ACSA add a combined estimated demand of nearly 600mt on top of the 1.7mt that will be used in the housing programme. Aggregate Mix and Bitumen Demand for aggregate mix and bitumen is driven by SANRAL’s infrastructure projects. Their projected demand for aggregate mix will peak at 4.3mt in 2009. The demand for aggregate mix from the infrastructure projects of Gautrain and ACSA are expected to add a further combined demand of just over 1mt in both 2008 and 2009. Therefore, 2008 and 2009 are years of peak demand for aggregate mix. SANRAL’s demand for Bitumen is expected to peak at 64.6kt in 2010. Eskom is the only other

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infrastructure project using a relatively large amount of bitumen. There is only one year, 2009, where Eskom requires a relatively large amount of bitumen (10.6kt). Therefore, 2009 and 2010 are peak years for projected bitumen demand. Plastic Pipe, Glass, Timber and Concrete Products Projected demand by the housing programme will drive demand for infrastructure inputs such as plastic pipes, glass, timber and concrete products. There are plans to build 500,000 houses per year from 2009/2010 to 2014/2015. One can expect that demand for these inputs will steadily increase until 2009/2010 and then stabilise until 2014/2015. Eskom and ACSA will also impact on demand for these products, especially during the period 2009 to 2011.

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5 Infrastructure inputs

5.1 Steel Most of the information in this section was derived from the South African Iron and Steel Institute (SAISI) and its respective members. Its members produce both carbon steel and stainless steel. The overall PPI increase for the industry was 19.1% and that for basic iron and steel between 08/2007 and 08/2008 was 72.7%. Steel PPI increases between 2007 and 2008 were: Reinforcing Steel (90.1%), Mild Steel Plate (30.8%), Stainless Steel Products, Flat Rolled (-10.8%), Structural Steel Products (77%), Structural Steel, Unworked (59.2%), Galvanised Sheet (34.0%), and Uncoated Sheet (17.6%)3 5.1.1 Steel Production SAISI states that South Africa is the largest steel producer in Africa but globally it is a relatively small player. According to SAISI, South Africa produces less than 1% of the world’s total output which is approximated at 1,400 million tons according to the International Iron and Steel Institute (IISI). It was ranked the 21st largest crude steel producing country in the world by the IISI in 2007 and as of 2007 was producing 48% of the total crude steel production on the continent Total South African crude steel production, as reported by the members of SAISI, amounted to 8,986 million tons in 2007, a decrease of 6.4%, compared with 9,603 million tons during 2006. This represents about 0.7% of world production which reached 1,343.5 million tons in 2007 according to the IISI, an increase of 7.5% when compared with 2006.4

South African crude steel production Jan 2002 - August 2008

600 000

650 000

700 000

750 000

800 000

850 000

900 000

Month

Tonn

es

Source: SAISI

3 According to Stats SA, www.statsa.gov.za 4 Information according to SAISI

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Figure 17: South Africa monthly Crude Steel production The production of crude steel globally has been on the decline in the last few months. It dropped from a peak of close to 120 million tons in March 2008 to close to 1,110 million after May 2008. However one can note that the general trend in the last seven years is that the amount of crude steel being produced has been rising. If one looks at the real domestic carbon and alloy steel consumption pattern from the year 2000, one can note that there has been an increase in the consumption of these products. One could attribute this increase in consumption of carbon and alloy steel to the boom currently being experienced in the construction sector and to some extent the manufacturing sector. However one notes that in the last year there was a sharp decline in the percentage of carbon and alloy steel imports which is contrary to the high demand in the construction sector.

South Africa - Real domestic carbon & alloy steel consumption

400000

600000

800000

1000000

1200000

1400000

1600000

Tonn

es

0%

2%

4%

6%

8%

10%

12%

14%

16%

Impo

rts

%

Real consumption% ImportsConsumption trend

Source: SAISI

Source: SAISI Figure 18: SA-Real domestic carbon and alloy steel consumption Carbon steel deliveries by the primary steel industry amounted to 7,313 million tons in 2007, a decrease of 4.9% compared with 2006. During 2007, 5,326 million tons of carbon steel products were sold on the local market, representing a slight decrease of only 0.2% compared with 2006. During 2007 1,987 million tons of carbon steel products were exported, a decrease of 15.5%.

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Local sales of primary carbon steel products 1998 to 2008q2

0

100

200

300

400

500

600

700800

900

1000

1100

1200

1300

1400

1500

1600

Quarter

Tonn

es x

100

0

Profile products Flat products

Source: SAISI Figure 19: SA-sales of primary carbon steel products (1998-2008)

The carbon steel products which were exported declined from 2,351 million tons in 2006 to 1,987.2 million tons in 2007. This was a 15.5% decline from 2006 to 2007. The graph below on exports of primary steel carbon products show a declining trend in terms of the steel exported. This is largely attributed to the increased demand locally for primary carbon steel.

Exports of primary carbon steel products 1998 to 2008q2

0

100

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300

400

500

600

700

800

900

1000

1100

1200

Quarter

Tonn

es x

100

0

Profile products Flat products Source: SAISI Figure 20: SA-exports of primary carbon steel products (1998-2008)

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Imports of primary carbon and alloy steel products 1998 to Q2 2008

0

20

40

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120

140

160

180

200

220

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260

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Tonn

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Semis Profile products Flat products

Source: SAISI Figure 21: SA-imports of primary carbon and alloy steel products (1998-2008) Imports of carbon and alloy primary steel products (excluding semis, stainless steel and drawn wire) during 2007 amounted to 481 million tons, a decrease of 9.5% compared with 2006. Imports during 2007 accounted for 8.3% of apparent domestic steel consumption, compared to 9.1% of apparent domestic steel consumption during 2006. The range of primary carbon steel products and semi-finished products manufactured in South Africa includes billets, blooms, slabs, forgings, light-, medium- and heavy sections and bars, reinforcing bar, railway track material, wire rod, seamless tubes, plates, hot- and cold-rolled coils and sheets, electrolytic galvanised coils and sheets, tinplate and pre-painted coils and sheets. Sales of these particular products to industrial groups in the first quarter of 2008 are shown below. The bulk of the sales went to building and construction, which accounted for 26.8%.

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SA sales to industrial groups2008 Quarter 1

Automotive5.5%

Roofing & Cold forming

1.1%

Electrical AppWhite Goods

1.2%

Cables, wire products & gates

13.2%

Hardware, furniture, railroad

8.6%

Fasteners1.5%

Agricultural1.3%

M ining4.2%

Packaging3.8%

Tube & Pipe10.8%

Plate & Sheet metal works

8.9%

Unallocated13.3%

Building & Construction

26.8%

Source: SAISI Figure 22: SA - Sales to industrial groups (2008) The range of primary stainless steel products and semi-finished products manufactured in South Africa includes slabs, plates and hot- and cold-rolled coils and sheets. Apart from the estimated 2 million tons of ferrous-scrap sourced from the market, of which 0,80 million tonnes were imported in 2007, a volume of 0,752 million tonnes of ferrous scrap were exported by metal recyclers. The international markets continue to be volatile and are heavily affected by commodity cycles which influence the price and domestic availability of scrap metal additives which are used in the manufacturing process of carbon steel. 5.1.2 Projected Domestic Availability In line with the previous report, the product types produced by the carbon and stainless steel manufacturers were retained as is. The following product categories were analysed. Carbon Steel Flat Products: • Hot rolled plate in coils and lengths (HRPCL) • Hot rolled sheet in coils and lengths (HRSCL) • Ultra this hot rolled sheet (UTHRS) • Cold rolled sheet (CRS)

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• Hot-dip galvanised sheet (HDGS) Carbon Steel Long Products: • Heavy structural sections (HSS) • Light structural sections including window sections (LSS) • Wire rod (WR) • Reinforcing bar (REBAR) Stainless Steel Flat Products: • Plate • Hot rolled sheet and coil (HRSC) • Cold rolled sheet and coil (CRSC) Projected Availability Category 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Carbon Steel Flat Products HRPCL (kt) 198 246 254 289 353 383 389 397 405 413 421 429 HRSCL(kt) 2,093 2,006 2,660 2,549 2,295 2,543 2,649 2,701 2,755 2,811 2,867 2,924 UTHRS (kt) 120 120 120 120 120 120 120 120 120 120 120 120 UTHRS (kt)[1] 138 150 165 179 187 187 187 187 187 187 TBA TBA CRS (kt) 284 351 458 490 438 573 582 594 605 618 630 643 HDGS (kt) 416 443 456 430 693 766 771 786 802 818 835 851 Total Flat Products 3,112 3,166 3,948 3,878 3,899 4,385 4,510 4,598 4,688 4,779 4,872 4,967 Long Products REBAR (kt) 228 223 340 303 302 464 470 479 489 499 509 519 WR (kt) 650 538 693 738 655 875 770 785 801 817 833 850 LSS (kt) 299 348 362 342 345 346 321 327 334 341 347 354 HSS (kt) 148 157 174 190 210 244 284 289 295 301 307 313 Total Long Products 1,325 1,265 1,569 1,573 1,512 1,929 1,845 1,881 1,919 1,957 1,997 2,037 Total Carbon Steel 4,437 4,432 5,516 5,451 5,411 6,314 6,355 6,480 6,607 6,737 6,869 7,004

Stainless Steel Flat Products HRSC (kt) 19 39 69 69 119 120 120 120 120 120 TBA TBA CRSC (kt) 125 185 235 285 320 320 320 320 320 320 TBA TBA Plate (kt) 85 85 85 85 85 TBA TBA Total Stainless Steel 144 224 304 354 439 525 525 525 525 525 TBA TBA (1) Projections taken as is from the previous report and not included in calculating the total for flat products and total carbon products Source: Arcelor Mittal Steel5, Columbus Steel and Suren Singh6,7 Table 45: Carbon and Stainless Steel projected domestic availability (2007-2018)

5 All data on future projection of carbon steel obtained from Accelor Mittal Steel except the row attributed to the

last report by. Suren Singh (Row on UTHRS which is highlighted) 6 Capegate indicated that the projections were unlikely to differ from those in the previous report 7 Highveld Steel did not have data available and thus are not cited in this report

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Carbon Steel Domestic Availability Flat Products

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Tonn

es x

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HRPCL (kt) HRSCL(kt) Source: Arcelor Mittal Steel SA Figure 23: Carbon Steel Flat Products domestic availability projection (2007 - 2018)

Carbon Steel Domestic Availability Flat Products

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UTHRS (kt) CRS (kt) HDGS (kt) Source: Arcelor Mittal Steel SA, Capegate, Highveld Steel, CISCO, SUEDO IBC Figure 24: Carbon Steel Domestic Flat Products domestic availability projection (2007-2018) The graphs above show that the projected domestic availability of carbon steel flat product inputs to the construction industry, such as hot-dip galvanised sheet, is expected to increase from 443kt in 2008 to 851kt in 2018. The general trend in flat products is that of a significant increase with most of the products more than doubling in domestic availability over the period 2008 to 2018.

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Carobon Steel Domestic Availability Long Products

-

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1,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Tonn

es x

100

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REBAR (kt) WR (kt) LSS (kt) HSS (kt) Source: Arcelor Mittal Steel SA Figure 25: Carbon Steel Long Products domestic availability projection (2007-2018) The graph above shows projected domestic availability of carbon steel long products such as light structural sections and heavy structural sections. All the carbon steel long products are expected to increase over the period 2007 to 2018 in terms of domestic availability. For example heavy structural section will increase from 157kt in 2008 to 313kt in 2018, wire rods will increase from 650kt in 2007 to 850kt in 2018, whilst reinforcing bar will increase from 223kt in 2008 to 513kt in 2018.

Stainless Steel Domestic Availability Flat Products

0

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es x

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HRSC (kt) CRSC (kt) Plate (kt) Source: Columbus Stainless Steel Figure 26: Stainless Steel Flat Products domestic availability projection (2007-2016) Stainless steel domestic availability is also expected to increase from 19kt in 2007 to 120kt in 2016 for hot rolled sheet and coil and from 125kt in 2007 to 320kt in 2016

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for cold rolled sheet and coil. The amount of stainless steel plate will remain unchanged at 85kt from 2012 to 2016 according to projections. 5.1.3 Supply Challenges, Sensitivities, Dependencies and Interventions Capacity constraints The carbon steel industry is currently overwhelmed because of the demand created by the construction and building sectors, therefore they are currently unable to supply the full demand of specific products (such as popular structural sections) to the domestic market. The industry is also investigating production expansion plans, planning capital expenditure and inter-company supply opportunities. Input constraint – scrap metal Some carbon steel producers have identified raw material supply and cost, especially scrap metal pricing and availability to present future production challenges and will influence potential growth. This is due to the limited availability (and shortfall) of inland scrap and the exports of scrap for more favourable international prices. International scrap metal pricing and the exchange rate also influences and determines scrap metal selling prices in the domestic market.8 In an effort to address this challenge, these companies are attempting to secure dependable long term scrap supply, even through alternative sources of iron content through Direct Reduced Iron (DRI), sponge iron and Hot Bricketted Iron (HBI). Over the medium term, investment in DRI processing facilities is also envisaged. Predator Pricing The steel industry has also expressed concerns relating to predator pricing from super sized competitors that pose a continued serious threat. To offset this threat by competitors, companies are attempting to secure and maintain loyal customer bases. Impact of the global financial crisis on steel The developments in the global financial sector have also had an impact on the state of the steel industry. The ‘Engineering News’ article below explains the impact of the financial turmoil on the steel industry. State of economic confusion mirrored perfectly in the steel sector Source: Engineering news; http://www.engineeringnews.co.za/article.php?a_id=144745 Published: 17 Oct 08 - 0:00

The financial-market events of the last couple of months have shaken many market commentators and economists to the core.

