South Africa Infrastructure Report Q3 2009

In BMI's Q309 South Africa Infrastructure Report we are forecasting real growth in the construction industry of 2.52% in 2009, to reach a value of ZAR69.70bn (US$6.89bn). Due to a revised methodology and an increase in forecasts for real capital investment growth in 2009, we have revised upwards our forecast from 1.24% for 2009 as stated in our Q209 report. Our optimism for South Africa's construction industry appears to have been well placed as Q109 real construction industry figures released by Statistics South Africa in May 2009 show 12% real growth in the construction industry value compared with Q1 2008. Depending on Q2 figures, we may revise our figures upwards again in Q409.

South Africa's infrastructure sector is being stimulated by a number of factors. In the transport sector, preparations for the country's hosting of the 2010 FIFA World Cup are continuing to drive improvements, with the majority of large projects under way and nearing completion as the tournament approaches. The reconstruction of OR Tambo Airport in Johannesburg is progressing, with the new departures hall having been completed in April 2009 and the first phase of the Gauteng Freeway Improvement Project due to be completed in April 2010. South Africa's ports are also getting an upgrade including Durban and Richard's Bay as part of Transnet's ZAR80bn, five-year plan, which will upgrade rail, pipelines and ports.

Developments in the power sector are continuing to be driven by Eskom's expansion plans in response to severe power shortages in early 2008 and years of underinvestment. The company has been working to raise financing for its projects and in May signed an agreement with seven European banks for EUR530mn. A portion of this loan will be put towards the 4,800MW coal-fired Medupi power plant, which is currently under construction with the first units due to come online from 2012. The cancelled initial plan for a second nuclear power plant in South Africa had new life breathed into it in May 2009 when a plan for the environmental impact assessment was released to the public. The plan includes a timeframe for the 4,000MW plant, which is due to be completed in 2018, and proposed locations.

Despite these factors driving growth in South Africa, the country's construction industry will not be immune from the overriding macroeconomic climate, which is forecast to lead to a slight contraction in real GDP in 2009 of 0.3%. The impact of this on the construction industry will be felt in 2009 as real growth slows from 13.9% in 2008 to 2.52% in 2009. This is illustrated by the limited number of projects that we have recorded over the past quarter. Indeed, growth rates seen in 2008 will not return before the end of our forecast period, although we do expect growth to plateau at between 5.5% and 6% y-o-y in 2012-2013.