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January - June 2010

January - June 2010. Biannual Economic and Capacity Survey . Salient Features. Fewer responses combined with a much lower represen tation from smaller firms (4% compared to 38% in preceding survey (Dec-09))

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January - June 2010

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  1. January - June 2010 Biannual Economic and Capacity Survey

  2. Salient Features • Fewer responses combined with a much lower representation from smaller firms (4% compared to 38% in preceding survey (Dec-09)) • Marginal increase in fee income, up 3% since the last six months of 2009, but still down 5% compared to same period in 2009. • Fee income in real terms down 8,1% y/y (constant prices) • No real change in employment estimated at 19 632 as at June 2010 • Salaries represented 54% of total turnover, estimated at R8,3 bn (current prices) • Confidence levels were better than expected in the first six months, and marginally higher at 87,1 compared to the preceding quarter. Confidence however deteriorates in the second half to 71.9, with a much improved outlook for 2010, recovering to 93.6. • Although the bulk of earnings are in the civil sector, earnings dropped 19% y/y constant prices, but increased by 12% y/y in structural services. There was an impressive 98% increase in earnings in the environmental sector in the last 6 months to an estimated R749m constant prices. • Earnings in Gauteng improved in the last 6 months (up 15,8%) but is still 31% lower compared to the same period in 2009 • Earnings in the Western Cape deteriorated in the last 6 months, but was up an impressive 59% y/y • There was a notable increase in earnings across South African borders in the last 12 months. • Earnings within the central government were up 135% y/y, to over R1,4bn in June 2010, with a 19% increase in provincial government earnings. Earnings within the private sector were 32% lower compared to last year. • Earnings in transportation increased by 24%, and a 35% increase was reported in earnings in the commercial sector. Housing edged up by 7%. • Earnings on water services fell by a disappointing 30% compared to last year. • Competition in tendering intensified, with 73% of respondents reporting fierce competition (compared to 44,7% in the preceding survey) • Profits only deteriorated slightly, in spite of higher levels of competition, and averaged 15,4% during the first 6 months. • Discounting however increased from an average of 16,4% to 18,9% • Fewer firms are expecting to increase staff • Capacity utilization has fallen to 87.5 (from 89.5 in the December 2009 survey) • The value of bursaries increased to 0.86% of the salary bill • The issue of payment has become a greater problem in this survey, up to 23,4%, from 18,5% in the preceding survey, mainly due to poor payment from parastatals, and the private sector. A weakening was also reported in payment received from central government. There was no change in local government, but it remained unacceptably high at 16% of payment outstanding for longer than 90 days.

  3. Civil Industry Outlook: 2nd Quarter 2010 According to the SA Reserve Bank, the general economy contracted by 1,8% during 2009, the ‘overhang’ of which is still felt in a rising unemployment rate. The good news is that most indicators show strong recovery and gross domestic product grew (annualised) at 4,6% during the 1st quarter of 2010. Consumption expenditure (both consumer and government) increased strongly, and the decline in inventory holdings by companies slowed down. The general economic outlook is still subdued for 2010 (2.5%) and somewhat better during 2011/12 (3.5% to 4%). Whereas the general economy is coming out of its sharp recession quite strongly and despite the much talked about R845 billion to be spent over 3 years, capital expenditure is slowing down. Gross fixed capital formation by different clients showed mixed trends; all tiers of government recorded lower capital expenditure (-1,2% for 2009 & - 8% for 1st Q 2010), and so did private sector investment spending (-7% for 2009 & -0,7% for 1st Q 2010). Public corporations’ fixed investment grew by 41% during 2009, but only 7% recently (1st Q 2010). The Confidence Index recovered to roughly the same level it was at the beginning of 2009. Over the last 12 months it declined 41%, the last 6 months by 24% and improved 20% over the last quarter! This is a VERY good sign and indicates an expected turn of fortune a year and a half away. The cumulative number of tenders invitations declined by 16% over a year, by 20% over 6 months but actually improved quarter on quarter (ending 1st quarter 2010). The average value kept on declining though. This still indicates tough times in the short term. The latter is reflected in the value of contracts awarded dropping by 55% over 12 months, 62% over 6 months and again over the last quarter (ending 1st quarter 2010). It seems as if the bottom of this indicator is still some time away. The result is that estimated civil engineering turnover declined by 23,5% in real terms compared to a year ago, and 33% over a 6 months period (ending 1st quarter 2010). It is expected to decline by 39% (real) in calendar 2010 compared to 2009. Re-estimated annual employment started to show stronger signs of contraction; a decline of 7% on a year ago, and -13% over a 6 months period. The fear expressed in our last report that companies cannot hold on to their unoccupied staff is becoming a reality. The general economy is recovering well after the sharp recession but despite the much talked about R845 billion to be spent over 3 years, capital expenditure is slowing down with delivery bottlenecks to execute micro economic policies at the heart of the problem. The lack of a coherent policy framework (between macro and micro policies), political fractions within the ruling elite and a growing, yet increasingly underperforming ‘developmental state’ all contribute to this. Source: SAFCEC