They have also raised a number of questions: Why has a crisis associated primarily with a housing bubble in the US

8 Discussions with SAISI indicated that this had not changed since the previous report was written.

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morphed into a global financial meltdown and credit crunch? What does it mean for the South African economy? Is it positive that oil prices are falling, but dragging down the prices of commodities that we sell? What will the credit crunch mean for State-owned enterprises such as Transnet and Eskom, which together need to raise nearly R200-billion over the next few years? What is the correct monetary policy response to possible stagflation?

But there are two high-profile spillovers from the current crisis that have also pleased a number of practitioners in the South African economy. The one is the fall in fuel prices, while the other is the softening of steel prices – both are basic elements in any value-adding or infrastructural activity.

Since September, the steep steel price increases that characterised the first eight months of the year have not only halted, but have now started to retreat. In October, the country’s largest steel producer, ArcelorMittal South Africa, announced its first price reduction for the year, which was swiftly followed by a second, even larger, cut from November.

But Where Is It All Headed?

The overwhelming sentiment – in the steel market, specifically, and mirrored perfectly in the economy more generally – is one of genuine bewilderment. And the state of confusion in the steel market was epitomised in a recent commentary by ArcelorMittal Group CEO Lakshmi Mittal, who, as head of the world’s largest steel producer, should have more visibility than most about the future trajectory of the steel market.

It should not be forgotten that, in July, Mittal was extremely bullish about the prospects for steel. In fact, he even said the world might be facing its first steel shortage in decades because of accelerating demand and a lack of investment.

Speaking to Bloomberg News, Mittal said: “There is short supply; all steel companies are running at full capacity.” He also asserted that the “volatile years of boom and bust” in steel prices have been relegated to the past.

But such stridency had all but disappeared at last week’s gathering of the World Steel Association (previously the International Iron and Steel Institute) in Washington, DC.

Speaking after his appointment as chairperson of the rebranded organisation, Mittal was again quoted by Bloomberg News as saying that the international steel market faced an “unprecedented situation” as a result of the credit crisis.

“What we are seeing on a global basis is a situation which is very unclear,” he explained, adding that steel users were also adopting a “wait and see” approach, using up existing stocks before reordering.

In fact, this very lack of visibility even led to the association taking the unprecedented step of delaying its market forecast for 2009, which would now only be released in April.

Officials said that, owing to “rapidly changing circumstances”, it was impossible to make reliable predictions through 2009.

For his part, Mittal reasserted that the long-term fundamentals of steel demand had not changed and that he hoped that the financial crisis would be short lived. All the association was prepared to add, though, was that 2009 steel demand growth should be “above the world gross domestic product growth rate”.

But some even believe this statement to be overly optimistic, with Nippon Steel chairperson Akio Mimura having been quoted in a subsequent newspaper interview as saying that growth in global steel demand could slow to less than 5% in 2009.

“I would be happy to see even a slight increase in demand in 2009,” Mimura was quoted by the Nikkei business daily as saying. “Five per cent growth may be asking too much,” he added.

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Is Anything Different?

But unlike the situation in previous years, when the industry was so fractured that there was little prospect of a supply-side adjustment to match falling demand, the steel industry is far more consolidated these days.

This could mean that consumers in South Africa and elsewhere might not get the substantial drop in prices that might have been the norm during previous downturns.

Indeed, the outgoing chairperson of the World Steel Association, Ku-Taek Lee, who is also chairperson and CEO of Posco, did his best to lay the ground for such supply-side discipline, warning the industry that over- capacity could return to harm it.

“We should prepare for the risk of a deep recession,” Lee asserted, going on to call for excess to be removed along with “distorting” government subsidies. ArcelorMittal itself has already suggested that it could cut output by 15% globally if needed.

But probably most significant is the news out of China last week that four of its big steelmakers had agreed to cut production by up to 20%.

China Metallurgical Mines Association chairperson Zou Jian told Reuters that the steel companies decided to cut production until steel prices stablised.

All four producers – Shougang Group, Hebei Iron & Steel Group, Anyang Iron & Steel and Shandong Iron & Steel – are State-owned and located in northern China. They have a total capacity of about 100-million tons, almost one-fifth of China’s estimated production this year, which is expected to reach 520-million to 550-million tons.

If such statements result in actual cuts in output, then, perhaps, Mittal’s assertion that the era of boom and bust is over might end up being visionary.

But given that just about every economic commentator got it wrong with regard to the depth and duration of the financial crisis, perhaps, such optimism about the steel market is guided more by hope than information.

Indications from the previous report showed optimism about the continuous increase in the demand for steel in the coming years up to 2018. Projections made available from the steel producers also indicated the same trend. However, we include this data with an element of caution because of the recent events in the global market and because there are no indications as of yet of a sustained construction and building boom after the projects which will end in the next three years. In a publication by ‘Engineering News’ in October there were indications that the global production of steel had fallen in the months of August and September. One also has to state that some of the projections were made in a period where there was a boom in the industry and some of the current events were unforeseen, therefore this has to be taken into consideration. 5.1.5. Impact of Imports Carbon Steel Indications from SAISI are that most of the carbon steel products are not imported in large quantities. Products which are imported in significant quantities as of 2007 were railway track material, representing 52% of domestic availability, and coated

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sheets which represented 23% of domestic availability. The table below shows the breakdown by product of percentages imported as of 2007.

Product PercentageVolume 1000

tonnes 2007

(Source: SARS)

Heavy sections ( > 80mm) 5% 25

Light sections ( < 80mm) 4% 13

Concrete reinforcing bars 1% 7

Other hot-rolled bars 6% 29

Wire rod 0% 0

Railway track material 52% 52

Hot -rolled plate (>= 3mm) 2% 20

Hot-rolled strip, sheet and coil (< 3mm) 7% 91

Cold-rolled strip, coil and sheet, rolled as such 8% 41

Tinmill products 2% 6

Other metal coated sheet and strip 15% 150

Other coated sheet 23% 31

Source: SARS & SAISI Table 46: Imported steel products to South Africa in 2007 in percentage and volume terms Stainless Steel9 Stainless steel flat product imports have grown over the past few years, initially originating from Europe but in 2006 significant increases were seen from China and South East Asia (SEA). This may well contract slightly now with the weaker Rand and the producer’s price policy to maintain prices below import parity levels. Stainless steel long products do not seem to present import concerns relating to South Africa’s requirements, and should circumstances dictate, the local stainless steel producer will be able to facilitate supply through by imports from its affiliates in Spain and the USA. Concerns, however, arise over the imports of manufactured articles and partially completed projects. These seem to be flowing in at subsidised prices from China, India and other SEA countries, and include items such as tubes and pipes etc. 5.1.6. Investment in Capacity Expansion The industry continues to expend capacity with major players investing more capital in new projects. Examples of these investments are that of ArcelorMittal, Steel SA,

9 Indications were that the state in the stainless steel industry had not changed a lot from the time the previous

report was published.

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and Highveld Steel shown below. These are part of the capital expenditure programmes by the steel industry which were noted in the previous report. ArcelorMittal Steel SA ArcelorMittal SA swells capex plans to R11bn by 2011 Source: Engineering News, http://www.engineeringnews.co.za/article.php?a_id=113758 Published: 1 Aug 07 - 15:04

Steel producer ArcelorMittal South Africa has boosted its capital expenditure (capex) to R11-billion, from its initial plans to spend R9-billion between 2005 and 2009, CEO Rick Reato said on Wednesday. The augmented investment plan, which had now been extended over a longer period until 2011, would boost ArcelorMittal SA’s planned liquid-steel capacity of an additional two-million tons a year by 2009, by a further 500 000 t/y to 2,5-million tons a year by 2011. Arcelor Mittal SA’s investment strategy did not only involve the scale up of capex by a further R2 billion, but also a change in content from its initial focus on flat-steel products to allocating more capital to boost its long-products capacity and to increase output on value-added products. Between 2007 and 2011, ArcelorMittal SA would spend in the order of R3,55-billion to increase its liquid-steel output, R815-million on maintaining capacity and R1,9-billion on value-adding projects. To date, it had already spent R3,8-billion of the original R9-billion capex budgeted, of which more than R600-million had been invested in environmental projects.

A further R1-billion would be spent on environmental-related improvement projects over the next five years. The main environmental focus would fall on air quality and ensuring that it was complying with South Africa’s new legislation, he added. But capex beyond the R11-billion might be required, as Reato also announced that ArcelorMittal SA was examining the possibility of building a new blast furnace in Newcastle. This new furnace, which would present the company with an additional one-million tons of steel a year, would be the country’s first new greenfields blast furnace and, and, in fact, the first new greenfields steel project, in decades, albeit on a brownfields site. Reato said that the studies into the new blast furnace at Newcastle were still in initial phases and that he was not prepared to put a price tag on the project. The company was also planning a galvanising lines and paint lines, which would cost between R300-million and R350-million. This would make available an additional 300 000 t/y of galvanised products and 100 000 t/y of colour products. ArcelorMittal SA’s blast furnace D rebuild had been completed and this was expected to add an additional 150 000 t/y to the company’s liquid-steel output, while two DRC kilns would also add an additional 220 000 t/y. Reato explained that the company had adjusted its investment strategy, as the market had considerably changed since it made its previous capex forecast. He said that the domestic market’s steel needs had changed after South Africa won the bid to host the 2010 FIFA World Cup, and that Africa’s accelerated growth was augmenting the continent’s appetite for steel, particularly flat-steel products, as the region’s infrastructure development was rapidly increasing. Sub-Saharan Africa’s current steel demand was above 15-million tons a year, of which South Africa was accounting for some six-million tons a year and Reato said that demand in this region was expected to grow to about 20-million tons a year as a result of infrastructure demands.

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Highveld Steel New Highveld CEO eyeing carbon credit earning cogeneration Source: Engineering news; http://www.engineeringnews.co.za/article.php?a_id=114089 Published: 17 Aug 07 - 0:00

The new CEO of Highveld Steel & Vanadium, Walter Ballandino, stresses that, while capital expenditure (capex) will rise substantially in the coming months and years, initial priority is being given to boosting steel output to the plant’s nameplate of one-million tons a year, rather than to growing volumes. But, given his many years as a steelmaker in environment- sensitive Europe, he is also alive to the fact that steel and energy have become two sides of the same coin. Therefore, beyond capex directed to ensuring full compliance with South Africa’s increasingly stringent air and water quality legislation, Ballandino is already considering ways to turn this necessity to virtue. To achieve this, he is already mulling over an investment into carbon-credit-earning cogeneration opportunities.

Stainless Steel There have been moves towards expanding capacity for stainless steel by the largest producer of stainless steel in South Africa. The investment is in the form of a cold rolling mill as shown in the article below.

5.1.7. Summary and Conclusion The overall PPI increase for the industry was 19.1% and that for basic iron and steel between 08/2007 and 08/2008 was 72.7%. Steel PPI increases between 2007 and 2008 were: Reinforcing Steel (90.1%), Mild Steel Plate (30.8%), Stainless Steel Products, Flat Rolled (-10.8%), Structural Steel Products (77%), Structural Steel, Unworked (59.2%), Galvanised Sheet (34.0%), and Uncoated Sheet (17.6%). Indications from the analysis made show that there was optimism in the steel industry about increase in the demand for carbon and alloy steel in the future. This trend was expected to be driven by the strong demand from the construction and building sectors.

29 JANUARY 2007 Source: Columbus Steel, http://www.columbus.co.za/downloads/ZM4-FINAL.htm Columbus Stainless has announced today the further expansion of its cold rolling capacity. A contract was signed with Sojitz Corporation, Japan, for the installation of a 1 250mm wide cold rolling mill. The mill is specified for thin gauge bright anneal products to fully utilize currently available bright annealing capacity and supply the needs of customers both in South Africa and globally. This second cold rolling expansion, since becoming part of the Acerinox Group in 2002, will increase the Middelburg plant cold rolling capacity to 500 000 tons annually. At the same time, the steelmaking capacity will be increased to 1 million tons per annum without further major investments required. The new mill is expected to commence operation at the end of 2008 and reflects Acerinox’ commitment to the ongoing investment programme at its South African operation.

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The financial turmoil caused by the global recession is beginning to have some impact on the steel industry. It is difficult to ascertain the full impact on the industry at the present moment but indications show that the impact could be felt for some time. The increased demand for steel in the local industry led to an expectation of a rise in imports. The level of exports has declined over the past year or so because of increased demand locally. Plans to increase capacity have been announced by many of the players, all in an effort to accommodate the burgeoning demand. However, the drastic decline in demand in the global economy may lead to reduced imports and lower domestic levels of supply. Projected demand for the carbon steel long products and carbon steel flat products was expected to increase over the period 2007 to 2018 in terms of domestic availability. For example for long products, heavy structural section was expected to increase from 157kt in 2008 to 313kt in 2018 and wire rods to increase from 650kt in 2007 to 850kt in 2018. Demand for reinforcing bar was expected to increase from 223kt in 2008 to 513kt in 2018. For carbon steel flat products, hot-dip galvanised sheet demand was expected to increase from 443kt in 2008 to 851kt in 2018. Stainless steel projected domestic availability was also expected to increase from 19kt in 2007 to 120kt in 2016 for hot rolled sheet and coil and from 125kt in 2007 to 320kt in 2016 for cold rolled sheet and coil. In conclusion, the rapid change in demand for steel internationally and the possible impact of the global financial crisis on South Africa has caused huge uncertainty in domestic steel markets. The expectations reported here were based on figures reported by the industry before they started reducing supply in response to the global downturn caused by the global financial crisis.

