Tuesday, January 18

The construction industry continues its steady but slow recovery

The construction industry continued its slow recovery from the impact of the Covid-19 pandemic in the third quarter of 2021, according to the latest Afrimat Construction Index (ACI).

Economist Roelof Botha said Thursday that in line with several key indicators of construction activity, the index has staged a rapid recovery from the Covid-19-induced dip that occurred during the second quarter of 2020.

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Botha, who compiles the index, which is a composite index of the level of activity within the building and construction sectors, said the index increased by 60% in the third quarter of 2020, but progress since then has been moderate, year after year. annual improvement of 4.5%.

However, Botha emphasized that it is encouraging that the index managed to post a 2.8% quarter-on-quarter rate of increase for the third quarter, when various sectors of the economy were under heavy pressure due to the July unrest in parts of KwaZulu-Natal. . and Gauteng.

Only three ‘negative results’

Botha highlighted that only three of the nine indicators that make up the index – construction wholesale trade (-0.7%), construction employment (-5.3%) and value of approved construction plans (-7, 5%) – recorded negative results in the third. quarter compared to the second quarter.

“The year-on-year performance was even more impressive, with eight of the nine indicators registering positive growth rates,” he said.

Change in the constituent indicators of the Afrimat Construction Index (%)
2nd quarter of 2021 to 3rd quarter of 2021
Indicator %
Buildings completed (value) 17.4
Business Retail Sales – Hardware 7.2
Building materials (sales) 4.5
Building materials (volume) 3.6
Wages and salaries – Construction 2.1
Construction added value 0
Wholesale of construction -0.7
Construction employment -5.3
Approved construction plans (value) -7.5
Afrimat construction index 2.8
GDP -0.3

Source: Afrimat

The latest index results are at odds with the FNB-Bureau for Economic Research (BER) civil confidence index released this week.

That index fell two points on a scale of 100 points to 15 in the fourth quarter despite the fact that most of the underlying indicators, such as activity and profitability, improved in the quarter.

However, the FNB / BER index is more focused on sentiment.

Delays in the award of infrastructure projects are believed to be responsible for the deterioration in confidence in the civil construction industry in the quarter.

The FNB-BER construction confidence index released last week fell by one point from the index to 34 in the fourth quarter, and three of the six subsectors posted higher confidence in the quarter.

Driven by an increase in construction activity and profitability, the confidence of major construction contractors improved significantly in the 2021 quarter to record the largest single quarterly improvement since the 1980s.

Botha is confident that the current recovery momentum in construction can continue into 2022.

“A further recovery in the construction sector is expected next year,” he said.

Growth controllers

Botha based this optimism on the presence of a number of growth drivers, including:

  • The urgent need to repair and maintain infrastructure that has been delayed as a result of lockdown regulations induced by the pandemic.

  • Promises made during the recent municipal elections by all the major political parties to improve service delivery across the country.

  • Renewed business confidence, as reflected in several authoritative indices, including the Reserve Bank’s leading business cycle indicator and Absa / BER’s Purchasing Managers Index (PMI) for the manufacturing sector, with both indicators recently hitting all-time highs.

  • Addressing infrastructure deficiencies will remain a top government priority for many years to come.

However, Botha admitted that the divergence between the value of the approved construction plans at the bottom of the indicator list at -7.5% and the value of the finished buildings at the top of the list at + 17.4% “is certainly a point of concern “.

Botha believes that the decline in approved construction plans is related to the disruption caused by riots and protests in July and expressed confidence that it will increase.

“But it will have a moderating impact in the future because if you don’t deliver the plans today, nothing happens tomorrow,” he said.

Botha added that the value of the approved construction plans and the value of the finished buildings is only for metropolitan areas and larger municipalities and excludes the entire informal sector and smaller municipalities.

He does not believe that Statistics South Africa is recording the significant construction activity that takes place in these areas.

Botha bases this on the financial performance of hardware retail and commercial sales, which was the second best performance in the third quarter.

“That gives me hope,” he said.

Increase in alterations and additions

Botha said that an interesting feature of the latest construction statistics is the increase in the proportion of modifications and additions, which averaged 15% in 2019 but increased to more than 20% during 2021, with a new quarterly record of almost 29% during the third quarter of 2021.

He said it was also encouraging to be informed in November 2021 by the new Finance Minister Enoch Godongwana that 55 additional projects valued at almost R600 billion had been added to the portfolio of infrastructure projects, with the telecommunications, transportation sectors. and prioritized water and sanitation. Short term.

Read: SA’s Infrastructure Momentum ‘Is Gaining Momentum’

Botha doesn’t think the government has a financial headache regarding its infrastructure investment plan.

“In the last two fiscal years, the government had an excess of tax revenue of R130 billion. That is an incredible number.

“I think the government has enough money. For the first group of infrastructure projects of R340 billion, funding is already available.

“Construction is the most labor-intensive sector of the economy. For every job you create, you immediately expand the tax base, ”he said.

In its Medium Term Budget Policy Statement (MTBPS), Godongwana referred to the 65 priority infrastructure projects valued at R340 billion that were published in 2020 and the 55 additional new multi-sector projects valued at R441 billion.


However, the R441 billion cited by Godongwana in the MTBPS differ from the declared value of R595 billion of these projects when the second tranche of projects was announced in October 2021.

Botha admitted that there is “a huge funding gap” for these second tranche projects, but is encouraged by the invitation to the private sector to “come to the party and participate.”

Afrimat CEO Andries van Heerden said the company’s most recent financial results show a correlation between the latest index results and Afrimat’s building materials and industrial minerals segments that are closer to volumes and levels. margin prior to Covid-19.

“We remain cautiously optimistic that additional momentum will emerge during the course of 2022, fueled by much-anticipated infrastructure projects,” he said.


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