Multiplier presentation march 2011

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Multiplier presentation march 2011

  1. 1. Southern African Institute of Steel Construction<br />Multiplier in structural steel fabrication and construction<br />March 2011<br />
  2. 2. What is the multiplier effect ?<br />Knock-on characteristics of economic activities:<br />Example: Investment in a steel building / warehouse<br />Structural steel has to designed, fabricated, painted, transported and erected<br />Raw steel has to be produced in furnaces and rolled into useable plate and sections<br />Iron ore has to be mined and processed<br />Each step requires materials, equipment, etc.<br />People are employed throughout and spend their income in the economy<br />
  3. 3. The Multiplier study<br />Conningarth Economists<br />Macro-Economic Impact Analysis<br />Social Accounting Martrix (SAM) - with info from BSA, SARB, StatsSA and Treasury<br />Model analyses requirementsfor commodities, electricity, water, etc. as well as the expenditure on wages and salaries and the income received by state and government<br />
  4. 4. The Multiplier impacts<br />On a new structural steel project<br />Direct: Effects in structural steel sector<br />Indirect: Effects in supply industries<br />Induced: Economic impacts from salaries and wages paid in the industry as well as sectors indirectly linked<br />
  5. 5. The Multiplier calculations<br />BASE INFORMATION STRUCTURAL STEEL<br />6000 TONS PER YEAR: (Medium sized company)<br />People employed in fabrication: 210<br />People employed in construction: 150<br />Total employment for 6000 tons per annum: 360<br /> * Jobs created for every 1000 tons produced: 60<br />720 000 TONS PER YEAR: (Industry)<br />People employed in fabrication: 25 200<br />People employed in construction: 18 240<br />Total people for 720 000 tons per annum: 43 200<br />
  6. 6. The Multiplier creates jobs<br />EMPLOYMENT Company Industry<br />Direct: 360 43 200 <br />Indirect: 192 23 040<br />Induced: 378 45 360<br />TOTAL: 931 111 720<br /> - A multiplier of X 2,6 “decent jobs” therefore applies in the economy for every person directly appointed by a fabricator or erection contractor<br /> - A further multiplier of X 4 applies to all those dependants relying on each income earner<br />
  7. 7. The Multiplier calculations<br />BASE INFORMATION STRUCTURAL STEEL<br />6000 TONS PER YEAR: (Medium sized company)<br />Sales value of fabrication: R 121 m <br />Sales value in construction: R 52 m<br />Total turnover for 6000 tons per annum: R 173 m<br />Capital Investment required: R 53,97 m<br /> * Capital investment required per job created: R 150 000<br />720 000 TONS PER YEAR: (Industry)<br />Sales value of fabrication: R 14,520 bn<br />Sales value in construction: R 6,240 bn<br />Total turnover for 720 000 tons per annum: R 20,760 bn<br />Total Capital Investment: R 6,476 bn<br />
  8. 8. Multiplier growing the economy<br />Value Added / Gross Domestic Product (GDP)*:<br />R Millions Company Industry<br />Direct: 94 11 280 <br />Indirect: 44 5 280<br />Induced: 110 13 200<br />TOTAL: 248 29 760 <br />Multiplier: 2,6X<br />* GDP: Sum of salaries, Gross Operating Profit and indirect taxes<br />
  9. 9. The Multiplier grows investment<br />Impact on capital formation / investment:<br />R Millions Company Industry<br /><ul><li>Direct: 54 6 480
  10. 10. Indirect: 92 11 040
  11. 11. Induced: 205 24 600
  12. 12. TOTAL: 352 42 240
  13. 13. R6,5 billion invested in the industry (X6,6) stimulates R 42,2 billion investment in RSA</li></li></ul><li>The Multiplier stimulates the economy<br />A R1000 000 000 structural steel project<br />causes R1.43 billion of economic activity:<br />50% (R715 million) for manufacturing<br />20% (R286 million) for financial services<br />10% (R143 million) for community, social<br />7% (R100 million) for wholesale and retail<br />4% (R60 million) for transport and storage<br />9% (R126 million) for all other sectors<br />
  14. 14. The Multiplier pays taxes<br />R1billion structural steel project causes R1.43 billion of economic activity, and:<br />Results in R390 million of taxes being collected<br />For investments in infrastructure<br />For incentives for investment and export<br />For social and other grants <br />For services ……… <br />
  15. 15. The Multiplier used<br />A R1billion imported structural steel project supplied and erected by overseas contractors:<br />Requires R1bn cash outflow to the supplier<br />Loses 25% of potential taxes (14% VAT earned)<br />Loses R1,43 billion of economic activity<br />Loses 5500 decent jobs for a year<br />Loses R 312 m of potential capital formation<br />Does not make economic sense !<br />
  16. 16. The Multiplier used<br />R1 billion of imported fabricated steelworkonly * erected by local contractors:<br /> (Represents 50 000 tons per annum)<br />Requires R1bn cash outflow<br />Loses 25% of taxes (After 14% of VAT earned)<br />Loses R2,5 billion* of GDP / Value added<br />Loses 8600* decent jobs for a year<br />Does not make economic sense !<br /> * Multiplier of 2,9X applies<br />
  17. 17. The Multiplier in practice<br />CONCLUSIONS<br />A multiplier applies in all industries<br />Import substitution is a job creator<br />Local content economically justifies a 25% differential compared to imports<br />Buying South African makes business sense<br />This provides a realistic business case basis for Government decision making on import protection, designating products and investment support…..<br />

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