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5.2 Aluminium The information presented in this section was done in consultation with the Aluminium Federation of South Africa (AFSA), who in turn consulted some of their members, including BHP Billiton, for some of the data. AFSA’s members account for 99% of primary flat products and 98% of extruded products. The capital intensive nature of the product and also the fact that South Africa’s market for aluminium is very small compared to the rest of the world, explain why there are very few players in the industry. The PPI increase for all products between September 2007 and September 2008 was 16% which was higher than that for most aluminium categories which were as follows: Extruded products (10.4%), Sheeting (16.4%) and basic forms (12.7%). This means only sheeting was almost on par with the overall PPI. South Africa currently has two primary smelters situated in Richards Bay, both owned by BHP Billiton. They both provide the alloys necessary for the production of a wide range of products across different sectors. The South African smelters and four smaller smelters in Mozambique ensure that South Africa is assured of adequate availability of various aluminium products. In addition to the primary smelters, aluminium extruders are also very important to the industry. Extruders supply various industries, including the building and manufacturing industries, with various inputs and components. There are four key players in this subsector. Hulett-Hydro Extrusions is the largest manufacturer and supplies almost every sector. Other major producers are WISPECO, AGI Aluminium and Lafarge Gypsum. 5.2.1 Demand for Aluminium Local demand for extruded products has increased by about 14% over the last five years. Growth in demand has been similar for both the private and public sectors. Only 2.8% of extruded products is being exported. 5.2.2 Domestic Availability In general, South Africa is considered self-sufficient with regard to aluminium products. Very few types of aluminium products are imported. Specific dimensions aluminium products that cannot be produced locally are imported. Other imports are usually for the production of special components. About 71% of South Africa’s current total output is exported. The new smelter plant to be built at Coega will further increase total domestic output.

Product

Details 2003 2004 2005 2006 2007 2008

Value 2700 2800 3600 4700 5700 6600 Flat products

Volume 130000 144000 173000 183000 193000 195000

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Value TBA TBA TBA TBA TBA TBA Redraw10 rod

Volume TBA TBA TBA TBA TBA TBA

Value 836 889 979 1364 1662 1806 Extruded products Volume 32800 36600 40300 46700 50200 50300

Source: AFSA Table 47: Domestic Aluminium output (2003-2008) The table above shows that local production of aluminium increased steadily across the years for all the categories except for redraw rod which has remained constant. Extruded products’ increase in output was the slowest, reinforcing the fact that extruders increase output if there is demand for it. The demand for extruded products increased slowly as the economy grew, boosted by a middle class. The past five years saw the expansion in capacity for both flat products and extruded products production. Flat products increased the capacity of existing plants by 20,000 tons and also invested in the building of new plants by about 50,000 tons. Extruded product producers also increased capacity by expanding the capacity of existing plants by 5,000 tons and built new plants to the tune of 15,000 tons. 5.2.3 Future capacity The local extruders are currently operating at about 62% of capacity, meaning there is still plenty of room for an increase in output if necessary. Also, the value of imports is becoming increasingly visible which is slowly becoming a problem to some of the manufacturers. Primary flat product producers are currently at 90% of capacity.

Product

Details 2009 2010 2011 2012 2013

Value 7800 8700 9100 9500 10000

Flat products

Volume 210000 235000 245000 255000 270000

Value TBA TBA TBA TBA TBA

Redraw rod

Volume TBA TBA TBA TBA TBA

Value 1132 1196 1266 1341 1421 Extruded

products Volume 51200 54100 57300 60700 64300

Source: AFSA Table 48: Estimated Aluminium Projextions (2009-2013) The industry predictions show that output will continue to increase for the different categories with the growth in the production of extruded products expected to keep lagging behind that of flat products. Although a huge part of what is produced locally is exported, it is safe to think that there will be enough metal for local consumption in the future. 10 AFSA was unable to provide us with figures for redraw rod at the time of writing this report.

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It is expected that the capacity of aluminium production will increase significantly in the near future. Flat products producers expect to increase the capacity of existing plants by about 10,000 tons and construct new plants which will be able to produce a further 80,000 tons. Extruders also expect that the capacity of existing plants will be increased to 20,000 tons while new plants will be built to increase capacity by about 6,000. It seems rather surprising though that extruders are planning to increase capacity while they are only operating at 62% of capacity. There has been a rapid increase in extruded products being imported, mainly from China, and concerns have been raised with the DTI and ITAC. However, the casting industry has contracted out by some 40%. This resulted from a combination of the free trade (as distinct from fair trade) government policies and the world shortage of scrap. We are pleased that the foundry industry’s systematic approach to the DTI has resulted in the DTI encouraging the development of what is now the NFTN initiative to support the industry. The reduction in the casting industry was largely caused by the export of locally generated scrap. Again, our members and Associations have lobbied government to introduce an export duty, and we trust that some action will be forthcoming. 5.2.4 The cost of aluminium Although South Africa has enough aluminium to supply the local market, it is still expensive because the price is set by foreign markets. The following variables also affect the price of aluminium and will generally move towards the direction that their prices go. The industry feels that the price of raw materials is the lowest among all the inputs that impact the price of aluminium. The price of aluminium has increased just 5% this year, which is considerably lower than the current prevailing inflation rate. Wages have also increased by a moderate rate of 8% which is also lower than the rate most other industries experienced this year. However, with the problem of skills shortages deepening, it is believed that the increase in salaries will be bigger in the near future 5.2.5 Challenges facing the industry and possible solutions Energy supply and cost Power outages, which started in January 2008, although not unpredicted, were a major shock to South Africa’s economy. While the initial impact of the power outages have been seen (reduced output by the mining and other industries) and measured, the longer term effects are yet to materialise. Production at the BHP Billiton smelters was reduced by 10% as required by government and subsequently two pot lines of the bayside smelter have been shut down. In the face of uncertain supply and the already announced price increases, Rio Tinto-Alcan has delayed the construction of their smelter at Coega. Similarly it has to be questioned whether BHP Billiton will invest further in South Africa. They are known to be looking at projects in the DRC. Postponement or cancellation of such major investments in the South African economy holds serious consequences for our industrial and socio-economic development.

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Investors in South Africa should be welcomed, and encouraged to install and commission new plants. They bring with them opportunities for development, training, employment (bear in mind the downstream and peripheral development and job creation), and value adding and export earnings. Applications – Architecture and Construction have shown strong growth, but it has slowed in the 2nd half of 2008. Transport Costs Transport and logistics availability is a big problem for the industry as the product is very space consuming. This means specialised transportation and storage provides a challenge in the industry. Road transportation is fast becoming the dominant mode of moving goods, which thus limits the potential to move the products quickly. Also, it is still a problem to transport products to certain parts of the country that still do not have sophisticated road networks. Transport costs have not posed a serious problem to industry participants as the increase in costs of transportation this year has only been 8%.

5.3 Cement This sub-section contains information provided by responses from the Association of Cementitious Material Producers (ACMP) to a questionnaire and various publications on the cement industry in South Africa. 5.3.1 Overview of Cement Industry Cement Demand In 2006, 14.2 million tons of cement were sold. This was a new record reached in cement sales representing a 6.6% increase in demand. Since that time the demands of accelerated economic growth and rising expenditure on infrastructure in the country have put surmounting pressure on the industry. All South Africa’s major cement producers have begun importing cement to meet the increasing demand because of a local shortage of production capacity. The South African Government’s R400 billion-plus infrastructure spending, which included stadium development for the 2010 World Cup, transport investment, increased power-generation capacity and over R20 billion for the Gautrain project, pushed the rate of economic growth and cement demand into an unprecedented high not experienced in the past two decades. The growth in cement demand in the region, including Botswana, Lesotho, Namibia and Swaziland, is projected to remain positive until at least 2015. The local demand grew in volume to 55% in the past five years while exports of cement (including to Botswana, Lesotho, Swaziland and Namibia) are considered negligible but decreased by 8.6%. In spite of a downturn in the number of building projects due to the interest rate hike, cement demand remains high and will continue to increase as a number of

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infrastructure constructions are underway until 2014. This situation continues to inspire new plants and the expansion of existing ones. Cement Capacity The actual annual capacity of cement production is 15.5 tons and the industry is operating at full capacity according to the ACMP. Over the past five years, the industry expanded the capacity of existing plants in terms of annual volume produced, including 89kt for Dufield Kiln 2 and 620kt for Dufield Kiln 3 and 30kt for Ulco Kiln 5. A new plant, Brownfield, added a volume capacity of 1.6mt per year to the industry at a cost of R2 billion. The industry is anticipating an investment in a new plant with capacity of 3.9mt/year for the next five years. The volume of national consumption currently imported is estimated at 9.2% - a volume of 1.424mt imported while the exports are only 1.4% including those to Botswana, Lesotho, Namibia and Swaziland. In August 2007 an Egyptian investment in a new cement production plant was announced for an estimated cost of R3.2 billion. The production capacity is projected to be 2mt per year from 2010. A Nigerian firm and its local partner are planning a 2.2 million ton a year cement plant valued at R3 billion, as additional capacity is needed in the industry. The cement plant construction is planned to start in January 2009. The shortage of cement in the region is estimated at 5mt per year. Cement demand is forecasted to increase from about 11.5 million tons in 2007 to 24 million tons in 2014. The capacity of the industry must increase sensibly to satisfy the increasing demand pushing the cement industry. Government’s infrastructure expenditure and a sound macro-economic environment will continue encouraging investment in commercial and residential infrastructure which, in turn, will continue impacting on the demand for cement. A feasibility study suggests that the establishment of a new plant – from start to actual production of cement – takes up to five years.

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Source: ACMP Figure 27: Annual Cement Production Assuming that infrastructure investment by Government and the private sector remains on the rise, the projections are represented in the table below. Year 2008 2009 2010 2011 2012 2013 2015 2016 Volume (in Millions of Tons) 15.5 18.4 20.8 21.4 25.4 Possible additional 4mt

capacity

Source: ACMP and previous report Table 49: Annual projected cement production

Projected availability of cement in milliom of tons

0

5

10

15

20

25

30

2008 2009 2010 2011 2012

Source: ACMP and previous report Figure 28: Projected availability of Cement

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5.3.2 Challenges and Sensitivities in the Industry The main challenge confronting the cement industry is the availability of capacity in terms of people and skills. The electricity shortage negatively affects the industry as do escalating costs of raw materials and transport. Cement, by nature, is heavyweight material and it is generally transported by rail. However, the rail transport system is inefficient and the use of roads renders the cost of transportation extremely expensive as well as adding a strain on road infrastructure. Importation of cement is a very involved operation with long lead times and supply lines. The supplier position has influence on the cost, which differs from region to region. In the long-term, Spoornet has an important role to play in the ability of the cement industry to move product from the coast to the inland regions. Sustainability of growth post 2010 makes the financing of new capacity projects a complex issue. Indication from the CMA shows that cement demand will remain positive beyond 2015. 5.3.3 Conclusion Since 2006, when demand for cement rose by 6.6%, accelerated economic growth and rising expenditure on infrastructure in the country have all put pressure on the cement industry. All of South Africa’s major cement producers have begun importing cement to meet the increasing demand because of a local shortage of production capacity. The actual annual capacity of cement production is 15.5 tons and the industry is operating at full capacity according to the ACMP. Over the past five years, the industry expanded the capacity of existing plants in terms of annual volume produced to an additional 2.3mt/year. The industry is anticipating investment in new plant capacity of 3.9mt/year for the next five years. Cement demand is forecasted to increase from about 11.5 million tons in 2007 to 24 million tons in 2014. The industry has identified multiple challenges including skills and electricity shortages and rising input and transportation costs.

5.4 Concrete Products The content of this sub section was made possible from an interview questionnaire with the Concrete Manufacturers Association (CMA). 5.4.1 Overview of the concrete products industry Concrete products are currently under high demand with infrastructure construction stimulated by an economical growth of 6%, 2010 World Cup preparation, Gautrain and significant housing developments. It is estimated that 50% of infrastructure inputs is consumed in Gauteng, followed by the Western Cape and KwaZulu Natal.

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The national estimated production capacities for each sub-product are indicated below:

Concrete Product Unit National Production Capacity

Actual Operating Capacity

Paving millions m2 17.14

60%

Retaining Blocks millions m2 0.594

80%

Masonry millions BEQ’s 350

70%

Roof Tiles million 94.12

70%

Floor slabs millions m2 1.74

70%

Concrete Pipes and Culverts million tons 0.653

80%

Infrastructure Products million tons 0.385

no figure available

Source: CMA Table 50: National production and volume actual operating capacity Graphically it can be reflected as follows:

Source: CMA Figure 29: Current operating capacity - Concrete Products The CMA estimates a progressive growth from 5% to 10% in concrete products production between 2009 and 2011, and then a decline will be observed. The data received shows a projection until 2013. Volume\Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Paving (millions m2) 6.4 7.8 10 11.6 12 11 11.55 12.47 13.72 13.72 13.04

Retaining Blocks (millions m2) 0.24 0.265 0.321 0.365 0.475 0.530 0.56 0.60 0.66 0.66 0.63

Masonry ( millions BEQ’s) 37 40 41 36 35 28 29.40 31.75 34.93 34.93 33.18

Roof Tiles (million) 88 126 166 175 180 150 157.50 170.10 187.11 187.11 177.75

Floor slabs (millions m2) 0.680 0.720 0.825 0.820 0.870 0.870 0.91 0.99 1.09 1.09 1.03

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Concrete Pipes and Culverts (million tons) 0.362 0.398 0.411 0.416 0.490 0.567 0.60 0.64 0.71 0.71 0.67

Infrastructure Products (million tons) 0.385 0.419 0.457 0..457 0.457 0.457 0.457 0.457 0.457 0.457 0.457

Source: CMA Table 51: Concrete products availability and projections The projection in graph form of Retaining Blocks, Floor Slabs, Concrete Pipes and Infrastructure products reflect the growth follow by a decline in their production.

