Download Network Outcomes - Economic Development Department

Managing Major Infrastructure Development: Lessons on Competitive Rivalry
The construction industry has unique characteristics that sharply distinguish it from other sectors of the economy. It is
fragmented, very sensitive to the economic cycles and political environment and has a significantly high rate of
business failure. The South African construction industry is becoming increasingly more complex as it contends with
high rates of growth caused by the amount of investments made by the public and the private sectors in
constructions projects. The industry’s fortunes tend to fluctuate with the general economy and it has a cyclical nature
which demands quick response to the changes on the economy. The South African construction industry has recently
been experiencing a boom, underpinned bygovernment’s spending on infrastructure to achieve economic growth of
6% by 2014. The recent construction boom has also been linked to the 2010 World Cup stadium construction. The
construction industry also makes upabout 3.8% of South Africa’s Gross Domestic Product (GDP).
Recently, the competition authorities in SouthAfrica have raised concerns that increasing prices of construction
services and materials, which could be aresult of high levels of concentration, are increasing the costs of
government’s infrastructure projects.Towards the end of 2007 the South African Competition Commission uncovered
a cartel in precast concrete products, particularly pipes and culverts, which had operated for some 30 years. It
heralded a major focus on construction by the Competition Commission, which uncovered numerous cartels in the
construction sector, mainly operating through bid-rigging of contracts.Equally there has been a real concern by
national and municipal departmentsabout the high construction cost of public infrastructure as seen through the 2010
World Cup stadium construction project. Over pricing and cost overruns of public infrastructure by large construction
firms during the 2010 World Cup had negative implications on citizensand dampened competitive rivalry in the sector.
During the construction industry investigation process,the Commission uncovered cartel conduct in more than 300
constructionprojects across all levels of government in all nine provinces. Most of the implicated firms had
determined and maintained collusive and price fixing agreements and determined market allocation for high value
public and private construction projects.
The government’s white paper on the construction industry spells out the government’s strategy to empower the
previously disadvantaged through the construction industry in South Africa. The New Growth Path denotes that the
impact of the infrastructure build programme on job creation across the economy will be substantial and there is an
expectation to create 250,000 jobs a year in energy, transport, water and communications infrastructure through to
2015.The objective of the government is to make the construction sector in South Africa nationally, regionally and
globally competitive. This can be achieved if the construction cartels have been broken and the competition
authorities are aware of the mechanisms used to perpetrate collusion. Along term perspective on how
infrastructureinvestment decisionsare considered and how to deal with competitive bidding processes for
infrastructure build programmes,market access and empowerment options for new and emerging entrants into
previously monopolised infrastructureproducts and geographic markets is required.
The Economic Development Department, is hosting a facilitated discussion to explore the effective management of
major infrastructure development and ways to facilitate or sharpen competitive rivalry. We aim to broadly unpack the
following discourses and scenarios;
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II.
III.
Economic techniques for quantifying the harm of cartel conduct in the construction sector.How much more
did customers in the public and private sector pay for projects as a result of cartel conduct?
Effective deterrents for cartel conduct: In addition to administrative penalties, what alternative remedies
could be considered to promote competition and lower barriers to entry in the construction sector?
What steps can construction firms take to prevent a recurrence of the large-scale collusion uncovered
during the recent construction fast-track settlement process?
Network Outcomes
The session aim to achieve the following outcomes:
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II.
III.
IV.
Better understand techniques for enhancing competitiverivalry in the construction sector
Reflect on methods to prevent recurrence of large scale collusion in the construction sector
Reflect on ways to encourage dynamism and competitive rivalry in the constructions sector
Share lessons, experiences and best practices learned from owners, financiers and end users of
infrastructure developments
For presenters:
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II.
To receive presentations and inputs from key stakeholders on strategies or suggestions for enhancing
competitiverivalry in the construction sector;
Discuss key expectations, challenges and limitations of the various approaches and models for delivery of
the infrastructurebuild programme
Date: 30th January 2014
Time: 09h00 to 13h00
Venue: Lekgotla Board Room, 1st Floor, Block G, DTI Campus, 77 Meintjies Street, Sunnyside, Pretoria