Construction activity to improve in the latter part of this year – Botha
18th September 2019
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Economist Dr Roelof Botha, who compiles the Afrimat Construction Index (ACI) on behalf of construction materials and industrial minerals supplier Afrimat, has expressed confidence that construction activity in South Africa will improve during the second half of this year and gain momentum in 2020.
“The gradual implementation of the new growth plan published by the National Treasury places emphasis on creating new infrastructure and targeting sectors with high growth and employment creation potential, which could consolidate the latest modest recovery of construction sector activity and lead to a new sustained growth path,” Botha commented on Tuesday in a release outlining the performance of the ACI, a composite index of the level of activity within the building and construction sectors, during the second quarter.
The ACI had mirrored the performance of economic activity in the second quarter of the year, increasing by 3.1% quarter-on-quarter.
Compared with the first quarter, the best performing indicators included in the ACI were the values of buildings completed, labour remuneration and the volume of building materials produced.
Only two indicators recorded declines, which was in line with the traditional recovery of construction activity during the second quarter of each year.
Botha said it was encouraging to note that the four-quarter average of the ACI had stabilised at a level 13.8% higher than during the first quarter of 2011 – the base period for the ACI.
“This growth nearly matches that of the total South African economy, with real value added in the non-agricultural sectors having increased by 14% since the first quarter of 2011. It indicates too, that while the construction sector is still under severe pressure, it is not yet on its knees, as the level of activity has increased at almost the same pace as overall economic activity.”
He added that the declining trend in the ACI’s four-quarter average value that lasted for seven successive quarters had been halted, and that a new growth phase may have commenced on the back of interest rate relief, albeit marginal.
He also pointed out that the ACI could receive a boost from the implementation of the National Treasury’s proposed new growth plan.
The National Treasury in late August published the proposed plan, titled ‘Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa’ and called for the public’s comment on the proposed plan by September 15.
“The plan, which has been welcomed by the private sector at large, seeks to start removing obstacles to higher economic growth and job creation and to incentivise activity in labour-intensive sectors. Construction remains the most labour-intensive sector of the South African economy and stands to gain from pragmatic and focused growth policies, such as resuscitating the Reconstruction and Development Programme housing scheme,” said Botha.
He further noted that it was evident that government intended to rectify the declining ratio of infrastructure spending to consumption spending by the public sector. “The expansion of infrastructure in South Africa has become critically important, a fact that has been acknowledged by President Cyril Ramaphosa and Finance Minister Tito Mboweni. The construction sector stands to gain from the new-found emphasis on raising the country’s economic growth rate.”
Botha pointed out that capital formation and gross domestic product (GDP) were highly correlated, especially in emerging markets. “The construction industry at large has a pivotal role to play in the quest for job creation on a significant scale.”
Looking ahead to the second half of the year, he said it was encouraging that the South African National Roads Agency Limited (Sanral) was expecting “an imminent resurgence” of road construction projects. “According to Sanral, road construction tenders to the value of more than R40-billion will come to the market over the next two to three years.”
Other encouraging news that emanated from the second-quarter GDP data was the surge in real gross capital formation, which had increased by a “staggering” 18% quarter-on-quarter, following a declining trend that had lasted for several years.
However, two lingering concerns were the decline in the value of building plans passed and the downward trend in the volume of building materials produced.
Despite a marginal improvement in the second quarter, the latter indicator is hovering at levels that are 25% lower than two years ago. “One explanation may be the entry of informal sector agents that fall outside the scope of official statistical surveys,” noted Botha.
Afrimat CEO Andries van Heerden, meanwhile, commented that it was pleasing to see the ACI recover but cautioned that, while government recognised that the economy had to be “jump-started”, Afrimat did not expect “wholesale recovery within the sector taking place for some time yet”.