Concrete Products Availability

0

0.2

0.4

0.6

0.8

1

1.2

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Retaining Blocks in m sq m(lrs) Floor Slabs in m sq m (lhs)

Concrete Pipes in mt (rhs) Infrastructure Products in mt (rhs)

Source: CMA Figure 30: Availability projection of Concrete Products 5.4.2 Import and export The national consumption of concrete products is locally produced as the weight could not allow cost efficiency if imported and a very small volume is exported to the neighbouring SADEC countries. Botswana, Lesotho, Namibia and Swaziland take almost the totality of export representing 1% of the national production. 5.4.3 Challenges and sensitivities The major challenge of the industry is the availability of the raw materials, namely cement and aggregates. Despite expansion in capacity of cement production, raw material shortage is still a challenge to the industry. Almost all raw materials are locally sourced, apart from some cement which is being imported to meet the demand. The risk level for investing into the industry is relatively low. In a situation of market decline for a long period, the risk over supply situation exists. The industry

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technically improves with new automated machinery to increase productivity. Those improvements are more capital than labour intensive and are therefore not a large scale job opportunity.

5.5 Ready-mix Concrete This sub-section contains information provided by responses of the South African Ready-mix Association (SARMA) to a questionnaire. SARMA is a voluntary, non profit body that is committed to making Ready-mix concrete the construction material of choice. The member companies of SARMA account for more than 70% of the total South African Ready-mix market estimated at 6.5 million m3 in 2005 and 9.27 million m3 of concrete in 2007. 5.5.1 Overview of the Ready-mix Concrete Manufacturing Industry For many years, Ready-mix Concrete has manifested slow growth and limited access to the concrete market. In the past five years, the industry has achieved unprecedented growth averaging 10% of the volume of annual production due to expansion in existing plants and 30% of volume of annual production due to new plants in the industry. In 2006, an estimated five new Ready-mix companies entered the market and the existing companies introduced an additional thirty new plants. Transportation for Ready-mix concrete in South Africa is mostly organised via the standard 6m3 double axle trucks and in smaller amounts in 8m3.

Source: SARMA Figure 31: Ready-mix Producer Cost Index

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In 2008, it can be observed that the PCI decreased in February and then kept a slow, steady growth from June to August. Period RM PCI

Jan-08 11.8%

Feb-08 9.7%

Mar-08 10.7%

Apr-08 12.0%

May-08 13.3%

Jun-08 13.7%

Jul-08 14.0%

Aug-08 14.9%

Source: SARMA Table 52: Ready mix PCI 2008 period 5.5.2 Projection of Domestic Availability As reported in “Draft Research Report for Infrastructure Inputs Sector Strategy”, published on the 15th May 2007, the projected domestic availability of the Ready-mix channel was derived from accurate cementitious historical sales data as compiled by the cement and concrete institute (C&CI) in conjunction with a conversion factor of 0.29, from cementitious to Ready-mix (Kg/m3), as assumed by SARMA. The national Ready-mix industry is currently operating at the following production capacity (figures are estimated as at October 2008): Product Percentage

Fleet Size (carrier units) 60%

Number of transport Operators (SARMA members) 60%

Combined Ready-mixed 85% Source: SARMA Table 53: Ready mix production capacity Fleet size is estimated using conversion of 5,000m3 per truck and per year. The number of transport operators is estimated assuming an average fleet size of 10 trucks per operator. The annual expected domestic availably for Ready-mix and transport logistic service is as follows:

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Combined fleet size (carrier units) 853 1027 1272 1557 1854 186 1900 2034 2166 2283 N/A

Number of operators (SARMA members) 85 103 127 156 185 187 190 203 217 228 N/A

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Combined (Ready-mix) Capacity (Milm3) 4.267 5.133 6.360 7.784 9.268 9.332 9.505 10.172 10.833 11.417 N/A

Source: SARMA Table 54: Ready mix national outputs and projections

Combined Ready-mix Volume of Annual Productions (in million of meter cubes)

02468

1012

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Capacity

Source: SARMA Figure 32: Combined Ready-mix production volume

Combined Fleet Size (in carrier units)

0

500

1000

1500

2000

2500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Carrier Units

Source: SARMA Figure 33: Combined fleet size units

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Number of Transport Operators (SARMA members)

0

50

100

150

200

250

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

No. Operators

Source: SARMA Figure 34: Annual number of transport operators Annual average growth of 1.5% is expected in the Ready-mix industry between 2007 and 2009 and 7.0% between 2009 and 2012. Beyond 2012, data was not available for analysis. The association projects an investment in expansion of existing plants volume of production of 5% and in new plant volume of production of 10% over the next five years. 5.5.3 Challenges and sensitivities Access to raw materials in the industry remains a challenge. Limited availability of cement, extenders (fly ash and slagment) and aggregate continue to slow down performance and growth in the industry. In the short-term, it is suggested that cement be imported on a regular basis; and in the long-term, the additional capacity for cement production should be put on the stream and new plants should be constructed. These measures should aid in stabilising the industry. The opportunistic nature of the industry increases the number of new entrants that focus on quick returns, while eventually compromising quality, safety and environment standards. Thus, the industry will require careful quality control when appointing a concrete supply. Road congestion is a challenge to the urban market. The distribution fleets become less efficient and are an additional strain on the roads. Urban road expansion and improved public transportation system efficiency can reduce the extent of congestion. Night delivery for 24 hour construction sites could assist in reducing the impact of this constraint.

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Ready-mix plants are generally mechanised, making job creation in the sector very low. However in transport, drivers are regularly needed. 5.5.4 Investment Plants cost on average R50 per m3 of the annual production capacity, making investment in plants in the range of R50 million per year with an implementation timeframe between 6 and 12 months. Logistics costs are typically R160 per m3 of annual production capacity and investment in distribution fleets is expected to be in the range of R160 million. The highest risk to future investment is the historic cyclical nature of the construction industry. Massive investment in the construction industry is not permanent; the market will reach its downfall point at a certain time, resulting in excess capacity in the Ready-mix industry. 5.5.5 Conclusion In the past five years, the ready-mix concrete industry has achieved unprecedented growth averaging 17% annually. In 2006, an estimated five new ready-mix companies entered the market and the existing companies introduced an additional thirty new plants. Annual average growth of 6.2% is expected in the ready-mix industry between 2007 and 2011 and 7.6% between 2012 and 2016. The industry identifies access to raw materials, including cement, as a major challenge. A second problem is congested roads and general transportation-related inefficiencies.

5.6 Clay Bricks This sub-section contains information provided by responses of the Clay Brick Association (CBA) to a survey and interview. 5.6.1 Overview of the Clay Brick Manufacturing Industry The current shortage of cement and the pressure due to limited availability of concrete products, particularly concrete blocks, constitute an opportunity for the clay brick industry as architects are opting to use clay bricks in their design for supply security reasons. The demand for clay bricks remains a challenge in the construction industry but the industry is managing to cope as purchasers are encouraged to plan upswing demand projection with producers in the area.

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The local market is growing for the clay brick industry. However, it is noted that low cost housing projects do not use a sufficient quantity of clay bricks although the use could prove to be cost effective. Annual production of clay bricks amounts to 5,420 Million Bricks Equivalent (MBQ) and the industry is operating at 80% of its full capacity. Export and import in clay bricks are very negligible. Over the past five years, the raw material cost escalated between 20 and 40% and transport between 40 and 60%, becoming a challenge to the industry. 5.6.2 Projected Domestic Availability In the past five years, the industry directed 50% of its investment into establishing new plants compared with 15% into expanding existing plants. According to the CMA projections for the next five years, the industry investment may increase up to 50% in the expansion of existing plants while 15% investment will be directed towards building new plants. Demand grew in volume by 65% while exports remain negligible. The private sector increased its demand by 86% while the public sector decreased its demand by 5%. Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Value (in R Million) 2,756 3,046 3,686 4,112 4,488 4,607 4,606 4,574 4,585 4,792 4,915 Volume (in Million BEQ) 2,429 2,685 3,249 3,625 3,956 3,844 3,611 3,481 3,502 3,650 3,597 Source: CMA Table 55: Clay Bricks production and projection

Supplier Production / projections

0

1000

2000

3000

4000

5000

6000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Value (in R Million) volume (in Million BEQ)

Source: CMA Figure 35: Clay Brick Local Availability Projections 5.6.3 Challenges and Sensitivities in the Industry Transport costs have been increasing and the use of roads for delivery contributes to congested roadways. Road infrastructure improvement and night delivery could ease

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the congestion situation. The use of railway may be a viable alternative but efficiency must be improved. Coal exports have caused a shortage in local coal supply resulting in escalating brick prices. The industry has indicated that construction of new plants cannot occur in line with anticipated economic growth. Construction of a new clay brick plant is subject to the requirements of the Department of Minerals and Energy. It can take up to three years for an environment impact assessment to be completed and the necessary approval by the Department obtained. There is a need to speed up the process before opportunities are lost while not compromising accepted environmental standards. An estimated average of four new plants per year will be needed to satisfy increased demand. 5.6.4 Conclusion Annual production of clay bricks amounts to 5,420 Million Bricks Equivalent (MBQ) and the industry is operating at 80% of its full capacity. In the past five years, the industry directed 50% of its investment into establishing new plants compared with 15% into expanding existing plants. The private sector increased demand by 86% while the public sector decreased demand by 5%. In sum, demand grew by 65% while exports remained negligible. The industry identifies the cost of raw materials and transportation as major challenges. Over the past five years, raw materials costs escalated between 20 and 40% and transport costs rose by 40 to 60%.

5.7 Timber Material in this section has been derived from consultations with Forestry South Africa (FSA) and Crickmay and Associates. We focus on softwood (pine) sawlogs, which are converted into sawn lumber by sawmills. The year on year PPI increase from August 2007 to August 2008 was 19.1%, with Timber’s PPI increasing to10.4% between 2006 and 2007. 11 The data presented in this section of the report is similar to that of the last report. The latest data from Crickmay and Associates will be available in early 2009. 5.7.1 Overview of the Timber Industry South Africa’s sawmilling industry relies on timber from intensively managed plantations of alien pines and eucalypts. Growing conditions are favourable and the country’s sawlog plantations produce high quality raw material. The sawn timber is used for a variety of purposes, but the national consumption in South Africa is very 11 According to Stats SA

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low at approximately 46m³ per 1,000 people per annum compared with 421m³ in the USA, 548 m³ in New Zealand and 136 m³ in South Korea. The total commercial timber plantation area in 2006/2007 was 1,266,196 hectares, compared to 1,281,519 hectares in 2005/2006. Private sector ownership accounts for 83% (76%) of the total plantation area. Softwood species cover 53% (54%) of the area and hardwood species cover 47% (46%). Statistics show that 55% (53%) of the plantation area is managed mainly for pulpwood production, 36% (38%) for sawlog purposes and 5% (6%) for mining timber with the remaining 3% (3%) for other purposes.12 During the 2006/2007 year 10,761,549 tons (12,046,402 tons) were sold as pulpwood, 5,373,608m³ (5,778,023m³) as sawlogs and 516,478 tons (634,592 tons) as mining timber. The conversion from forestry to other agricultural use was 8,297 hectares (958ha), whilst new afforestation amounted to 2,197 hectares (2,635ha).13 Because of poorly managed outsourcing of forestry operations, combined with a recent surge in demand for sawn timber and therefore sawlogs, there is concern about the ability of the resource to meet the expected demands. Historical market for softwood sawn lumber The total volume of sawn timber sold over the past ten years is summarised as follows:

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

(Units-000 m³)

Formal 1,131 1,151 1,170 1,188 1,543 1,624 1,809 1,942 1,784 1,739

Informal 300 653 653 653 708 840 808 752 673 673

Zimbabwe 68 72 72 72 85 85 100 116 70 85

TOTAL 1,499 1,876 1,895 1,913 2,336 2,549 2,717 2,810 2,527 2,497

Source: Crickmay and Associates, FSA Table 56: Sawn timber sales per annum (1994-2003) Sawn timber sales have increased by 67% over the last 10 years with an average annual growth rate of 5.3%. 5.7.2 30-year sawlog demand forecast The following factors were taken into account in forecasting market growth of sawn timber over the next 30 years:

• The building industry is absorbing more sawn timber than ever before, but it is questionable whether this level of building activity can be sustained;

12 Percentages in brackets are for the year 2005/2006 13 Information according to the Department of Water Affairs and Forestry.

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• The price of sawlogs in South Africa is likely to rise in keeping with log prices elsewhere in the world and could rise even faster as a result of shortages. This may make sawn timber and remanufactured products less competitive on international markets and thereby restrict demand;

• Sawn timber prices will be contained relative to competing materials e.g. plastic, fibreglass and steel.

In addition the following assumptions have been made:

• The market forecast excludes Zimbabwe, but includes Swaziland; • Peeler log demand escalates at the same rate as sawn timber; • Export of logs ceases with immediate effect; • Swaziland has been responsible for delivering 41,000m³ per annum, but this

will be reduced to 15,000m³ from 2008. The demand for sawlogs has been calculated, working back from the projected demand for lumber. An increase in recovery in sawmills has been built into this calculation - it should result from technological improvements and increased productivity in the future. Currently sawmill recoveries stand at 47% of the roundlog; in the forecast, this has been increased over the period to 51%.

