A significant proportion of the planned R180-billion in South African government and parastatal spending on infrastructure projects over the next five years is destined to go overseas due to the lack of workers qualified to implement these projects, according to Frater Asset Management analyst Matthew Kreeve.
Writing in Frater’s Quarterly Report for the second quarter of 2005, released on Thursday, Kreeve pointed out that, thanks to the decline in civil spending and the brain drain over the past 15 years, the South African government now has only 1 500 engineers on its payroll, while the number of university graduates in engineering stood at 200 in 2004.
By contrast, during the strong capital investment boom from 1965 to 1982, the government employed about 4 500 engineers, and the number of graduating engineers peaked at almost 400 per year in the late 1970s.
“Remembering that a senior engineer capable of monitoring these projects takes seven to 10 years to train; there does not seem to be a quick fix here,” he observes. “This type of capacity constraint can greatly increase the time line for completion on these projects as well as the cost thereof.
“This lack of skilled management and an already fully employed private construction sector in South Africa will result in some of the jobs needed for the capital formation being exported overseas.
“With 2010 [when South Africa hosts the Soccer World Cup] fast approaching, a large chunk of the local development may well be contracted to Chinese construction companies, well primed by their own local development and cheaply staffed with a highly trained artisan and engineer workforce.”
The R12-billion Gautrain project is a good example of this, Kreeve said, with 50% of the work set to be outsourced to French and Canadian infrastructure specialists due to a lack of available local resources.
At the same time, Eskom’s announced spending plans of R110-billion by 2010 to expand its electricity-generation capacity is likely to result in only 30% of this total being spent locally due to the highly specialised nature of the initiative, he believes.
Transnet has announced port and rail investment totalling between R40-billion and R50-billion, and the Department of Public Works has budgeted at least R15-billion for the Expanded Public Works Programme that will see the construction of roads, pipelines, paving, water supply, sanitation, housing, schools, clinics and other capital projects.
The Expanded Public Works Programme aims to create one million jobs, while providing skills transfer for longer-term employment opportunities.
“While some South African companies with international operations may recall resources [to complete these projects], and encouragingly the number of engineers from previously disadvantaged backgrounds has reached new highs in the last two years, there is still likely to be a shortfall,” stated Kreeve.
“This means that the bang for the government spending buck will not have its full effect on the local economy.
“Manual labour will be almost exclusively local, and in this respect the spending should be effective. However, international contractors with tight schedules may prove less committed to skills transfer than the ideal.”
Still, the analyst stressed, it is essential that local infrastructure and transport systems are maintained and improved now rather than later.
“With glaring capacity constraints appearing everywhere, from Gauteng’s regular power failures to the Durban port which is expected to hit maximum capacity in the next nine months [and the] booming real-estate development straining most urban sewage plants to their limits, every successive year of neglect brings exponentially incremental replacement costs, all at the expense of new capacity.
“As government steps into the breach, the market will pay close attention to the management of this spending programme — it’s not a moment too soon to start.” — I-Net Bridge