SETP No. 14 The Economic Value of Incremental Employment in the ...

8. It is shown in the forth area of investigation that the macro economic effects of
labour-based earthwork excavation are greater than those of equipment-based
construction. A case can therefore be made for a financial premium for the
substitution of labour for equipment. In addition, if we view the import component
of locally manufactured earth moving equipment as ‘lost’ expenditure (lost to the
country) then labour can compete financially with equipment under a much
greater range of physical conditions and wages.
9. These results are sensitive to the import component of locally manufactured
construction equipment. From this it follows that the factor that most effects the
financial premium is the degree of capital amortisation. Comparing the macro
economic effect of labour against new earth moving equipment with a 71% import
component indicates that a labour premium of over 50% is justified. However this
premium falls to 4% once the capital cost is fully amortised. Similarly comparing
labour to a machine with 48% import component calls for a 32% labour premium
when the machine is new but again only 4% when fully amortised.
10. A comparison of the direct cost of earthwork excavation indicates that labourbased
methods may be financially viable even without macroeconomic premiums.
In the Cape Town area this happens only at low wages and easy ground
conditions. The competitiveness of labour-based earthworks excavation declines
rapidly as wages increase and/or ground conditions deteriorate. It is suspected
that higher equipment costs outside of urban areas will result in greater financial
viability for labour-based earthwork in rural and remote rural areas. In addition, a
programme approach will improve labour productivity and make it more
competitive.
11. In general the report draws mixed conclusions about the financial viability of
labour-based methods of road rehabilitation. The macroeconomic advantages of
labour-based methods are compelling when we use fully imported equipment and
remains so even for locally produced equipment with an import component. When
the capital cost of the equipment is fully amortised then the macroeconomic
advantage of labour-based methods becomes marginal.
12. The overwhelming case that must be made for using labour-based methods is the
contribution it will make to economic empowerment. Roads, dams and other
infrastructure are good for the regional economy and will allow it to grow. Using
labour-based methods will generate jobs and provide incomes further promoting
the regional economy. Involving local communities will help in capacity building.
Using small and emergent contractors will generate sustainable incomes and
opportunities.
13. It is beyond the scope of this report to attempt to quantify the effects of labourbased
methods on economic empowerment. In a similar vein we cannot quantify
the cost of economically marginalising poor rural people by using equipmentbased
methods. Yet, even without being able to quantify these effects, we believe
that there is an overwhelming case for labour-based methods. Not only will it help
the poor but it will also contribute to the generation of sustained economic growth
and empowerment.
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