Year Lumber Demand (‘000 m³)

Recovery (%)

Roundlog Equivalent (‘000 m³)

Peeler logs (‘000

m³)

TOTAL Required (‘000 m³)

2004 1 2,350 47 5,000 250 5,250

2005 2 2,415 47 5,138 257 5,394

2006 3 2,481 47 5,279 264 5,543

2014 11 3,038 49 6,199 323 6,522

2024 21 3,888 51 7,624 414 8,038

2033 30 4,856 51 9,522 517 10,038

Source: Crickmay and Associates, FSA Table 57: Projected demand for sawlogs (2004-2033) The table above shows that in 2033 the estimated demand for lumber will have risen to 10,038 thousand m³ sawlogs per annum. The discrepancy between the estimated demand in 2006 for Roundlog Equivalent which was 5,138 thousand m³, compared to the actual 5,116 thousand m³14, is not significant. One, however, notes that there is an expected substantial increase in demand in the coming years up to 2033.

14 According to FSA

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315382

145874

130305

27229

3308

199574

341092

24774

20367

57789

0 50000 100000 150000 200000 250000 300000 350000 400000

Mpumalanga

KZN

E. Cape

Limpopo

W. Cape

Hectares

Hardwood Softwood Source: Forestry South Africa (FSA) Figure 36: Planted land for softwood and hardwood for 2007 The total softwood planted area as of 2007 was 677,079 hectares and that of hardwood was 589,115 hectares15. FSA estimates that 9 million m³ of softwood and 11.3 million m³ of hardwood were produced from this land.

Year Demand ("000 m³)

Supply ('000 m³)

Annual Shortage ('000 m³)

Percentage Shortage

Accumulated Shortage ('000 m³)

2006 5,543 3,743 1,800 32% 5,017

2007 5,695 4,196 1,498 26% 6,516

2008 5,852 4,836 1,015 17% 7,531

2009 5,879 5,112 766 13% 8,298

2010 6,026 5,269 756 13% 9,054

2014 6,522 4,688 1,833 28% 14,657

2020 7,420 7,062 357 5% 21,559

2024 8,038 6,589 1,448 18% 29,085

2028 8,873 4,875 3,997 45% 40,977

2033 10,038 4,708 5,329 53% 65,239

Source: Crickmay and Associates Table 58: Projected supply and demand for sawlogs (2006-2033) 15 Statistics from Forestry South Africa

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Timber (Sawlogs) Domestic Availability Projections

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2006 2010 2014 2020 2024 2028 2033

Thou

sand

cub

ic m

eter

s

Demand ("000m) Supply ('000m) Accumulated Shortage ('000m)

Source: Crickmay and Associates Figure 37: Sawlogs domestic availability projections (2004-2033) The table above shows that, if the area planted and its yields remain stable, sawlog demand will outstrip supply; the accumulated shortage may escalate into alarming figures. As an example, in 2033 the accumulated shortage would be 65,239 thousand m³. 5.7.3 Supply Challenges, Sensitivities, Dependences and possible

Interventions Parts of this section remain unchanged and therefore information was taken from the first report. Forestry South Africa states that the country’s GDP growth is maintaining momentum in the timber industry which was experiencing a growth of circa 5%. Growth in the industry is accompanied by an increase in employment in the sector. Forestry growth is linked to a number of large projects currently underway, for example 2010-related construction and the public infrastructure investments by Government. According to FSA, resource stocks and commodity prices have been increasing and foreign capital inflows remain high. Constraints on the timber industry include:

• An increasing interest rate cycle (rest of world in decreasing cycle) • Ballooning current account deficit

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• Increasing oil prices • Slow down in retail and manufacturing activity locally • Fall-out from “sub-prime” crisis in the US and consequent threat of recession

in major markets Major challenges facing the industry are:

• Poor management of contractors by large grower-processors • Poor working conditions in the sector leading to low productivity / high

accident rates (though often under-reported) • Pests and diseases threat • Fires that damage plantations have a serious economic, environmental and

social impact • Mechanisation vs. Labour debate • Low level of skills • Increasing cost of doing business due to poor contractor management and

rising input costs • Possible land claims

Because of the above-listed challenges and constraints, there is going to be a decline in the supply of timber. Below are the estimated losses (by FSA) in terms of hectares due to the different challenges. DWAF Policy Losses 17 700 ha in total

• Delineation policy • Illegal afforestation policy • SAFCOL excision policy

Forest Protection Losses 20 000 ha p.a. Land Claim Losses? 260 000 ha In order to avert these losses measures have been taken by various stakeholders in the industry. These include:

• An injection of R5m per year by government to help reduce the threat of diseases and pests

• Funding of research on other problematic pests and diseases by the industry and putting the Sirex Control Programme in place.

• The recognition by Government that most land reform schemes have failed, the main reason being the lack of post-settlement support:

o Launch of new Settlement and Implementation Support Strategy • In the Forestry Transformation Charter, some commitments have been made

by Government and Industry regarding: o Restructuring of State Forest Assets o Access to funding and fire insurance for new growers o Provision of meaningful post-settlement support o Assisting in strengthening skills development in the Sector

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None of these, however, address the crucial problem of the relationship between contractors and forest owners. An essential shortcoming remains that Government continues to view large processing companies as “the forestry sector”, while the latter is actually mainly made up of small and medium contractors, whose voice is seldom heard. Addressing their issues may have a decisive impact on productivity and production, as well as on rural poverty – if workers conditions are also taken into account. Historical afforestation trends Over the ten-year period 1992 to 2002 the annual sawlog planting rate averaged 2,352 hectares, a quarter of the rate required according to FSA. More disturbing is the fact that over the five-year period 1998 to 2002, the rate was 1000 hectares/p.a. This indicates a declining trend, reflecting environmental regulations and previous over-planting. Land availability The only areas available for meaningful forestry development are the Eastern Cape and to a lesser extent KwaZulu Natal. Mapping and environmental screening exercises indicate that only an additional 200,000 hectares could be planted. This is lower than what is required for sawlogs if current yields and productivity levels are maintained. Competitive challenges The situation with regard to the supply of logs for other purposes (e.g. pulp and paper, mining timber and poles) is no less problematic than that for sawlogs. The FSA has calculated that to meet the demand for these products as well as sawlogs, the area that needs to be afforested (at current productivity levels) is in excess of 700,000 hectares. This competitive situation in most instances would favour the planting of non-sawlog crops, particularly pulp logs, as these are grown on short rotations of seven to ten years, as opposed to 28 - 30 years for sawlogs. This means a quicker return on investment and a greater ability to fund activities in the periods before harvesting (i.e. cash flow and interest repayments), and in most instances allows pulp and paper companies to fund ventures. This is of particular importance as the areas still available for planting are almost exclusively in communally owned areas and would therefore have to be planted by communities who need support to plant and manage tree crops. Pulp and paper companies already support schemes in place to encourage plantings whereas sawmilling companies do not because of the long investment periods. As it stands therefore, most of the available land is likely to be planted with short term crops, which will further compound the problems in meeting sawlog demand. Financing Financing of long rotation crops is a major problem and studies undertaken show that the only way to encourage sawlog production is through grants or subsidised

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interest schemes. There are currently no such schemes on offer. This has lead to most sawlog plantations worldwide having been developed by Governments. Currently in South Africa the Government, which has up to now has been the major producer of sawlogs, is divesting itself from these activities. Given the afforestation investment challenges involved, the FSA has indicated that it is extremely unlikely that new sawlog afforestation could be achieved in the magnitude required, and accordingly that sawlog and/or sawn timber imports are inevitable to meet escalating demand. 5.7.4 Summary and Conclusion The PPI for timber (forestry) increased by 10.4% 16 from 2006 to 2007. South Africa had a total area of 677,079 hectares under softwood plantation as of 2007. The 2033 estimate for demand for sawlogs is estimated to rise to 10,038 thousand m³ sawlogs per annum. The estimated annual shortage because of the increasing demand for sawlogs will be 38% per annum over the period to 2033. The shortage of sawlogs is mainly attributed to the ever increasing demand in timber especially emanating from the construction industry. One can also attribute the shortage to sub-optimal and reduced sawlog plantations due to State Forest Restructuring. Attempts at reducing shortages included measures like increased mill recoveries, but these measures have limited impact on addressing the current and projected shortages.

The marked discrepancy between the supply and demand of sawlogs means that there is a need for more afforestation. Estimates show that 622,000 hectares of pine sawlogs need to be planted if the industry is to meet the estimated 10,038 thousand m³ estimated of demand in sawlogs in 2033. Having highlighted the challenges faced by prospective timber growers, for example land availability, competitive constraints, finance and access to suitable incentives, it seems unlikely that afforestation of this size will be achieved. The shortages are likely to drive the prices of available sawlogs up in the future. The current scenario of escalation in input costs to the construction industry further confirms this. The shortage has meant that the industry is constrained and therefore forced to import more. If the current scenario remains unchanged, South Africa will remain a net importer rather than a net exporter of sawn timber.

5.8 Float Glass The PG group is by far the largest manufacturer of glass in Africa, and a significant player in the world market with operations in 17 different countries. Because this study only focuses on construction inputs, consultation was done with PFG which is the division of PG that deals with float glass. The overall PPI for the period

16 According to Stats SA

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September 2007 to September 2008 was 16%, which was which was very similar to the PPI for float glass (cut to size), which was 15.8%. With two manufacturing lines in Springs, Ekurhuleni that operate around the clock, PFG produces 260,000 tons of float glass per year of varying sizes ranging from 1.8mm to 12mm in thickness, and an area of 3,600mm by 2,440mm. PFG’s products are inputs for a wide range of industrial sectors, including the building and automobile industries. Their main line of services includes materials handling, packaging and glass cutting. 5.8.1 Domestic Availability Projection It is believed that production will increase after maintenance work on the older PFG plant is complete. Maintenance is scheduled to begin in 2009. Production of float glass is predicted to increase for the next decade and the highest increase in outputs is expected to be in 2010, where there will be an increase of 6.9%. Based on this, 2009 and 2010 are seen as the peak years for float glass usage, which will drop to just 4.7% in 2011. For the next decade, the growth in float glass output is expected to be at a rate of 5.1%.

Source: PFG Building Glass Table 59: Float glass for building products 3mm - 19mm clear flot, bronze and grey float, as well as coated float Float glass output increased steadily across the years, encouraged by a buoyant economy in which the construction of houses and also the demand for automobiles increased tremendously. Additionally, the variety in product range increased as more complex structures were constructed and more sophisticated materials were demanded for security and solar energy operations.

Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018GDP Growth

4.6% 5.1% 3.2% 3.2% 4.5% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3%

Market Growth 6.2% 3.9% 5.5% 6.9% 4.7% 5.1% 4.8% 4.6% 5.1% 4.8% 4.6% 4.6%

Domestic Availability 195 207 215 227 243 254 267 280 293 308 322 337 353

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Float Glass Domestic Availability Projections

150

200

250

300

350

400

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Tonn

es x

1,0

00

Source: PFG Building Glass Figure 38: Float Glass Local Supply predictions A number of factors could lead to a downturn in the market both domestically and abroad. Firstly, there is the issue of cheap, low quality imports from China. PFG believes that for them to be able to remain the leaders in the market for float glass, they have to distinguish themselves from the rest by improving both the quality of their products and the services they offer to clients. Secondly, it is believed that the housing market will soon slow down which will have a huge impact on the demand for float glass. Also, several other projects like ACSA and Gautrain will culminate before the FIFA World Cup and thus slow down the demand for float glass after 2010. 5.8.2 Some Problems Identified and Potential Solutions Increase in availability of cheap supplies from China As mentioned earlier, the problem of cheap supplies from China is increasingly becoming visible. There is a real fear that people are starting to use both the wrong type of glass and low quality glass for certain specialised jobs which can be very risky. This is because the price of quality glass has been going up and so people tend to substitute quality for sub standard glass which is off course cheaper. PFG plans to deal with this problem by sticking to quality products and showing how advantageous it is to use their products, especially in terms of durability. Raw materials availability and cost The raw material used for the production of glass is mainly silica and is not seen as a problem both in terms of cost and availability. However, although natural gas is steady at the moment, it has been noted that further deposits will need to be developed in the future. PFG has established a very effective logistics department

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that takes care of supplies and at this point, it is not experiencing any problem with supplies. Cost and availability of other Inputs The cost and availability of other inputs such as energy, e.g., electricity and petrol, have proven to be more of a challenge. Because PFG exports a lot of their products, the recent petrol prices have particularly hit them hard. The problem of power outages have also negatively impacted on PFG, because their operations are tailored to operate around the clock. Hence the effects of the recent load shedding by Eskom was devastating to PFG. PFG has dealt with these problems by absorbing some of these costs in order to stay competitive, especially with Chinese products flooding the market. This has led to only minimal increases in the cost of float glass. Regarding problems of disruptions in production, PFG works round the clock to make sure they have enough stock in store to supply the market at all times. 5.8.3 Summary PFG is the main manufacturer of float glass in South Africa. With two manufacturing lines in Springs, Ekurhuleni that operate around the clock, PFG produces 260,000 tons of float glass per year of varying sizes ranging from 1.8mm to 12mm in thickness and an area of 3,600mm by 2,440mm. Float glass output increased steadily across the years encouraged by a buoyant economy in which the construction of houses and also the demand for automobiles increased tremendously. Additionally, the variety in product range increased as more complex structures were being constructed and more sophisticated materials were demanded for security and solar energy operations. Some of the problems plaguing the industry include the increasing availability of cheap and low quality products from China, which make it difficult for the local producer to compete, and the availability and cost of energy.

