Afrimat index debunks gloomy construction outlook
Author of construction index says activity is gaining traction
Amid the sombre outlook that has engulfed the SA construction industry, the quarterly Afrimat Construction Index provides a sobering and alternative view on the state of the industry.
Based on the struggles of a handful of iconic construction companies, it is easy to assume that the entire construction industry is on a downward trajectory, with no hope of recovery soon.
The past decade has not been kind to some of the country’s well-established companies. Basil Read, Aveng and Group Five — which collectively boast a proud history of delivering legacy projects — have been losing enormous value due to declining public and private investment in infrastructure.
These companies are a fraction of their total value a mere five years ago. Both Group Five and Aveng have lost more than 99% of their worth on the JSE in the past five years. Basil Read’s shares are suspended.
But the state of these companies does not give the complete picture of the construction industry, says economist Roelof Botha, author of the Afrimat Construction Index. Botha compiles the index on behalf of JSE-listed open-pit mining firm Afrimat.
The index is a composite index of the level of activity within the building and construction sectors. The index’s constituent indicators are employment, salaries and wages, retail trade sales, buildings completed, building materials, construction value added, building plans passed and volumes of building materials.
According to the index, the industry got off to a faulty start in 2018 as it took a knock from a combination of high interest rates, policy uncertainty especially regarding land reform and the strong rand.
Botha says the index has risen more than 9%, compared with the first quarter. “This represents welcome and broad-based recovery of the level of activity in the SA construction sector, with all eight constituent indicators recording gains over the second quarter,” he says.
There was a marked increase in the value of hardware sales, buildings completed and plans passed in the country’s larger municipalities. The volumes of building materials produced also increased.
Botha has constantly maintained that it is a misconception to equate the struggles of a few construction companies with the health of the industry. It is wrong to suggest that the local construction industry is on its knees, he says. In the first six months of 2018, the total output of the country’s contractors amounted to R89bn.
Afrimat CEO Andries van Heerden has also previously said that the construction sector is not as bad as it is made out to be. Speaking at the launch of the index in March 2017, Van Heerden said: “For the last couple of years, I have been making a very strong point that the construction industry is not as bad [as suggested]. I found it difficult to find any support for my views because the big construction companies had the ear of everybody.”
As a construction materials supplier, Afrimat saw activity in the industry, he said. Van Heerden said it did not help that the country’s cement companies came under pressure atabout the same time as the big construction firms.
“But if you analyse the cement companies, it was actually not the SA business that was creating the pressure. It was investments that they did in other parts of Africa. A company such as Afrisam did a deal that put a lot of pressure on their balance sheet. That had nothing to do with the trading conditions in SA,” he said.
Van Heerden says Afrimat continues to find pockets of opportunity, not only in the construction and materials sector but also in the broader mining sector. He says the improved activity levels in the third quarter affirmed what the company experienced.