The slow pace of economic growth along with government delays in awarding tenders continue to limit the recovery of the local infrastructure and construction sector.
The downturn may have given some respite to the scarce skills shortage. However, South Africa is not training enough engineers, artisans and technicians to deliver the long-awaited R845-billion government infrastructure projects in the pipeline.
This is the conclusion of the 2012 Infrastructure Sector Research Survey, carried out by executive search firm, Landelahni Business Leaders Amrop SA.
“Across the world, crucial infrastructure schemes are competing for a dwindling skills pool amid fears that the skills shortage could delay projects in major markets,” says Landelahni CEO Sandra Burmeister. “Driven largely by China and India, construction is expected to grow globally by 67% over the next eight years.
“Meanwhile SA’s major construction companies are looking northwards to win a share of the huge infrastructure projects being rolled out across the African continent.
“Developing and retaining key technical skills is essential if this country is to meet the challenge of building massive new infrastructure while – at the same time – upgrading existing services.”
The 2012 Landelahni Infrastructure Sector Survey researched 75 companies with just over 300 000 permanent employees in the electricity, water, waste, road, rail and ports sectors, as well as consulting engineers, major listed and unlisted construction companies and large suppliers to the construction industry.
Global infrastructure growth
“The demand for infrastructure is driven by rising populations and rapid urbanisation and is causing a shift for all players in the sector,” says Burmeister. “Internationally, recovery is slow, but the outlook is extremely positive between now and 2020.”
Construction is expected to grow from $7,2 trillion to $12 trillion in 2020, driven largely by emerging markets. An Oxford Economics survey estimates that construction will account for 13,2% of global GDP by 2020.
Asian markets will continue to develop rapidly, with China and India driving growth. Stimulus spending across both developed and developing economies will continue to boost the industry, as will increasing demand for traditional and alternative energy sources.
“The SA government’s ambitious infrastructure drive is intended to jump start growth,” says Burmeister. “The Medium-Term Expenditure Framework (MTEF) has set aside R845-billion for public sector infrastructure projects with a further R3,2-trillion infrastructure projects under consideration up to 2020.
“So far, around 25% of these are being financed and implemented. This means a R250-billion spend per year – about R100-billion more than the average spent over the past five years, including the FIFA World Cup.”
Growth in sub-Saharan Africa is expected to be about 14% higher than that in South Africa. On the African continent $20-billion in infrastructure projects are already underway.
According to the 2012 KMPG Global Construction Survey, “new infrastructure projects are expected to be on a huge scale, so size and global reach will matter. With scale comes complexity as global players navigate tough political, commercial, regulatory and governance environments.”
“This calls for advanced leadership skills,” says Burmeister. “Winning new contracts is increasingly about having the right expertise. We need to develop enough skills to ensure proper maintenance and timeous upgrades of existing infrastructure, and to avoid further deterioration of essential services across the country.”
SA infrastructure supply constraints
Public sector capacity
In government, engineering skills have reached a new low, with a recent Consulting Engineers SA (CESA) report estimating that there are only 1 800 engineers across government (excluding state-owned entities) and more than 1 000 engineering posts are vacant.
The National Treasury reports that in 2010/11 government spent only 68% of its total capital budget. “Ramping up government capacity to implement R3,2-trillion of mega-projects is an enormous challenge and is likely to result in an increase of public-private partnerships,” says Burmeister.
“We are already relying on international partners to bring expertise not available locally – as we see with Gautrain, the building of new coal-fired power stations, nuclear energy initiatives and the drive for alternative energy.”
“Skills shortages are rated the major risk of doing business in emerging economies. The battle for skilled resources is likely to intensify – globally and locally.”
Total employment in the local infrastructure sector grew from 634 000 in 2001 to 1,2-million in 2007, dropping to 1,1-million in 2010.
While the slump in SA construction activity alleviated the skills shortage to some extent, research shows that 74% of companies are still struggling to fill engineering vacancies. The current order book of SA-listed construction companies is over R430-billion.
“We simply do not have the right kinds of skills to meet the specific demands of huge new infrastructure projects,” says Burmeister. “We continue to face the dichotomy of high unemployment among the unskilled and semi-skilled, and high vacancy rates for the highly skilled.
“It is critical that companies spend time and money on developing a leadership and graduate pipeline as well as a supply of professional and skilled workers, including artisans.”
SA labour market supply
In 2006, South Africa produced a total of 3 222 artisans across all trades. In 2010, this number rose dramatically to 11 778. “This is testimony to what government and business can accomplish by working together with a focused outcome,” says Burmeister.
“The National Programme for Artisan Development (NAD) aims for another 50 000 artisans by 2015. Based on current figures, this is a high target.
“We must guard against a focus on quantity of certifications over quality. The pass rate needs to go well beyond its current level of 45%. Moreover, the focus needs to be on four-year, rather than one-year certifications. Only then will we make a significant impact in securing our artisan skills base for the future.”