5.9 Plastic Pipes The content of this sub-section draws on contributions from the Southern African Plastic Pipe Manufacturers Association (SAPPMA). SAPPMA represents close to 85% of the South African plastic pipe manufacturers in terms of production volume. SAPPMA members include suppliers of raw materials and additives used in the manufacturing of plastic pipes. The overall PPI increase from August 2007 to August 2008 was 19.1%. The PVC Plastic Pipes’ PPI between August 2007 and August 2008 rose by 11.9%.17

17 According to Stats SA, www.statsa.gov.za

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5.9.1 Overview of the Plastic Pipe Industry Around 130,000 tons of plastic pipe is produced annually in South Africa, representing sales of more than R2 billion. The industry is growing at 1.5 to 2 times the growth rate of GDP, which shows how buoyant it is. Installed capacity is expected to reach close to 200,000 tons per annum in about five years. About 85% of the polymer used is locally produced, consisting predominantly of PVC and HDPE. There are 12 significant manufacturers of plastic pipes as well as numerous small operators. The South African plastic pipe industry is well developed and compares well with its counterparts in Western Europe and in the United States, albeit on a much smaller scale. Finished pipe is not imported into South Africa in any significant quantity. Sasol Polymers and Safripol produce raw materials for these products locally, with only a small percentage (10-15%) being imported. The major market segments for PVC & HDPE include:

• Civil Engineering - water supply/distribution; pipe rehabilitation • Mining – water supply/dewatering; cooling water; tailings • Building & Domestic – sewerage/drainage; plumbing • Agriculture – irrigation • Industrial – process applications; gas distribution • Telecommunication – cable conduit

Major PVC and HDPE products produced locally are shown in the table below. The table also indicates the relevant national product standard and the size range currently being produced.

Product Nominal Sizes (mm) Specification

PVC-U Rigid PVC Pressure Pipe 20-500 SABS 966:1

PVC-M Rigid PVC Pressure Pipe 50-500 SABS 966:2

PVC-O Rigid PVC Pressure Pipe 110-250 1808 - 85

PVC Solid Wall Sewer Pipe 110-500 SABS 791

PVC Multilayer Sewer Pipe 110-250 SABS 1601

HDPE Pressure Pipe PE100 16-1000 SABS ISO 4427

HDPE Pressure Pipe PE80 16-1000 SABS ISO 4427

HDPE Gas Pipe 16-630 SABS ISO 4437

HDPE Structured Wall Pipe 280-1800 ISO 9969

HDPE Corrugated Wall Pipe 75-160 ISO 9969

PP Pressure Pipe 8-1000 SABS 1315

Source: SAPPMA Table 60: Major Plastic Pipe Products

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5.9.2 Projected Domestic Availability The domestic availability of plastic pipe is indicated below. The projections remain largely unchanged from the previous report and are based solely on the production capacity of plastic pipe production as there are no imports and exports.

PVC (t) 114,157 118,775 114,320 133,955 139,550 141,548 146,687 148,975 159,423 162,043 167,846

HDPE (t) 26,564 35,113 38,044 44,629 45,272 45,767 46,296 49,663 54,269 56,918 57,613

Total Domestic Availability (t) 140,721 153,888 152,364 178,583 184,822 187,316 192,983 198,638 213,693 218,961 225458

Source: SAPPMA, Suren Singh Table 61: Estimated plastic pipe projected domestic availability (2006-2016) Assumptions in making projections for the above table:18

• Increased infrastructure expenditure in the next few years, particularly due to the 2010 FIFA Soccer World Cup

• Increased budget for Housing • Water for all projects by Government (initiated some years ago) • Growth in mining (due to escalating commodity prices)

Plastic Pipe Domestic Availability Projections

0

50,000

100,000

150,000

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250,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Tonn

es PVC (t)HDPE (t)Total Domestic Availability (t)

Source: SAPPMA Figure 39: Estimated plastic pipe projected domestic availability (2006-2016)

18 Because Data used is similar to that available in the last report, the assumptions made remain unchanged.

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5.9.3 Supply Challenges, Sensitivities, Dependencies and possible Interventions

Cost Constraint-impact on quality It is imperative that the plastic pipe products be of good quality and last for a long time because they are important in building, construction and infrastructure. Reduction of raw material costs will help reduce the costs of the final plastic pipe products because they constitute more than half of the produced costs of plastic pipe production. The reduction in raw material cost could be detrimental if it reduced the quality of the final products in the long-term; therefore a balance between maintaining the high quality and reducing costs needs to be met. Product quality according to SAPPMA is measured against national standards controlled by the SABS. The SAPPMA also monitors its members by a strict code of conduct in terms of ethics and product quality. The association marks members’ product with the SAPPMA logo, in addition to the SABS mark of approval, as a guarantor of high standard and quality. Impact of imports Imports of plastic pipes are not common in South Africa mainly because of the logistical costs of transporting bulk volumes over long distances. There are still, however, a few case of imports especially from countries like China. Investment in Capacity Expansion Installed capacity is on the rise because of increased investment in production lines as well as improved unit output, thanks to the use of modern equipment. 5.9.4 Summary and Conclusion The PVC Plastic Pipes’ PPI between August 2007 and August 2008 rose by 11.9% (compared to 19.1% for overall PPI over the same period). Indications from SAPPMA show that the industry is not likely to face major difficulties in the foreseeable future with regard to the domestic availability of plastic pipe products to support the construction industry. A continued increase in capacity expansion, together with line process improvements, will lead to further increases in plastic pipe domestic availability The projection made shows that domestic availability of PVC pipe is expected to increase from 114kt in 2008 to 168kt in 2016, representing an average annual increase of 3.9%, whilst HDPE pipe availability is expected to increase from 38kt in 2006 to 57.6kt in 2016, representing an average annual increase of 5.32%. The previous report was very optimistic about the continued increase in the demand of plastic pipes. Developments which have occurred recently, however, would make us cautious in concluding that the demand for plastic pipes will be on the up for so long.

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5.10 Aggregate and Sand This sub-section contains information provided by responses of the Aggregate and Sand Producers of Southern Africa Association (ASPSA) to a questionnaire. ASPASA’s member companies produced about 55% of the national volume of Aggregate and Sand in 2005, declared to the Department of Mineral and Energy (DME). 5.10.1 Overview of the Aggregate and Sand manufacturing industry The market for the South African Aggregate and Sand industry improved since 2000, recovering from a downturn period from 1984 to 2000 due to rapidly rising demand growth for aggregate. It is estimated that over a thousand quarries are operated by more than three hundred companies in South Africa. Only about 50% to 55% of the total sales are reported to the Department of Mineral and Energy, with the top 10 aggregate producers having around an estimated 40% market share. The Producer Cost Index (PCI), increased, on average, by 8.7% from January 2003 to July 2008.

Aggregate Producer Cost Index (PCI)

-20406080

100120140160180200

Jan-0

2

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Sep-02

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3

May-03

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4

May-04

Sep-04

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5

May-05

Sep-05

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6

May-06

Sep-06

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7

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Sep-07

Jan-0

8

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-5%

0%

5%

10%

15%

20%

25%

30%

AGG PCI (lhs) % change AGG PCI (rhs)

Source: ASPSA Figure 40: Aggregate and Sand Producer Cost Index (PCI) In 2008, it can be observed that the PCI consistently increased from January to June and thereafter there was a slow down, followed by a decrease in the cost of production of Aggregate and Sand.

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Period AGG PCI

Jan-08 12.4%

Feb-08 14.7%

Mar-08 17.3%

Apr-08 20.6%

May-08 24.8%

Jun-08 26.4%

Jul-08 26.5%

Aug-08 22.7%

Source: ASPSA Table 62: Aggregate and Sand year-on-year change realised by SEIFSA The ASPSA estimated the volume produced by members at 114 million tons. The volume of annual output in the industry increased considerably from 2003 to 2007; since then it has slowed down.

Year 2003 2004 2005 2006 2007 2008

Value (R millions) 2972.5 3681.6 4239.7 5066.9 5984.3 6730.4

Volume (Million Tons) 70.248 83.650 94.684 106.373 113.118 113.799

Source: ASPSA Table 63: Aggregate and Snad National output (2003-2008)

Source: ASPSA Figure 41: Aggregate and Sand - Annual Production Value (2003-2008)

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Source: ASPSA Figure 42: Aggregate and Sand Annual Production Volume (2003-2008) According to ASPSA the Aggregate and Sand industry is currently operating above 90% of its capacity but aggregate products are produced in relative ratios. Some products are in deficit while others are in surplus. 5.10.2 Projection of Domestic Availability The projection of domestic availability of Aggregate and Sand has been based on conversion factor from cementitious sales into concrete (0.35) and then from concrete (1.91) into aggregate and sand. About 32% of aggregate and sand sales is believed to be used in non-concrete products such as ballast and roads. Illegal operations in the industry make it difficult to report accurately on market statistics of Aggregate and Sand as it is estimated that only 55% of actual sales are reported. It is also estimated that 65% of Aggregate and Sand produced in South Africa is used in concrete stone (26mm - 9.5 mm), sand (natural and crusher) and specialist road stone products. The remainder serves as material required for layer works (G1-G9) and railway ballast. Some specific products such as armour rock and single-size products for proprietary asphalt mixes are difficult to produce and transport, creating an impression of shortage.

Year 2009 2010 2011 2012 2013 2014

Value (R millions) 7449.8 8602.1 9669.2 10791.1 N/A N/A

Volume (Million Tons) 114.714 120.312 124.873 130.245 N/A N/A

Source: ASPSA Table 64: Estimated Aggregate and Sand projected domestic availability

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Volume of Projected Annual production in Million of Tons

105

110

115

120

125

130

135

2009 2010 2011 2012

Source: ASPSA Figure 43: Aggregate and Sand domestic availability projections Form the above graph we observe that the market growth is expected to be on average 1.75 per annum between 2008 and 2010. The growth will slow after 2010; and thereafter the growth will be expected to increase to 3.16% 5.10.3 Challenges and sensitivities The poor regulation of the industry makes it difficult to have accurate statistics and limits the understanding of real challenges faced by the industry. ASPSA indicated that there is no shortage of permitted reserves in South Africa but that too many quarries are not properly regulated. In the short term, the Government should regulate the industry with clear guidelines for the opening of new quarries and allow the industry respond to demand. Current legislation attributable to borrow pits should be reviewed and management of permitted reserves should be improved through vigorous regulatory enforcement. 5.10.4 Investment ASPSA indicated that in the past five years, the growth of local demand has increased by around 63%. The association considers investment in capacity expansion of existing plants should be preferential to investment in new plants. Over the past five years, the volume of output increased by over 50% as result of expansion of existing plants, while only 15% was as a result of new plants in the industry. The association projects 10% of volume of production will be the result of investment in expansion of existing plants while 5% will be as result of investment in new plants.

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Investments in the industry are discouraged due to lack of clarity surrounding the regulatory environment, which has promoted a competitive industry with opportunistic new entrants. Appropriate regulation will lead to improvement of the industry in its performance while maintaining accepted standards. 5.10.5 Challenges The main challenges remain the availability of electricity and demand, as per the Association’s response to the questionnaire. The availability and escalating cost of raw materials are a concern to the industry coupled with the availability of transport and logistics. Poor regulation in the industry is a challenge which Government should address with clear and strict guidelines for opening new quarries. There is also a need to improve the technical and business skills of small-scale quarry operators. It will increase industry capability of existing plants to cover the local demand. 5.10.6 Conclusions Market growth for aggregate and sand is expected to be, on average, 1.75% per annum between 2008 and 2010. The growth will slow after 2010 but pick back up and rise to 3.16% by 2016. Domestic availability is expected to rise from 1.6mt in 2006 to 2.3mt in 2010 to 3.2mt by 2016. Rapid growth has been the result of increased investment in infrastructure. The poor regulation of the industry makes it difficult to have accurate statistics and limits the understanding of real challenges faced by the industry. Illegal operations in the industry make it problematic to report accurately on market statistics of aggregate and sand, as it is estimated that only 55% of actual sales are reported. The Aggregate and Sand Producers of Southern Africa Association (ASPSA) indicated that there is no shortage of permitted reserves in South Africa but that there too many quarries that are not properly regulated.

5.11 Bitumen The content of this sub-section was primarily obtained from the Southern African Bitumen Association (Sabita), the parent body of all four producers of bitumen in South Africa. The quartet of local bitumen producers includes Chevron, Engen, NATREF and SAPREF. 5.11.1 Overview of the Bitumen Industry Although bitumen consumption has increased steadily in South Africa in recent years, South Africa remains a net exporter and capacity is generally seen as substantial enough to cater for any sustained increase in demand in the near future. The overall PPI for the period September 2007 to September 2008 was 16%, which was much smaller than that for bitumen which stood at 54% for the same period. This huge increase is largely due to the price of crude oil which was at record levels during that period.

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5.11.2 Overview of Bitumen Supply The South African government is the overwhelming consumer of bitumen in South Africa, mainly for use in road projects, meaning that suppliers will tend to produce according to the fiscal policies being implemented at a given time. Bitumen is made from the residue that is left behind after crude oil has been refined. However, it is not the only product that can be made this way as heating fuel used in ships is also made using the residue from crude oil. This means that under conditions of decreased demand the suppliers have to decide between exporting some of the excess supply that has been manufactured and using the residue from crude oil to make by-products other than bitumen. Supply of bitumen has increased steadily in recent years as the output figures for the past six years indicate below. Output had dropped steadily in the 1990s, but with the government’s recent ongoing infrastructure projects, it has risen rapidly. With the exception of 2004 (247,195 tons), which saw a slight drop in output, supply increased for the period 2003 to 2008.

