Rise in Q3 construction activity stokes optimism
Construction sector records its best performance since June 2018, raising hopes of recovery
SA’s construction industry could be on the mend after the sector’s leading building activity indicator had its best quarterly performance since June 2018.
The Afrimat construction index, which is a composite index of the level of activity in the building and construction sectors, outperformed the general economy in the third quarter of 2019. It uses indicators such as value of buildings completed, salaries and wages and volumes of building materials to measure construction activity.
“It is clear, therefore, that there is still some life in the construction sector, with improved levels of activity having been recorded since the first quarter of 2019 in the values of buildings completed, building plans passed and both the value and volume of building materials produced,” economist and author of the index Roelof Botha said.
During the third quarter of 2019, the index recorded an increase of 5.1% quarter-on-quarter, compared to an increase in GDP of 0.7%. The 5.1% increase was the highest quarter-to-quarter increase since the second quarter of 2018.
Building materials volumes increased by 11.9% compared to the second quarter of 2019, while the value of building plans passed were up 9.5%. In the same period, hardware retail trade sales rose by 8.3%.
Botha said building materials volumes and hardware retail trade sales were indicators of the state of the construction industry. “On the other hand, building plans passed indicate the level of activity in future,” he said.
The value of buildings completed in the third quarter fell by 12% while sales of building materials increased by 5.1%.
Afrimat CEO Andries van Heerden said there was evidence of renewed activity, citing the multibillion-rand pipeline of tenders from the SA National Roads Agency (Sanral). The agency has announced plans to issue tenders to the value of R40bn between the 2019 and 2021 financial years.
“However, we remain cognisant of the latest statistics released by Stats SA, according to which the construction industry as a whole registered its fifth consecutive quarter of negative growth, and so continue to ensure we remain focused on our diversification strategy, cost reduction and efficiency improvement initiatives,” Van Heerden said.
Botha expects the growth in construction activity to gain momentum in 2020, largely thanks to the project pipeline valued at R700bn identified by a new infrastructure fund, which is to be managed by the Development Bank of Southern Africa (DBSA).
The fund, announced by President Cyril Ramaphosa in 2018, is meant to to raise capital from the public and private sectors to reduce the country’s infrastructure backlog and to contribute to higher economic growth.
Botha said for economic growth to accelerate, interest rates had to fall significantly.
“It stands to reason that high interest rates act as a disincentive for capital formation, especially in the residential property market, as it precludes many individuals from being able to afford the purchase of a home,” he said.
“Ever since the 2008/09 recession, the residential property market has been in a slump — in real terms — which represents one of the reasons for the poor growth in construction activity over the past decade.”
Lower interest rates would automatically reduce the cost of credit and capital, and stimulate household consumption expenditure, Botha said.