Construction industry pins hopes on growth plan

SA’s troubled construction industry is pinning its hopes on the Treasury’s new economic growth plan, expecting it to bolster the recent modest recovery in the sector, according to the latest Afrimat construction index (ACI).

The index tracks the level of activity in the building and construction sectors.

The economic strategy blueprint to boost SA’s growth and job creation, released in August, is meant to reverse the downward trend in SA’s growth potential and competitiveness.

Economist Roelof Botha, the author of the ACI, said the plan sought to remove obstacles to higher economic growth and job creation and to incentivise activity in labour-intensive sectors.

“Construction remains the most labour-intensive sector of the SA economy and stands to gain from pragmatic and focused growth policies, such as resuscitating the RDP housing scheme,” Botha said.

The growth plan has, however, come in for intense criticism, with labour federation Cosatu urging finance minister Tito Mboweni to withdraw it, saying it is incoherent.

Botha said the gradual implementation of the new plan could boost the fortunes of SA’s battered construction sector “and lead to a new sustained growth path”. He said there was evidence that the government wanted to rectify the declining ratio of infrastructure spending to consumption spending by the public sector.

“The expansion of infrastructure in SA has become critically important, a fact that has been acknowledged by President Cyril Ramaphosa and finance minister Tito Mboweni. The construction sector stands to gain from ... raising the country’s economic growth rate,” he said.

In the second quarter of 2019 there was an improvement in buildings completed, labour remuneration (salaries and wages) and the volume of building materials produced. Two indicators building plans passed and construction plans passed declined. Botha said construction activity was expected to improve during the second half of the year.

“It is most encouraging that the SA National Roads Agency recently announced its belief in an imminent resurgence of road construction projects.”

According to Botha, a “more accommodating stance” by the SA Reserve Bank is necessary for the recovery of the construction industry. “Despite the recent lowering of the repo rate by 25 basis points, SA’s real central bank repurchase rate remains between 100 and 400 basis points higher than most of its key trading partners and emerging-market peers,” he said.

Meanwhile, Afrimat shares on Wednesday surged 9.7%, the largest one-day gain since September 29, 2016. The listed open-pit mining company said earnings could rise by between 80% and 100% in the six months to end-August.

“This astonishingly bullish earnings guidance was all written [on] the cards if market analysts saw the clear signals,” analyst Anthony Clark of Small Talk Daily Research said.

Afrimat said there was improved performance from its construction materials segment, industrial mineral businesses “and the healthy contribution from the Demaneng iron ore mine”.