Green shoots start to show in construction sector
SA’s embattled construction sector continued its recovery in the last three months of 2023 to pre-Covid-19 levels.
Still, it may struggle in 2024 if the high interest rates do not ease and the government’s lax approach to fixing, maintaining and expanding infrastructure does not change, according to an index tracking activity in the sector.
The Afrimat Construction Index, compiled by economist Roelof Botha, is a composite indicator of the level of activity in the building and construction sectors and reported 3% yearon-year real growth in the fourth quarter owing to increased job creation and wholesale sale of construction materials.
A total of 110,000 jobs were created, compared with 31,000 in 2022, while wholesale sales of construction materials rose 20% year on year.
“It tells me that there may have been quite a lot of inventory build-up in anticipation of higher expenditure on construction works and activity in general, whether that new houses are being built and so on,” Botha said. “But that unfortunately has not been forthcoming,” he said, pointing out that retail trade sales of hardware was down year on year, while construction works value had also slipped. “Which tells you there are fiscal constraints and to some extent, let’s call a spade a spade, the inability of all spheres of government, especially at the municipal level, to repair, maintain and even create new infrastructure.”
Construction activity has more or less fully recovered from the negative effects of the lockdowns and recession that accompanied the pandemic, according to the index. However, it remains bogged down by high interest rates, the increasing costs of building materials, and slow infrastructure expenditure by the state.
On Tuesday, the index reflected the lethargy of the economy as a whole during the fourth quarter, with five of the 10 constituent indicators recording quarter-on-quarter negative real growth rates and the index dipping by 1.2% in the quarter as a result.
However, when viewed year on year, it expanded and even outperformed the economy with a 3% real growth rate, compared with real GDP growth of 1.2%.
A combination of fiscal constraints, dysfunctional municipalities and restrictive monetary policy hampered growth in the period, according to the index, with the value of building plans passed and buildings completed at larger municipalities emerging as the weakest-performing indicators.
The economist said the government could even have borrowed a bit more money in the period to ensure that the country started maintaining and fixing infrastructure, particularly ahead of an election year.
“I am to some extent surprised that the government hasn’t produced a slightly more growth-orientated budget in February,” Botha said.
“There is a dire need to fix hospitals, to fix roads, not to mention the harbours and railways. It’s crazy for a country like SA, with a growing population and huge unemployment backlog, not to increase the value of its construction work year on year in real terms,” he said.
However, Botha highlighted key drivers, including the switch to renewables, closer co-operation between the private sector and government agencies in the maintenance, repair, and expansion of the country’s logistics infrastructure, and interest rate declines, as possibly leading to an expansion of construction activity in 2024 and beyond.
The uptick in construction sales will benefit Afrimat, which has delivered good results despite operating in a challenging environment, thanks to its diversification strategy and improved efficiencies.
CEO Andries Van Heerden said the construction materials part of the group was experiencing an improved demand for products, though from a low base.
“These products are supplied into government infrastructure, road and rail projects,” Van Heerden said, adding that greater private sector participation and collaboration would make for a much better functioning SA.
He said because Afrimat was part of the Ore Exporters Forum, the group was poised to continue supporting the public sector to ensure an efficient rail export network remains in place.
“We are encouraged by recent executive management appointments and can see improvement in the operations,” he said.
Meanwhile, the JSE-listed group is awaiting regulatory approval which will seal the deal in its purchase of construction materials provider Lafarge for nearly R1bn.
“We eagerly await the decision from the Competition Tribunal to ratify the Competition Commission approval of the Lafarge acquisition and hope that a decision is awarded soon so that Afrimat can begin to turn the business about, primarily to protect the roughly 800 jobs and livelihoods,” the CEO said.
Afrimat shares were trading 0.48% higher at R56.47 on Tuesday.
THE AFRIMAT CONSTRUCTION INDEX SHOWS 3% YEAR-ON-YEAR REAL GROWTH IN FOURTH QUARTER