Yearly Bitumen Output in South Africa

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300000

350000

400000

2003 2004 2005 2006 2007 2008

Tons

Source: Sabita Figure 44: Bitumen Production in South Africa Regarding the output projections of bitumen, Sabita believes that in accordance with most other infrastructure inputs, bitumen production will peak in 2009. At that time total production is forecasted to be 412,000 tons and then drop significantly as most projects will be completed before the 2010 FIFA World Cup. Production is expected to drop to 350,000 tons in 2010, as the last of projects for the games will be ending, and then level off to 300,000 tons as road construction is likely to revert to the levels of the early 2000s. This is further proof of the fact that the economic outlook is very different to what it was nearly two years ago when the previous report was written.

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Sabita is unable to provide an accurate projection of the production of bitumen for more than five years as production depends to a very large extent on the investment policies of the government.

Yearly Bitumen Projections in South Africa

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Tons

Source: Sabita Figure 45: Yearly Bitumen Output Projections 5.11.3 Overview of South African Bitumen Demand As noted above, the government accounts for almost all of the demand for bitumen; fact 95% of local supply is used for government projects. This primarily includes the construction of roads and airport runways. Investment in these two areas has increased in recent years as a result of the government’s move to improve public infrastructure. Road construction now accounts for one quarter of the government’s budgeted expenditure. SANRAL’s budget increased from R2.1 billion in 2005 to R11.5 billion in 2009. 5.11.4 Capacity of South African Bitumen Suppliers Local production of bitumen is currently at 80% of capacity, further supporting claims that there is capacity to produce more bitumen if there is a need to increase output beyond current levels. However, the current level of government investment is the highest it has been and with demand for infrastructure inputs expected to start dropping off after 2010, it is not anticipated that demand for bitumen will rise. While the total capacity for all bitumen producers currently stands at 725,000 tons, it is difficult to see the demand for bitumen reaching such levels in the near future. As above, demand for bitumen is projected to peak at 421,000 tons consumed locally in 2009. Thereafter, it is predicted that bitumen consumption will drop to about 300,000 tons per year for the foreseeable future.

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Refinery Maximum Capacity (tons) Bitumen % of Crude Chevron 105,000 2.3

Engen 240,000 5.0

NATREF 140,000 3.1

SAPREF 240,000 3.3

Source: SABITA Table 65: Maximum capacity of local Bitumen Producers This explains why there has been no investment in increasing bitumen production capacity in recent years. Further, there is no increase in production capacity in sight for at least the next five years. This applies to both the increasing of the sizes of current bitumen production plants, and the building of new plants. It should also be noted that bitumen production is strongly impacted by the amount of residual crude that is used for its production, as more residual crude could instead be channelled to be further processed into bunker fuels. Typically in South Africa, only about 1% to 4% of crude oil has been used to make bitumen. This could be increased if necessary. 5.11.5 Price Increases Over the Years The price of bitumen has been increasing in recent years. SANRAL believes that in the last year alone, the price went up by about 70%, and it is by far the input in road construction that has increased the most in price. The price of bitumen has increased by more than 100% in the last five years. This is not very surprising given the fact that increase in the price of bitumen in 2005 was 35%, which was a significant increase from the 2004 figure, which stood at about 13%.

Source: StatsSA Figure 46: Comparative year-on-year Price Increases for Bitument, Crushed Stone and Cement

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The sharp increases in the price of bitumen have been attributed primarily to the soaring costs of raw materials. Prominent among these is the price of crude oil, which has been at record high levels for three years, and it is believed it will continue increasing for the next few years, although it reached record low levels recently. By all accounts, bitumen price increases, which had been very moderate and at most on par with inflation figures, have increased sharply in recent years as oil prices have gone up. The price of crude oil is not the only contributing factor to the huge increases in the price of bitumen in recent years. Besides raw materials, other production cost variables involved with the manufacturing of bitumen have also gone up considerably. Most notably among these are energy costs which have increased by more than 100% in the past five years. Transport costs, salaries and wages have also increased significantly and have contributed to pushing the price of bitumen to these record levels now prevailing. 5.11.6 Imports and Exports of Bitumen Importing of Bitumen As noted earlier, South Africa is a net exporter of bitumen and no bitumen that is consumed locally is imported. Bitumen is manufactured by four producers in South Africa and they produce according to the demand and type that is required by government projects. About 80% of production is consumed locally while the rest is exported. As demand is lower than the capacity available, it is not envisaged that South Africa will see the need to import bitumen any time in the near future.

Locally Produced Bitumen - Local Consumption Vs Amount Exported

Consumed Locally80%

Exported20%

Source: SABITA Figure 47: Percent of Bitumen consumed locally and exported Exporting of Bitumen South African companies that manufacture bitumen have two options regarding the residual of crude oil refining. The first is to produce bitumen at full capacity and then export what is not demanded locally. The second option is to further process crude

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oil residue into bunker fuels for consumption by ship operators. The fact that the local industry is operating nowhere near full capacity suggests that the latter is the preferred option. At the moment, 20% of locally produced bitumen is exported, mostly to other Southern African countries. 5.11.7 Supply Challenges and Possible Interventions Availability and Cost of Electricity While the cost of energy has been highlighted as one of the major problems that the industry is facing, the availability of electricity is an even bigger challenge. This is so because a reliable, constant supply of electricity by Eskom is not guaranteed. This subjects the industry to interruptions in power supply as was the case last year. During power outages, plants are forced to shut down. The interruptions enforce sub-optimal functioning of plants. Availability and Cost of Transport and Logistics Transport costs have risen significantly, which is not surprising given the impact of rising crude oil prices. Bitumen is transported locally using road transportation and internationally by ship. Bitumen transportation requires specialised carriers which are expensive to acquire and maintain. Further, because road transportation is becoming by far the dominant mode of transportation for almost every industry, it limits the opportunities for the industry due to the added strain on the roads which are in a deteriorating condition as the loads on the roads have increased. To deal with this problem, a meeting has been requested by Sabita between the major players in the industry and the transport sector. This should help in developing a more organised transport system. Problem of Skills Availability This is a problem confronted by almost every sector of the economy but this industry has been hit particularly hard because it is very specialised; even most of the lower end jobs require specific skills. A linked problem is that the small number of firms means limited opportunities and it is often difficult to get the right people for certain jobs. In order to address the skills issue, Sabita has proposed to the National Department of Transport the creation of an overriding roads co-coordinating body that will train and educate more people to work in the industry. This proposal is still being developed and nothing concrete has been finalised. 5.11.8 Summary The government accounts for almost all of the demand for bitumen as it consumes up to 95% of local supply. Although bitumen consumption has increased steadily in recent years, South Africa remains a net exporter and capacity is generally seen as substantial enough to cater for any sustained increase in demand in the near future.

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Local production of bitumen is currently at 80% of capacity, further supporting claims that there is capacity to produce more bitumen if there is a need to increase output beyond current levels. It is therefore a rather surprising observation that the price of bitumen has been increasing in recent years. SANRAL believes that in the last year alone, the price went up by about 70% and it is by far the input in road construction that has increased the most in price. The price of bitumen has increased by more than 100% in the last five years.

5.12 Capital Equipment (Yellow Metal) The material in this subsection was derived from consultation with and contributions from the South African Capital Equipment Export Council (SACEEC) and Construction and Mining Equipment Suppliers' Association (CONMESA). The PPI increase from August 2007 to August 2008 was 19.1%. The PPI for Civil Engineering plant (capital equipment) increased by 15.3% in the period August 2007 to August 2008.19 5.12.1 Overview of the Construction Yellow Metal Industry The South African capital equipment industry is a small fraction of the world industry but is the largest player on the African continent. The demand for capital equipment is cyclical as can be noted by historical trends. Global demand for construction yellow metal equipment continues to be driven mainly by the phenomenal growth in the Chinese and Indian economies. North America’s demand continues to decline in comparison to previous years. 5.12.2 Projected Domestic Availability Projected domestic availability of construction yellow metal equipment groups have been based on production (which includes OE, SKD and CKD based production), including imports (all FBU) and excluding exports (all FBU). The focus of the projections is on earthmoving equipment (ADT, TLB and FEL), draglines/buckets and construction equipment (dumpers, concrete mixers and plate compactors) and the assumptions surrounding these projections are briefly discussed below. Production assumptions20 It is assumed that demand will level off for most of the products after 2010. The projections made are on the basis that there is a need for sustained levels of demand rather than fluctuating demand given that capital equipment requires returns. The projections also assume that there will not be major downturns in the industry locally and that the relevant supply side measures will be in place, coupled

19 Statistics South Africa, www.statssa.gov.za 20 Having consulted with SACEEC the assumptions from the previous report in terms of production, export and

import were retained as the was agreement that there were not going to be significant changes in projections from the previous report.

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with the judicious use of foreign Export Credit by the Department of Public Works favouring imports for equipment and turnkey projects, and promoted by a greater understanding of the multiplier effect from domestically produced capital goods. Import assumptions The downturn in the North American market has resulted in a relatively relaxed supply situation; however, certain specialised equipment continues to have long lead times. The projections have therefore taken cognisance of current increased access to imports, which is dependent on the stability of the exchange rate and could see a reduction in imports should the Rand weaken significantly, driven primarily through the availability of export credit finance and other incentives to exporters to South Africa. The local producers are engaged in plans to increase local production capacity, but are also forced to import certain cheaper Eastern products to keep up with opposition trends and to maintain market share. Export assumptions A steady growth pattern has been assumed for exports with no significant growth trends expected in Africa. Export performance will continue to be driven by the levels of Government support and the availability and rates of Export Credit finance (for working capital and pre-shipment finance requirements) available to local producers and global customers.

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Earthmoving Vehicle (units)

ADT 1233 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500

TLB 2437 2700 2900 3200 2900 2900 2900 2900 2900 2900 2900 2900

FEL 1114 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200

Draglines/Buckets (units)

Draglines/Buckets 20 20 20 20 20 20 20 20 20 20 20 20

Construction Equipment (units)

Dumpers 76 92 97 107 97 97 97 97 97 97 97 97

Concrete Mixers 2120 2490 2760 2770 2770 2770 2770 2770 2770 2770 2770 2770

Plate Compactors 1295 1504 1655 1855 1855 1855 1855 1855 1855 1855 1855 1855

Source: SACEEC Table 66: Estimated Capital Equipment projected domestic availability (2007-2018) The table above shows that the domestic availability of ADTs and FELs is expected to remain relatively stable up to 2018. TLBs are projected to grow and reach a peak of 3,200 in 2010. They are expected to decline thereafter to 2,900 units and then level off. The assumption made in these projections is that after 2012 there are currently no foreseeable projects which would lead to a surge in demand. The

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primary driver of the increased demand for yellow metal capital equipment in the years up to 2010 is the construction for the 2010 FIFA World Cup. The table also shows that the forecast for draglines/buckets will be stable over the period under focus. This stability will be achieved through the replacement of imports with local output. It is estimated that in 2011 the local production will rise from 15 units in 2006 to 35 units, whilst imports will diminish from 15 units in 2006 to five units in 2011, which will increase exports from ten units in 2006 to 20 units in 2011.

Earth Moving Capital Equipment Domestic Availabilty Projections

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ADT TLB FEL Source: SACEEC Figure 48: Earth moving vehicles domestic availability projections (2007-2018) The domestic availability of FELs and TLBs is expected to be driven largely by imports which will complemented by local production. According to SACEEC, the locally manufactured FELs, ADTs and TLBs are a small fraction of the locally available equipment and this trend is not expected to change significantly in the near future.

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Construction Equipment- DumpersDomestic Availability Projections

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Source: SACEEC Figure 49: Construction equipment (dumpers) domestic availability projections (2007-2018) From 2007 to 2008 there will be an increase of 21% in the domestic availability of dumpers, which will driven mainly by imports.

Construction Equipment Domestic Availability Projections

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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Concrete Mixers Plate Compactors Source: SACEEC Figure 50: Concrete mixers and plate compactors domestic availability projections (2007-2018) Concrete mixers are mainly produced locally; therefore domestic availability is primarily attributed to domestic production. It is expected that this trend will continue with local manufacturers of concrete mixers increasing production. From the estimates in the previous report this increasing local production will contribute to an annual growth of 9.3% between 2007 and 2010.

