Construction firms cheer budget

Johannesburg - Some JSE-listed construction companies have applauded Finance Minister Trevor Manuel's budget speech, saying it's "good news" and will add to job creation.

In his budget speech, Manuel told the nation that building SA's capacity to grow is the one of five pillars of the state's spending plans, which is reflected in government's R787bn infrastructure investment plans for the next three years.

"In this budget a further R6.4bn is added for public transport, roads and rail networks, R4.1 bn for school buildings, clinics and other provincial infrastructure projects, and R5.3bn for municipal infrastructure and bulk water systems," he said.

Raubex financial director François Diedrechsen told Fin24.com: "Around 85% of our company is exposed to government spend, so it's pleasing to hear what they had to say in the budget, and that they will continue with expenditure, infrastructure and the expansion of roads; as a result, we will continue to employ people as we go along."

One of Raubex's peers in the roadworks industry, Roadcrete (whose parent company is JSE-listed Basil Read), also agreed that this will be beneficial for employment in the sector. "Of course this is positive news; this will continue to support employment. I can assure you that we are very happy with this," CEO Martin Lombard told Fin24.com.

Another big player in the construction industry, Aveng, said it was pleased that despite the global economic uncertainty, the government has "once again" demonstrated its commitment to the socio-economic development of the country.

"We welcome the finance minister's commitment to maintaining strong focus on infrastructure investment in South Africa. We've seen the government taking great strides in awarding contracts to upgrade infrastructure in the past 12 months," newly-appointed Aveng CEO Roger Jardine said.

Aveng is involved in a number of strategic public sector projects, including the Gauteng Freeway Improvement Project and infrastructure developments for the 2010 Fifa World Cup.

Borrowing for a good cause

Manuel said that major investments in power generation, transport networks and telecommunications are in progress, building an environment within which mining and industrial development, tourism and the services economy will prosper, even if the short-term outlook is poor.

Murray & Roberts CEO Brian Bruce noted that government is increasing borrowing to fund expansion: "I think more important is the increased government borrowing to fund this, and that it is prepared to borrow more for infrastructure."

Manuel pointed out that substantial capital spending projects are underway in the electricity sector. These projects, together with upgrading commuter rail facilities and improving the Gauteng freeway network, are financed outside of the main budget framework.

"Taking the financing needs of these entities into account, the public sector borrowing requirement for next year is expected to be 7.5% of GDP, or some R186bn to be raised from domestic institutions, investors, multilateral institutions and portfolio inflows from abroad," he said.

This, he said, is a substantial fiscal boost, against the background of the budget surplus recorded over the three years to 2007/08. "But we are borrowing not to rescue failed banks... but to construct the roads and the power stations, the classrooms and hospital wards."

"The national budget contributes to the financing of some of these investments, and there is also a role for our development finance institutions in supporting state owned enterprises, municipalities and private companies raise the finance required for major capital projects.

According to Bruce, it's very easy "to just spend more of our taxes".

"But to say that they are willing to borrow and increase government debt for infrastructure spend is a statement of confidence for the future."

"And when they borrow money, there will be more focus on the efficiency of the implementation of projects. I think it is a very strong statement to say let us do what is necessary today to have a much stronger future," said Bruce.

- Fin24.com