Afrimat Construction notes encouraging sector growth

THE AFRIMAT Construction Index (ACI) shows the sector firmly in the doldrums, but a third consecutive quarter of growth in the last three months of 2018 was “encouraging,” economist Roelof Botha said yesterday.

The index fell 4.7 percent for the fourth quarter of 2018 over the same quarter last year. Five of eight constituent indicators remained in the red, with substantial declines in the value of building plans passed and completed, as well as the volume of building materials produced.

Botha said the general economic recovery in the last quarter of 2018 was not sufficient to lift the index to a higher level than a year earlier.

“It is clear the sector has been under-performing since the end of the recession in 2009.” He added that his biggest fear was that the country would continue losing critical skills to some developed countries if there was not some improvement soon.

“Experts in the sector are finding happy hunting grounds in Australia, Canada, US, UK and New Zealand. Once they do 3, 4, 5 contracts there, they are unlikely to return,” he said.

Real gross domestic product rose 1.1 percent in the fourth quarter of 2018 on a year-on-year basis, but the value added by the construction sector fell by the same margin.

However, the index gained 3.9 percent in the fourth quarter compared with the third quarter, and is now 14.4 percent higher than the first quarter of 2018.

“This reflects a broad recovery since the beginning of 2018, with five of eight constituent indicators recording gains over the third quarter,” he said.

The best performers (quarter-on-quarter) were salaries and wages in the sector, the value of hardware retail sales and building material sales.

But this was also not sufficient to lift the index into the territory recorded in the fourth quarter. Botha said five factors contributed to the declining index:

A higher base value in 2017, and the sharp decline of the first 2018 quarter. Weak economic growth.

High interest rates.

Policy uncertainty, especially about land expropriation without compensation.

Continued declines in capital formation for key asset types associated with construction.

Botha believes construction sector activity may improve in the second half of this year, especially from the government’s new approach to economic policy.

“The 2019 Budget provided hope that public sector spending on infrastructure could improve soon, with the Finance Minister promising to develop a clear strategy to lift the rate of infrastructure expansion, including a sensible project pipeline and streamlining regulations to make it easier to actually start building,” said Botha.

Afrimat chief executive Andries van Heerden said he was “cautiously optimistic” about the anticipated upswing in activity.