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Plate compactors are also mainly produced locally and this trend towards domestic production is projected to continue. The annual growth rate for the compactors for the period 2007 to 2010 is 12.7% 5.12.3 Supply Challenges, Sensitivities, Dependencies and Possible

Interventions Skills inputs The shortage of people with technical skills, especially artisans and engineers, is noted as impacting on the growth of local industries. The costs of labour, when available, are high, especially skilled labour. Material inputs The shortage and the high costs of steel are seen as major constraints. The escalating costs of other material inputs is also said to be affecting the local industry. It is also difficult to fully pass these costs on to the final consumers. Financial inputs The costs of working capital are high. According to SACEEC there is a need for the government and other stakeholders to provide financial incentives for the local producers. Industry sustainability SACEEC stated that the industry is exposed to increased competition from the Asian countries which are exporting their capital equipment to South Africa. This is suppressing opportunities for domestic producers, especially in products like TLBs and FELs. Producing locally, especially for products like TLBs and FELs, tends to be more expensive, therefore there is a need to create economies of scale. The local industry is, however, affected by the small size of the market. 5.12.4 Impact of Imports The levels of imports of capital equipment (by value) are still high, probably close to 85% (SACEEC) at present and the trend favouring imports is likely to increase in the absence of some kind of support relating to manufacturing competitiveness. Most of the imports are coming from Europe and Asia, with America providing the remainder of the capital equipment. According to SACEEC, the domestic market remains highly competitive and this has forced local producers to cut back on domestic production of specific products, given that the same products are entering the local market via competitors at reduced prices. In the short term the impact of imports may lead to improved product prices for customers, however, in the medium to long term, this trend will ultimately lead to the gradual phasing out of domestic production in favour of imports. This trend has concerned domestic producers that have invested in local production facilities, since

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it affects the viability and continued existence of the industry and the associated social consequences.21 5.12.5 Investment in Capacity Expansion Africa’s demand for mining and construction capital equipment products is less than 2% of the world market. An added constraint is the relatively poorly developed supplier base. To attract investment in the form of a multinational to add real value in South Africa would require globally competitive incentives (enshrined within an effective industrial policy and customised sector programme) to also compensate for the spatial and economic disadvantages (distance from component suppliers, distance to markets and relatively high finance costs). The investment potential for domestic capital equipment expansion is high, but it requires sustainable commitment given the associated investment risks (above), thus, in the absence of the international investment, reliance has to be on existing South African producers of locally designed, developed and manufactured products. Production is labour intensive and would thus have high direct and indirect job creation potential.22 In the previous report Suren Singh highlights that for the industry to be sustainable there will be a need for economies of scale which would ensure high volume at low costs of production. One, however, would be sceptical about the availability of such a market both domestically and internationally. The export market would provide a market to ensure these economies of scale but there would be a need to assist the industry to compete on a global scale because the market is full of well-established players. The existing local demand volumes and the barriers associated with component sourcing, finance and access to skills present a challenging outlook relating to future investment. 5.12.6 Summary and Conclusion The overall PPI increase from August 2007 to August 2008 was 19.1%. The PPI for Civil Engineering plant (capital equipment) increased by 15.3% in the period August 2007 to August 2008. The growth and infrastructure development in India and China continue to drive the growth in demand for yellow metal equipment globally. The supply challenges which continue to affect the local industry include shortages of material inputs, skills inputs and access to competitive EXIM and pre-shipment financial products. Domestic production and creation of jobs locally are threatened by the increase in imports. The country’s investment potential is high but dependency on economies of scale leads to low cost production. The domestic availability is projected with the assumption that the demand for yellow metal equipment is sustainable in the long run. Domestic availability in all categories analysed shows that there will be an initial rise in the amount of equipment domestically available and then the trend will flatten off.

21 Taken from previous report by Suren Singh 22 Taken from the previous report by Suren Singh

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Products like ADTs, draglines /buckets, concrete mixers and plate compactors will be biased toward local production, whereas TLBs, FELs and dumpers will continue to be dependent mainly on imports.

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5.13 Infrastructure Inputs Supply-side Conclusion Infrastructure Inputs

Infrastructure Inputs Sensitivities/Dependencies/Challenges

Domestic Capacity (Supplier perspective)

Carbon Steel

Impact of global financial crisis on steel output and prices has led to relatively large inventories and announcement of cuts in steel production. The impact on domestic supply is uncertain at present

Galvanised steel sheet - from 443 kt in 2008 to 851kt in 2018. Heavy structural section - from 157kt in 2008 to 313kt in 2018. Reinforcing bar - from 223kt in 2008 to 513kt in 2018.

Stainless Steel

Declining demand and huge inventory stocks. The response from producers is not known yet.

No shortage in Stainless Steel Flat Products. Specific Long Product supply shortages will be met through imports.

Aluminium

Contracting of casting houses Scrap availability Skills availability and wages Constant energy supply Transportation cost and availability

Flat products – from 195kt(2008) to 270kt (2013). Extrusion capacity – from 50.3kt in 2008 to 64.3kt in 2013. (No shortages expected in the near future)

Cement

- Specialized skills - Delivery using road (congestion) - Inefficient railway network - Power shortages - Regulation (EIA) & environment assessment process - Sustainability of demand post 2014 - Production cost growth The response to lower demand has not been announced.

Capacity from 15.5 mt (2008) to 25.4 mt (2012)

Concrete products

Availability of inputs (cements and aggregate)

From 2006 To 2013 Paving 11.6 13.0 (millions m2) Retaining Blocks 0.4 0.6 (millions m2) Masonry 36.0

Ready-mix concrete

- Availability of raw materials - Standard compromised by new market entrant opportunists -Road congestion

Capacity from 7.784 million m3 (2006) to 11.417 million m3 (2012

Clay Bricks

- Pressure on Coal (high demand) may ease as a result of downturn and lower exports

- Transport efficiency - - Slow assessment for new entry

(EIA- regulator delay)

Capacity from 7.784 million m3 (2006) to 11.417 million m3 (2012

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Infrastructure Inputs

Infrastructure Inputs Sensitivities/Dependencies/Challenges

Domestic Capacity (Supplier perspective)

Timber

An increasing interest rate cycle Ballooning current account deficit Increasing oil prices Slow down in retail and manufacturing activity locally Fall-out from “sub-prime” crisis in the US & consequent threat of recession in major markets Pests and diseases threat Low level of skills Poor management of contractors by large Grower-Processors

Timber – from 3.8 mil m3 (2007) to 5.2 mil m3 (2016) There will be a consistent shortfall between supply and projected demand from 38% (2007) to 25% (2016) which will need to be imported)

Float Glass Future natural gas supply Logistics – although it has improved recently Power and petrol availability and cost

Availability – from 215kt in 2008 to 353kt in 2018 General opinion is that there is enough supply

Plastic Pipe Cost constraint – impact on product quality Investment in capacity

Increase in output of both HDPE and PVC from 130 000 tonnes to 200 000 tonnes in 5 years

Aggregate and sand

- Illegal exploitation due to poor regulation

Capacity from 106.373 mt (2006) to 1302.245 mt

Bitumen Limited logistics and loading capacity at dispatching facilities Specialised Transport availability Skills availability cost

Maximum capacity of 725kt has not been used up Highest output expected in 2009 of up to 420kt

Capital Equipment (Yellow Metal)

Shortage of technical skills and high costs of labour Material Inputs Financial Inputs Unfair foreign competition

ADT’s – from 1233 (2007) to 1500 (2010) TLB’s – from 2437 (2007) to 3200 (2010) FEL’s – from 1114 (2007) to 1200 (2011)

Source: Own aggregation from Infrastructure Report Table 67: Supply side conclusion Demand for construction materials has declined globally. At the same time many suppliers are reporting a large inventory. Many global suppliers had built up larger than usual stocks of their products because of the escalating prices and unprecedented demand over the past few years. High levels of economic growth and huge construction projects in the Middle East and Asia had led producers to believe that inputs prices would remain high. After the onset of the subprime crisis in the US in June 2007, prices for inputs remained relatively high, even though a drop in global construction and demand for inputs was expected at that time. After the subprime collapse many hedge funds and speculators moved money into commodities markets and kept prices high and rising. They purchased futures for certain commodities for speculative reasons but the markets read these increased prices of futures as a sign that global demand was not negatively affected by the subprime crash. At the time, there were theories that Asia had decoupled from the US and that they would not be severely affected by the global financial crisis. Today we know that

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these theories are incorrect. The high level of integration and interdependency in global markets means that all regions of the world are severely affected by the global financial crisis. Now that hedge funds have been forced to unwind their positions in commodities markets, prices have declined fast. As a result, many suppliers may cut production. It remains too early to tell how South Africa’s infrastructure projects will be affected by production cuts. At present, there is a feeling that the predicted shortages and higher prices that were of so much concern when the 2007 report was published are not such a huge constraint.

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6 Conclusions South Africa’s capital stock as a percentage of GDP has declined over the past two decades. There has been erosion of key infrastructure and reduction in capacity of key utilities that have negatively affected business and real economic activity. Therefore, the current infrastructure investment programme is vital for the future economic performance and sustainability of the South African economy. Further, in the short-term the infrastructure investments will provide an important stimulus for the economy and support for business during a very challenging time. The global financial crisis is affecting global aggregate demand and is expected to lead to economic downturns and even recessions in the largest, developed economies. We specifically highlight the importance of the national housing programme’s infrastructure investments. This programme should be supported because of the potentially macroeconomic and socio-economic advantages achievable, especially during a time when the global economy is moving toward recession. There will be significant macroeconomic challenges to the smooth implementation of the infrastructure investments over the next few years. South Africa may be forced to adjust its economy to improve its balance of payments position, nominal interest rates may stay high and there may be pressure to reduce government and public sector spending. Further, raising capital in global markets will be a challenge given very tight global credit market conditions. At the time of submitting this report, most of the state owned enterprises had not told us of plans to reschedule or cutback their infrastructure investment projects and the suppliers of key inputs had not divulged plans to reduce output. However, suppliers in the steel industry have publicly announced large reductions in output. The players in the cement industry have told the media that they are pondering their current levels of output. Other suppliers of inputs may well follow suit. The current economic climate is one of uncertainty. The 2007 Report presented concerns about limited supply and rising prices. Today there seems to be empty order books, large inventories and there is even talk of cutting outputs by suppliers. Government and business should discuss the problems associated with the current crisis and uncertainty facing the economy and the infrastructure projects. Co-ordination between the different parties could create advantages for all parties from the challenges present today. Further, the private and public financial institutions, the state owned enterprises and private sector contractors should be working together and meeting regularly to find solutions to potential financing and foreign exchange constraints that may affect the infrastructure projects. On the whole, the infrastructure investments are on track. The 2010 stadiums, the airport expansions and the Gautrain are all expected to be completed according to schedule. These projects faced supply shortages, higher input prices, skills shortages and higher wages. These problems seem to have been successfully addressed, sometimes at a very high price. However, the advantage of being close to completion is that these projects are less likely to face risks associated with the global economic downturn. ACSA has postponed plans for new airports but this delay will not affect 2010 preparation. SANRAL has also planned to complete a number of their road maintenance and new road projects by the 2010 FIFA World

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Cup. These projects are on schedule. However, SANRAL’s maintenance and road building is an ongoing process and future projects may be affected by the global economic downturn. The infrastructure projects by Eskom and Transnet are reported to be on schedule. They have not commented on the impact of the global economic downturn on their projects. Given lower global demand for minerals commodities one would expect pressure on their existing infrastructure to ease somewhat. It may be possible to save money by delaying certain projects and waiting to take advantages of possibly lower input costs and financing costs. However, given the delay in building new transport and electricity capacity over nearly two decades, the current strain on the infrastructure may be too acute to further delay these projects. The 2007 report stated that the most sensitive infrastructure material inputs that could present supply challenges were carbon steel products, cement, timber, aggregate and sand, and bitumen. The supply and price issues associated with increased demand for carbon steel products are today replaced with declining demand and large inventories. The problems associated with aggregate sand seem to have declined. There is large expansion and the demand from private sector construction for the housing market has declined. The huge decline in oil prices will impact on the bitumen price. In the 2007 report it was stated that industry had indicated no anticipated production and supply difficulties associated with clay bricks, float glass and plastic pipe (PVC). There was concern, however, about the large price increases for these products. The decline in the domestic housing market seems to have reduced some of the price pressures, though the infrastructure projects may drive prices back up. However, the full impact of the global and domestic downturn on prices for these products is uncertain at present. Many of the challenges listed in the 2007 report are still present. The skills shortages and the vertically integrated structure of the construction industry remain problems. Concentration and market control by a few firms for key infrastructure inputs, along with the length of time to get environmental impact assessments passed, are also issues. The proposed institutional solutions for these problems are still valid as well. These are problems that government and business have to address together.

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7 References ACSA, 2006: SA’s Airports of the future, Airports now, 2010 and beyond, Issue 1 October 2006 Aveng, 2006: The Aveng Group Annual Reports 2006, 2008 Bombela, 2007, Projects overview, www.Bombela.com cidb, 2006: cidb Annual Report 2005/06 cidb, 2006: Skills for Infrastructure Delivery in South Africa: The challenge of restoring the skills pipeline, December 2006, cidb Council for Scientific and Industrial Research, 2005: Second Annual State of Logistics Survey for South Africa Department of Public Enterprises, 2007: Overview of the Competitive Supplier Development Programme. www.DPE.gov.za Department of Transport, 2004: National Freight Logistics Strategy Department of Transport, 2006: Transport Action Plan for 2010 Engineering News Projects database. Eskom, 2007: Eskom Annual Report, 2007 Eskom, 2007: Competitive Supplier Development Programme Proposal to DPE Group Five, 2007: Group Five Annual Report 2007 IDC, 2005: An analysis of the macroeconomic and sectoral impact of the capital expenditure programmes of Eskom and Transnet over the period 2005 to 2010, 13 Dec 2005 JIPSA, 2006: Increasing the Supply of artisans by 50,000 in 4 years: A JIPSA Programme of Action JIPSA, 2006: Increasing the supply of Engineers and Built Environment Professionals, Technologists and Technicians – A JIPSA Proposal Merrifield, A., 2006: Draft Demand for Skills: An analysis of the proposed infrastructure spending programme, cidb Murray and Roberts, 2006: Murray & Roberts Annual Report

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National Labour and Economic Development Institute, 2007: The Construction Sector – An analysis of its contribution to economic growth, employment and poverty reduction in SA, March 2007 National Treasury, 2007: Budget Review National Treasury, 2008: National Treasury provincial infrastructure database Nedbank, 2007: Capital Expenditure Project Listing, 6 February 2007 South African Federation of Civil Engineering Contractors, 2007: State of the Civil Industry, 1st Quarter 2007 South African Reserve Bank, 2006: Quarterly Bulletin, December 2006 SUDEO International Business Consultants, 2007: Research Report for the Infrastructure Inputs Strategy produced by Mr Suren Singh, Executive Director of SUDEO International Business Consultants for the Presidency, Republic of South Africa The Presidency, 2006: Asgi-SA Overview, www.gov.za Transnet Limited, 2007: Transnet Limited Annual Report 2007 Transnet, 2007: Competitive Supplier Development Programme Proposal for the DPE

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