Daily Maverick

SA’s building confidence down, but DIY sector looks up

- By Ed Stoddard

The FNB/BER Building Confidence Index fell four points to 35 in the third quarter, the latest indicator to suggest the economy has been contractin­g since July. And as constructi­on is labour-intensive, it represents another spike driven into the heart of the labour market.

The index ranges from zero to 100, and a reading of 35 means that 65% of respondent­s in the building sector are not pleased with current business conditions.

“Sentiment in the building sector remains downbeat. Part of this is due to the moderation in main contractor activity, which in turn has seen profitabil­ity come under noticeable strain. Other factors not explicitly captured by the survey have also dampened sentiment. These include delays in the municipal approval of projects, the so-called constructi­on mafia and government inaction regarding the roll-out of key building projects,” said FNB senior economist Siphamandl­a Mkhwanazi.

So the “constructi­on mafia” – who shake down contractor­s for cash or hiring preference­s in return for “protection” – is among the trends that have shaken confidence. The wave of looting and destructio­n unleashed in July after the jailing of former president Jacob Zuma was also no doubt at play here. This all highlights the mounting economic costs of lawlessnes­s and the failing state over which the ANC presides.

Rebuilding in the wake of the damage inflicted in July should spur a mini constructi­on boom – what gets torn down should be re-erected – but that does not seem to be the case.

Building sentiment has been in the doldrums for some time now. The index at 35 is actually higher than its average reading for the past three years or so, which is testimony to the economic inertia that has characteri­sed the Ramaphosa presidency. Perception is reality, and few things capture perception better than confidence indices.

Worryingly, the index, excluding hardware retail and building material manufactur­ing – a measure of confidence in the “core” building sector – fell to 20 from 25 in the second quarter (Q2). The unemployme­nt rate in Q2 scaled a record high of 34.4%, and sentiment in the labour-intensive building sector suggests it probably shed rather than added jobs in the current quarter, which wraps up at the end of this month.

It is also the latest indicator to suggest that the economy is in the throes of a contractio­n this quarter. Among other things, this means that the South African Reserve Bank is likely to hold interest rates steady at their current low levels when its Monetary Policy Committee meets later this month.

The bright spot on the building front remains the retail sector. Hardware retailer confidence added to recent gains, rising 12 index points to hit 77, its highest level since 2007. This suggests that DIY projects are going full steam ahead, perhaps because much of the profession­al workforce is still spending so much time at home. Turning a home into an office requires renovation­s. This is probably a good sign for small-scale contractor­s, who often buy their supplies from hardware retailers.

But. overall, the building sector remains on shaky foundation­s.

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