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SA’s construction industry shows signs of recovery during Q2 2022

SA’s construction sector managed to increase the value added to the economy by an impressive 4.1% in real terms during Q2 2022 when compared with Q1, according to the latest Afrimat Construction Index (ACI).

This is despite a series of unfortunate events putting additional pressure on levels of economic activity during the second quarter, including the KwaZulu-Natal floods and lengthy strikes at major mining companies, combined with general economic factors such as weaker prices for precious metals and iron ore, high fuel costs, extensive loadshedding, inefficiencies in rail transport and increasing inflation,” comments economist Dr Roelof Botha who compiles the index on behalf of Afrimat.

The ACI also recorded a modest 2.4% increase over Q1 2022 with one of the most encouraging features of the Q2 performance being the positive trend for both the volume and the value of building material sales, which may be regarded as leading indicators for future construction activity.

The best-performing indicator, however, was the value of buildings completed in the metros and larger municipalities, with a 21% year-on-year rate of increase. The increase in employment in construction during the second quarter was also encouraging and will hopefully continue as government starts embarking on more public/private partnerships as part of the promised infrastructure drive.”

Building material sales increased by 9.6% (quarter-on-quarter) and by 4.4% compared to Q2 2021.

The public sector is still lagging behind the private sector in the crucial area of capital formation, which is the aggregate demand component that ultimately incorporates construction sector activity. Infrastructure investment by government has not yet resulted in higher levels of public sector expenditure on capital projects,” Botha points out, adding that private sector capital formation produced an impressive 8.7% increase, in real terms, during Q2 2022, compared to Q2 2021.

Dr Botha says that during Q2, positive signs did however start to surface as the fixed capital formation by state corporations managed to increase in real terms, both in quarter-on-quarter and year-on-year terms. “Another positive development is the rise in the SME Business Confidence Survey for the construction sector, a quarterly survey conducted by the Bureau for Economic Research on behalf of the Construction Industry Development Board. This particular index recorded a level of 42 during the second quarter, compared with 35 in the first quarter.”

Although government has started a process of deregulation, especially in the crucial area of renewable energy by lifting the limitation on self-generation, much more needs to be done to improve, expand and maintain the country’s infrastructure and also improve the functionality and capacity of key state-owned enterprises and municipalities.”

He believes that fiscal constraints are not the root cause of the lack of public sector expenditure on infrastructure, but rather over-regulation, a lack of requisite skills, especially in project management, and the dysfunctional state of a large number of municipalities. “Fortunately, government has acknowledged that all of these issues should be prioritised under the new growth and reconstruction strategy and visible signs of deregulation have already come to the fore.”

Although there has been an uptick in the performance indicators of this edition of the ACI, we can attest to the fact that construction and infrastructure activity remains low. Thankfully, the construction materials segment continues to benefit from being located in strategic places across the country, efficiency drives, and product diversification. Similarly, in the industrial minerals segment, sector diversity, especially in support of the agricultural sector, is proving to be a solid support to the segment,” says Afrimat’s CEO, Andries van Heerden.

Note: Index value comparisons with previous editions need to take cognisance of the inclusion of an additional indicator and the re-basing of South Africa’s GDP by Statistics South Africa, affecting historical values.