South Africa Infrastructure Report Q2 2009

Following the release of new data for the construction industry value in 2008 from Statistics South Africa, BMI has updated and revised our data. We now have historic data to 2008, with our model forecasting data from 2009 to 2013.

Based on the new data, BMI's forecasts for real growth in the sector in 2008 (10.66%) were only slightly more bearish for the industry than the actual real growth rate (13.9%), and our forecast for the construction industry value (ZAR61.65bn) was very close to the actual amount (ZAR63.76).

As a result, in BMI's Q209 South Africa Infrastructure Report we have revised upwards our forecasts for real growth in the construction industry for 2009 to 1.24% (from 0.6%) with the nominal value staying almost the same. We also now feel that although the construction industry will not be hit as hard by the global downturn, its effects will last a bit longer with real growth increasing year-on-year (y-o-y) to reach 6.78% by 2013.

BMI believes that real growth in the construction industry value will be much reduced in 2009 compared to 2008, and this is evident in the small number of new projects recorded this quarter. The vast majority have been in the utilities subsector. This is not surprising as state utility Eskom is working to counteract the years of underinvestment that have led to shortages plaguing the country over the past year. Eskom's plans to build a nuclear power plant were put on the backburner in December 2008; however, in its place two additional coal-fired plants are planned. In the water sector, the US$681mn second phase of the Lesotho highlands project was approved in December 2008.

Preparations for the 2010 Football World Cup are continuing, and BMI believes that the construction related to this event will continue to be the driving element of positive growth in the industry. The country is working to improve transport infrastructure including airports, roads and rail, as well as the construction of stadia and tourist related facilities. Another major boost came in February 2009 when the government announced that it would increase planned infrastructure investments by around US$20bn to 2012, bringing the total pledged to US$79bn. The funds will be invested partly through state-owned companies such as Transnet (US$8bn planned) and Eskom (US$34bn).

Despite this, construction industry growth is expected to be much reduced in 2009 compared to 2008.

This is due to the declining macroeconomic climate, with BMI forecasting a slight recession for 2009, due to declining export demand, declining mining industry activity, reduced consumer expenditure and rising inflation and interest rates. This will also feed into making financing for projects harder to secure.

In BMI's Q209 South Africa Infrastructure Report, we are introducing our new Infrastructure Project Finance Ratings. The ratings provide a globally-comparative, numerically-based assessment of the risks facing major infrastructure projects, which will in turn affect the source, availability and cost of finance.

Of the nine countries assessed in Africa, South Africa ranks 4th with a score of 51.61 out of 100.