Of the 600 000 candidates who wrote school-leaving examinations in 2009, only 22% passed maths higher grade and only 7% passed physical science higher grade. In the same year, only 28% of students in public higher education institutions were enrolled for programmes in science, engineering and technology.
Total graduations (degrees and diplomas) across all engineering disciplines between 1998 and 2010 numbered 70 475, at a 13,8% pass rate. Of this total, 29 280 engineers graduated with degrees from universities, an average of 2 252 per year.
“There was an upward trend for black and female engineering graduates which is positive,” says Burmeister. “However, the average university pass rate is 16%, far below the international average of 25%.”
These figures compare with 1.9-million engineering graduates a year in China in 2010, 763,635 in India and 10,765 in the United Kingdom.
In the case of infrastructure specific studies, in 2010 electrical engineering university graduates numbered 899, followed by civil engineering at 847, and mechanical engineering at 766.
“Last year the Engineering Council of SA (ECSA) launched a national initiative to tackle the chronic shortages of engineering skills, in line with government’s somewhat ambitious plan to develop 30 000 engineers by 2014,” says Burmeister. “This initiative remains severely hampered by the low maths / science pass rates at school level and the low graduation rate of engineering students.
“We should guard against getting into the same situation as China, where only about 10% of the vast number of graduate engineers is considered globally employable. Instead we need to focus on producing high quality engineers who can meet market demand in specific areas, and not lower standards to drive numbers that look good on paper.”
ECSA data shows that, in 2010, there was a limited pool of 14 700 professional engineers registered across all disciplines, with many of these aging out of the market. “Gender remains an issue,” says Burmeister, “with less than 3% female professional engineers.”
The number of candidate engineers is relatively robust at 5 600. However, according to ECSA, the conversion rate to professional engineers is low because lean organisations are not committing resources to the required three-to-four years of on-the-job mentoring.
The infrastructure sector has continued to invest in skills training despite the economic downturn, and has made a significant investment particularly at executive level.
The industry has increased expenditure on the training of artisans and technicians. However, bursary spend in 2011 was around only 0,2% of payroll.
Burmeister believes the skills challenge is exacerbated by the presence of 35 000 small and medium contractors which have little capacity to train and develop staff. “Training will continue to be carried out by large contractors, listed construction companies and parastatals.”
Planning for infrastructure growth and sustainability
“There is growing global demand for specialist engineering skills to deliver on new mega-projects,” says Burmeister. “With this comes increased demand for professionals in risk management, information technology professionals able to support business and systems efficiencies, and executives capable of leading across multiple geographies and cultures.
Investing in the right kind of skills
Alongside the Presidential Infrastructure Coordinating Commission (PICC) 20-year infrastructure plan, Burmeister believes we need a roadmap of the skills we need to invest in today. “First, we must align our educational systems to meet these requirements,” she says. “Only in this way can we ensure that we have skills to support not just the build, but the maintenance and upgrade of infrastructure now and in the future,” she says.
“Further investment and spend in skills development is not just a scorecard measure. It’s an economic imperative for a sustainable infrastructure industry.”
Filling the talent pipeline
A multi-pronged approach is needed for filling the talent pipeline.
“This includes increasing bursary spend in core scarce skills areas of business, increasing graduate hiring and training programmes and extending retirement dates or calling back early retirees,” says Burmeister.
“Companies can use smart strategies like cross-functional project teams and offshore assignments for exposure and accelerated development.”
Increase in outsourcing and partnerships
Burmeister argues that government will need to increase its capacity to manage outsourced projects and public-private partnerships. “This means an increase in commercial, technical and risk management skills,” she says.
“Business – and its institutional investors – will need to learn to balance short-term profits against overall economic imperatives such job creation and skills development.
“The proportion of contractors who are paid for expertise on a project-by-project basis will continue to increase significantly. Our legislation will need to support work permits and visas where external resources are required.
“Remuneration packages will continue to spiral for those with specialised skills demanded by the market. Skills premiums for certain core business activities will continue to rise.
“A significant increase in investment in the development of graduates, young professionals and mid-tier professionals will help to balance supply and demand, and in the long run will be more cost effective.
“That means executive incentives should be aligned to increasing skills across the business, and not only to boosting bottom-line profits.
Global resourcing strategies
“Global resourcing strategies are essential to enable delivery of infrastructure investment in the face of increased mobility of scarce skills.
“Leaders of the future must be able to manage large businesses, projects and stakeholders across multiple geographies and cultures. Businesses will need to be able to offer both the breadth and depth of services – design, build, finance and operate.
“The sector must become a leader in sustainability. As the 2012 KPMG Global Construction Survey states: ‘Sustainability begins and ends with construction, the materials used, the waste produced and the final built environment’.”
(See research parameters and resources)
Landelahni Infrastructure Sector Survey 2012: Research parameters
The research sample consisted of:
§ Main participants in electricity, water, waste, roads, rail and ports
· Major participants in the construction sector based on the Construction Industry Development Board (CIDB) list of companies able to deliver projects of more than R30-million
· Large JSE-listed construction companies
· Consulting engineering firms
· Large suppliers to construction industry, eg cement producers.
