Unleashing independent power producers could create jobs and build a globally competitive industrial economy
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2010
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08
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The best opportunity for significant construction growth in the local economy would be the emergence of an independent power producing industry large enough to supply power to a resurgent mining and growing mineral beneficiation sector.
So argues Mike Lamb, Business Unit Manager, Construction Projects, at Alexander Forbes Risk Services. Lamb believes that removing the legislative and bureaucratic constraints currently limiting the participation of independent power producers in the national energy mix would “provide the kind of large scale construction projects able to counter global recession, increase national power output, absorb significant amounts of labour – and ultimately lay the infrastructural base for the broadening and deepening of a globally competitive industrial economy.”
For the moment, however, the South African Federation of Civil Engineering Contractors have indicated that the civil construction industry could shrink by almost 40% following the World Cup - making the 64000 construction jobs lost in the first quarter of this year merely the tip of the iceberg.
“The single biggest factor driving the construction slowdown is South Africa’s current lack of power and insecurity and uncertainty about future power supply” says Lamb.
The World Cup infrastructure development programme protected South Africa from the initial impact of the global economic financial crisis. So, while the construction industry in South Africa was aware that it would face difficult times following the 2010 bonanza “there is no doubt that the extent of the slowdown is exacerbated by the country’s current power shortage - along with insecurities surrounding the future of power supply in South Africa” adds Lamb.
Despite a general consensus that power supply is critical to reviving the construction sector and driving employment, government’s current and approved power generation projects are inadequate given projected demand. At the same time “government seems to be dragging its feet on finalising the uptake agreements that will allow private power producers to supply the grid” says Lamb.
The mining sector, for example, is a significant employer, but also one hugely dependent on power. This is especially true of the various mineral beneficiation processes which, ultimately, South Africa’s army of unemployed need to see developed if they are ever to find work. “Without power we won’t be building the smelters and other heavy duty industrial infrastructure that will really drive construction and employment growth in this country” explains Lamb.
Lamb comes around to government again when discussing the Public-Private Partnerships that were at one stage heralded as the way to help the government spend on, and deliver, construction projects effectively. Unfortunately, in practice, these have generally taken too long to negotiate let alone close. Since tender processes and the selection of providers are either fraught with irregularity or driven by political imperatives “projects either fail to get off the ground or are mothballed for years while political rather than practical solutions are sought” says Lamb.
While South African construction majors are looking beyond our borders to the largely Chinese-driven construction boom on the continent, competition is tough. From a purely insurance perspective Lamb believes that “there is little opportunity for our products in much of Africa as state-backed and funded Chinese construction companies have little need for cover” says Lamb. That said, over the next few years South African construction companies are likely to pursue projects in Africa and the Middle East to maintain turnover “though this will do little for local employment prospects” concludes Lamb.
Source: FD Media & Investor Relations
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