  4. Firm distribution based on Annual Turnoverbased on responses received: January – June 2010

  5. Economic Impact

  6. Relationship to Gross Fixed Capital Formation

  7. Consulting Engineering IndustryFee income, Rm Constant 2000 prices (CPI Deflated) Annualised

  8. Consulting Engineering IndustryReal Fee income (CPI deflated), 2000 prices: Annual Change

  9. CESA Confidence Index

  10. Industry Confidence

  11. Consulting Engineering IndustryReal Fee income (CPI deflated) vs confidence

  12. Consulting Engineering IndustryNominal Fee income vs confidence

  13. CESA Labour Cost Indicator: Y-Y Change

  14. Consulting Engineering IndustryEmployment vs REAL fee income (CPI / LCI Deflated)

  15. Consulting Engineering IndustryEmployment vs Salary / Wage bill

  16. Discounting Question: What is the prevailing discount being offered in a tendering situation to clients by your firm, benchmarked against the ECSA Guideline Fee Scales? 43% of firms discounted by 20% or more

  17. Fee income earned by Sub-disciplines: % ShareJune 2010 Question: What type of work did your company engage in during the past 6 months?

  18. Fee income earned by Sub-disciplines: % ShareJune 2009 – June 2010 Question: What type of work did your company engage in during the past 6 months? 80% of fees are earned in four disciplines namely civil, project management, structural and mining

  19. Fee income earned by Sub-disciplines: % ShareChange in the last 12 months Question: What type of work did your company engage in during the past 6 months?

  20. Fee income earned by Top four disciplines: R mill 2000 pricesAnnual average: 2002 – June 2010 (annualised) Civil

  21. Fee income earned by economic sectorPercentage market share December 2008 – June 2010 Section A General Questions: Question: Income distribution per economic sector

  22. Fee income earned by key economic sectors June 2006 – June 2010 Section A General Questions: Question: Income distribution per economic sector

  23. Fee income earned by key economic sectors June 2005 – June 2010

  24. Provincial Market Share: June 2010 Vs change in market share from June 2009 Section A: General Questions: Question 10 Income distribution per province GAIN market share

  25. Fee income earned by province (High Capacity economies) – Annualised smoothed Section A: General Questions: Question 10 Income distribution per province Gauteng

  26. Fee income earned (Constant 2000 prices) High Capacity vs lower capacity provincial economies (Smoothed) Section A: General Questions: Question 10 Income distribution per province

  27. Fee income earned (Constant 2000 prices) % of RSA Earnings : High Capacity provincial economies (Smoothed) Section A: General Questions: Question 10 Income distribution per province

  28. Fee income earned : RSA vs EX-RSA R mill, 2000 prices (Annualised, smoothed) Section A: General Questions: Question 10 Income distribution per province

  29. Fee income earned by type of client % Share Section A: General Questions: Question 11 Local (SA) Income distribution per fee paying client type, during the past 6 months

  30. Fee income earned by type of client R mill 2000 prices (Annualised, smoothed - avg over 2 survey periods) Section A: General Questions: Question 11 Local (SA) Income distribution per fee paying client type, during the past 6 months

  31. Fee income earned by type of client Constant 2000 prices (Annualised, smoothed - avg over 2 survey periods) Section A: General Questions: Question 11 Local (SA) Income distribution per fee paying client type, during the past 6 months

  32. Competition in tendering Section B: Business Cycle Indicators - Question 16 During Jan – June 2010 competition for work was (Tick selection)

  33. Competition in tendering Section B: Business Cycle Indicators - Question 16 During Jan – June 2010 competition for work was (Tick selection)

  34. % of Firms wanting to increase staff New June 2005 survey

  35. Engineering Skills Shortfall % Experiencing difficulties Fewer firms want to increase engineers

  36. Recruitment problems

  37. Bursaries % of Salary / Wage bill

  38. Bursaries R mill 2000 prices (Annualised)

  39. Training (Salaries and Direct Training Costs) % of Payroll Large % of respondents did not complete information on salaries in December 2009 survey Data not available Data not available

  40. Training (Salaries and Direct Training Costs) Rand millions, Constant 2000 prices Large % of respondents did not complete information on salaries in December 2008 and 2009 survey Data not available Data not available

  41. Training (Direct costs only) % of Payroll

  42. Training (Direct costs) Rand millions, Constant 2000 prices

  43. Student enrolments in public higher education institutions Science, Engineering & Technology 214 341 Increased by 39% between 2005 and 2007 Source: Department of Education

  44. Industry Capacity Utilisation Of existing technical staff

  45. Total fee income outstanding, by client Exceeding 90 days

  46. Fee income outstanding for longer than 90 daysJune 2010

  47. Total fee income outstanding for longer than 90 days % of total fee income earned Survey amended to include foreign clients

  48. Escalation trends Year-on-Year % Change Based on headline consumer inflation (CPI) Forecasts Industry Insight Economist Poll CPI Basket Revised in January 2009 Source: ABSA

  49. Consulting Engineering Profession Labour unit cost indicator: Year-on-Year % Change (Smoothed)

  50. Consulting Engineering Profession Labour unit cost indicator: Annual Average Y-Y Chg

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