1. Survey sample: 75 companies
2. Permanent employees in infrastructure sector – 301 203
Sources of qualitative and quantitative data
§ 2011 Annual Reports: Aveng, Basil Read, EsorFranki, Group Five, Murray & Roberts, Raubex, Sanyathi Holdings, Seakay Holdings, Stefanutti Stocks, WBHO
§ Construction 2012: A review of South Africa’s construction sector, Creamer Media
§ Construction Engineering Training Authority (CETA): Sector Skills Plan 2009-2010
§ Construction Engineering Training Authority (CETA): Strategic Plan 2011-2012
§ Construction Industry Development Board (CIBD): Contractor Skills Survey 2011
§ Consulting Engineers South Africa (CESA): Annual Review 2010
§ Consulting Engineers South Africa (CESA): Bi-Annual Economic & Capacity Survey Jan-June 2011
§ Deloitte: Delivering successful infrastructure projects to create globally competitive South African cities
§ Deloitte: Human Capital Trends 2011
§ Department of Education : Graduate Statistics 2010
§ Department of Labour : Commission for Employment Equity Annual Reports 2010
§ Department of Labour : National Scarce Skills List 2008 (last updated 2008)
§ Electricity 2012: A review of South Africa’s electricity sector, Creamer Media
§ Employment Equity reports of participant companies in infrastructure and construction
§ Energy and Water Sector Education and Training Authority (ESETA), Annual Report 2010/2011
§ Energy and Water Sector Education and Training Authority (EWSETA) : Annual Report 2010/2011
§ Engineering Council of SA – 2010/11 Registration
§ Engineering Council of South Africa (ECSA): Annual Report 2010-2011
§ Engineering News : Research Channel
§ Engineers Australia: The Engineering Profession – A Statistical Overview, Ninth Edition, July 2012
§ Engineers Canada: Canadian Engineers for Tomorrow: Trends in Engineering Enrolment and Degrees Awarded 2006 – 2010
§ Ernst & Young CEO/CFO: Roundtable for the Construction, Engineering and Infrastructure industry 2011
§ Financial Mail: Infrastructure – Unpacking the state’s spending plans
§ First National Bank / Bureau for Economic Research: The state of the civil construction industry (January 17,2012)
§ Global Construction 2020 – A global forecast for the construction industry over the next decade to 2020, Global Construction Perspectives / Oxford Economics
§ HSRC: Impact Assessment of National Skills Development Strategy 11 – Scarce Skills Information Dissemination: A Study of the SETA’s in South Africa, January 2012
§ ILO: Report on Global Employment Trends
§ Infrastructure Inputs Monitoring Project (IIMP) – Synthesis Report 2011
§ International Organisation for Migration (IOM) & United Nation’s Economics Commission for Africa (ECA)
§ KPMG International: Embracing Change Global Construction Survey 2012
§ KPMG International: The Great Global Infrastructure Opportunity Global Construction Survey 2012
§ Local Government SETA (LGSETA): Annual Report 2010/11
§ MERSETA – Sector Skills Plan 2010-2015
§ MESETA – Impact Assessment Study of Learnerships & Apprenticeships 2008
§ Mining Qualifications Authority (MQA) – Analysis of National Artisan Development Statistics 2011
§ OECD – Education at a glance 2011
§ OECD: International Migration Database, National Statistical Institute, The Boston Consulting Group Analysis
§ Organisation for Economic Co-operation and Development (OECD): Education at a Glance 2011
§ Oxford Economics: Global Construction 2020 – A global forecast for the construction industry over the next decade to 2020
§ PWC Gridlines – What’s next for nuclear power?
§ PWC: Engineering growth – Second-quarter 2011 global engineering and construction industry mergers and acquisitions
§ PWC: Global Tends in Energy, Power and Utilities, Oct 2011
§ PWC: The shape of power to come, Investment, affordability and security in an energy-hungry world, 12th PwC Annual Global Power & Utilities Survey
§ South African Council for the Quantity Surveying Profession (SACQSP): Annual report 2010/11
§ South African Federation of Civil Engineering Contractors (SAFCEC): State of the Industry, 2nd Quarter 2012
§ South African Federation of Civil Engineering Contracts (SAFCEC), State of the Industry, 2nd Quarter 2012
§ South African Institute of Civil Engineering (SAICE): Infrastructure Report Card for South Africa 2011
§ Statistics South Africa : Quarterly Employment Statistics Dec 2011 and Labour Force Survey Q4 2011
§ Statistics South Africa: Electricity, gas and water supply industry, 2010
§ The Construction Industry Development Board (CIBD) Quarterly Monitor April 2012
§ The FNB/BER Building Confidence Index – 4Q2011 & 2Q2012
§ Water 2012: A review of South Africa’s water sector, Creamer Media
§ World Economic Forum (WEF) : Global IT Report 2010
§ World Economic Forum (WEF): The Global Competitiveness Report 2009/2010
§ World Energy Council: World Energy Insight 2012