The number and value of planned infrastructure projects declined last year, with private sector plans holding up best, Nedbank’s annual listing of construction projects shows.

Nedbank attributed the overall weakness to “the global financial crisis and weak local economic prospects”.

The bank said the number of projects announced last year fell to 101 from 126 in 2007, and the value of projects fell from R268 billion to R145 billion. The listing includes only projects valued at R20 million or more.

The number of projects announced by public enterprises slowed the most, by 50 percent, while general government projects fell 38 percent.

In value terms, projects fell from R102 billion to R5 billion at state-owned corporations, while government projects dropped from R72 billion in 2007 to R40 billion last year.

In contrast, the private sector announced 80 new investments, a fall of just 12 percent. Nedbank pointed out that most of these were unveiled in the first half of the year, before the extent of the downturn was apparent.

The value of private sector investment remained relatively steady in real terms last year.

In nominal terms, the value actually rose to R100 billion from R93.6 billion in 2007.

The finance, real estate and business services sector accounts for about R53 billion worth of the scheduled private sector projects. Nedbank said most were aimed at “the refurbishment and expansion of shopping complexes as well as mixed-use developments”.

One big mixed-use development is the Menlyn Maine City Precinct in Pretoria, worth R7 billion. Others include the R2.8 billion Parsonvlei housing development in Port Elizabeth and a R2 billion affordable housing project in Diepsloot, north of Johannesburg.

In the manufacturing and mining sectors, Nedbank said its survey showed that many large projects announced previously “would be put on hold or that spending would be carried out on a reduced scale”.

Companies “that explicitly announced revisions on their capital project plans” included Sasol, ArcelorMittal South Africa and Anglo American.

Public power utility Eskom had also cancelled its long-term plan to build a second nuclear power plant, Nedbank said.

Nevertheless, manufacturing projects worth R26 billion were announced last year, “boosted mainly by Sasol’s five-year expansion plan and the construction of Heineken’s new brewery in Gauteng”.

Other big projects were Lafarge’s R1.2 billion Project Rainbow, consisting of an expansion of its Lichtenburg cement works in North West and the development of a grinding plant in Randfontein.

Lower commodity prices and falling demand for mineral resources “interrupted” new investment plans by the mining sector, according to Nedbank.

The bank listed R14.2 billion worth of new mining projects. These included Exxaro’s R9 billion Grootegeluk expansion in Limpopo, aimed primarily at supplying coal to Eskom’s Medupi power station.

A major government project announced last year was the R10 billion integrated rapid transit system for Cape Town.

Nedbank said the risks of spending reassessments remained high “given the bleak economic outlook. As a result, capital formation will probably continue to weaken in the short term, as the effect of the global financial crisis continues to penetrate the local economy.”

PUBLICATION: Business Report
AUTHOR: Ethel Hazelhurst
DATED: 30th April 2009