First-quarter construction activity plummets, Afrimat index shows

SA’s construction industry slumped in the first three months of 2020, with the Afrimat Construction Index showing that activity in the industry is now below that of the same period in 2011.

The index, compiled by economist Roelof Botha and released on Thursday, is a composite indicator of the level of activity in the building and construction sectors. The index fell 12% year on year, with employment the only sub indice to show an increase, of 0.3%. The biggest decline was in the value of new building plans passed, which fell 25.9%.

The index has fallen below 100 basis points for the first time, and uses the first quarter of 2011 as a basis for comparison.

The results were “terrible”, and largely do not include the effects of the Covid-19 shutdown, said Botha.

Constituent indicators within the index include salaries and wages in the construction sector, the value of buildings completed, sales of building materials, as well as passing of building plans.

While the results of the index for the first quarter of 2020 are considerably down, hope for recovery for the construction sector lies in the government’s infrastructure-led economic growth recovery plan post-Covid-19, Botha said.

“The results of the index prove just how important the recovery plan is and, given the current low levels, we should see an immediate effect if activity is increased,” he said.

Head of the infrastructure investment office in the presidency, Kgosientso Ramokgopa, had told the Sustainable Infrastructure Symposium for SA in June that they were financing 55 infrastructure projects that were “bankable and shovel-ready”, and would not put additional pressure on the fiscus.

These are expected to be gazetted over coming weeks.

Afrimat CEO Andries van Heerden said on Thursday that these projects boded “well for companies involved in infrastructure development and throughout the supply chain, particularly the construction sector”.  They would hopefully bring about some recovery and help reduce unemployment levels, he said.

The sector only contributes 3.3% to SA’s GDP, Afrimat said, but regardless has critical links to other sectors, and is crucial to the development of new infrastructure.

A further silver lining is a steep fall in interest rates in SA so far in 2020, with the Reserve Bank cutting interest rates by a total of 275 basis points so far in 2020.

Botha said on Thursday that should the Bank communicate that interest rates were set to remain unchanged for a significant period of time, this would have a positive effect on the construction sector.

Update: July 2 2020
This article has been updated with additional information

gernetzkyk@businesslive.co.za