1. An Assessment of Opportunities for Local Production of Construction and Building Materials using the South African Public Housing Programme as a Procurement Lever
TIPS: International Conference on Manufacturing Led Growth for Employment and Equality
21 May 2014
Tebogo Makube (Ph.D)
Disclaimer: views presented here are the author’s sole responsibility and not those of his employer.

2. Outline of the Presentation
Aims and objectives of the study
Methodology used in the study
Background on the governance and institutional framework for housing delivery
Analysis and findings of the study
Recommendations

3. Aims and objectives of the study
Both the New Growth Path (NGP) and the Industrial Policy Action Plan (IPAP) identify the need to leverage public procurement to support local manufacturing, especially in value added, tradable and labour intensive industries
Public expenditure and procurement are considered strategic levers for industrial development
The study assesses opportunities for local production and manufacturing of construction materials using the South African public programme as a procurement lever
Currently the procurement of the public housing programme is not strategic and also not directly linked to industrial policy imperatives
Public housing programme must be linked to industrial policy objectives and that the government should prioritise the designation of construction materials and products for local production
Local production is important in the delivery of infrastructure, access to housing, job creation and diversification of enterprise and supplier development in the sector

4. Methodology used in the study
This study reviewed literature and official government policies on the delivery of public housing programmes in South Africa
It analysed financial and economic data to explore trends in the public housing delivery programme.
Data on the import and export trends in the construction materials sector was also reviewed.
Stakeholder views mostly by government departments were helpful in making an informed view of the challenges and opportunities facing the public housing sector.
The analysis was used to formulate recommendations for the designation and localisation of construction materials for public housing delivery in SA

5. Governance and institutional framework for housing delivery
In South Africa, the right to housing is enshrined in Section 26 of the Bill of Rights
“….the state must take reasonable legislative and other measures, within its available resources to achieve the progressive realisation of this right”.
The Constitution requires the government to set aside resources towards the progressive realisation and other socio-economic rights listed in the Bill of Rights
Social and economic rights such as rights to access to housing have significant policy and fiscal implications
In terms of schedules 4A and 5A of the South Africa Constitution, housing delivery is a concurrent function of both national and provincial governments
Legislation provides that where the housing function can best be administered locally, it can by agreement, be assigned or delegated to a municipality provided that the municipality has the capacity and resources to perform the function

6. Supply and demand side issues affecting public housing delivery
Changing housing policies
Reconstruction and Development Programme (RDP) housing, Breaking New Ground (BNG): the development of sustainable human settlements, upgrading informal settlements and the Finance-Linked Individual Subsidy Programme (FLISP)
The National Norms and Standards for the Construction of Stand Alone Residential Dwellings (2007)
All standalone houses constructed through application of the National Housing Programmes must comply with the norms and standards with regards to technical specifications, including environmentally efficient design proposals
Public procurement policy framework and legislation in South Africa
Magoro & Brynard (2010) contend that housing departments are largely incompetent when it comes to implementing the preferential procurement policy

7. Housing delivery statistics
2.6 million “RDP” houses have been built, however, the housing backlog remains on the increase
Housing Backlog: Informal dwellings per province
Source: Stats SA, 2010 General Household Survey

8. Provincial governments expenditure on the public housing programme

9. Housing delivery statistics
A percentage of households with fully owned properties increased from 53.1% in 2002 to 58.1% in However, there is also a challenge in the gap market which is pushing demand for rental houses

10. Housing delivery statistics
Beneficiaries of ‘RDP Houses’ per gender
Quality issues
Source: Stats SA, 2010 General Household Survey

11. Building and construction cost indicators
Building and construction investment cost indicators
Public housing programme’ cost indicators
In 2008, new residential buildings accounted for about 25% of the total national building and construction expenditure of R158.6 billion.
Materials typically account for 60% of the costs while labour accounts for the remaining 40% (Mapiravana & Ampofo-Anti, 2011).

12. An overview of leading construction materials’ manufactures in SA
According to Statistics SA the building materials market is valued at approximately R70bn per annum

13. Market share of the major construction materials in SA

14. Estimate of some construction materials’ imports and exports: 2008

15. Construction Industry Supply Chain and Barriers to Entry
The industry is a high volume, low margins industry which requires enough initial capital investment to manufacture adequate stock
As major retailers grew, they started importing their own products, buying directly from the manufacturers or forming buying groups to buy directly from manufacturers thus bypassing the wholesaler
Some wholesalers chose to diversify and added either manufacturing or retail operations to their wholesale operation
New entrants have to build relationships with suppliers and customers, competing with other players who have existing supply chain relationships and an entrenched market position

16. Construction Industry Supply Chain and Barriers to Entry
The three largest building material retailers that have wholesale operations are:
Massmart through Builders Warehouse and Builders Express targets lower-income home owners and small contractors in dense residential, township, rural and developing areas
Build It, which provides materials to building contractors in addition to its retail operations
Iliad Africa Limited which is located mostly in coastal towns focuses on sourcing, distributing, wholesaling and retailing general and specialised building materials

17. Harmonisation of norms and standards for construction materials
Recommendations
Harmonisation of norms and standards for construction materials
To date, the only compulsory standard in the construction industry is that for cement (DBSA, 2011)
Harmonised standards should be established as a matter of urgency; this will assist in affording access to the construction materials manufacturing industry to diversified suppliers and to ensure the degree of market transparency
The NHBRC, SABS; Agrément South Africa must work together in harmonising norms & standards for construction materials, and in improving regulatory compliance and performance.
Reform of the procurement system and support for supplier development and localisation in the construction materials manufacturing industry
There is a need to rationalise and align a plethora of Sector Charters influencing B-BBEE in the sector (Construction Charter :design and construction sectors; Mining Charter : cement, aggregate and sand; Manufacturing Charter; Wholesale and Retail Charter; and Financial Charter).

18. The state can provide land, infrastructure and subsidies.
Recommendations
Government should prioritise the designation of construction materials and products for its infrastructure programme
In developing localisation strategies, it is important that the Department of Trade & Industry engages strategic departments involved in the delivery and financing of housing, including the industry and financial institutions in the housing delivery value chain
Transversal contracts will lead to economies of scale and savings on the fiscus
Review the role of the state in housing delivery and empower beneficiaries in the construction of their houses
Government is facing a mammoth task to deliver houses amid growing demand, it also carries the responsibility of providing warranties for poor workmanship
There is a need to review the way low cost houses are delivered and relieve the government of risks involved in the construction of such houses
A technical housing support service managed by a possibly revamped NHBRC must assist beneficiaries to build structures of their choice in compliance with approved plans as well as norms and standards
The state can provide land, infrastructure and subsidies.

19. Thank You