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Afrimat Construction Index shows positive real growth in Q2 2023

The resilience of South Africa’s economy during Q2 2023 has been showcased by the construction sector, with eight out of the nine Afrimat Construction Index (ACI) constituent indicators recording positive real growth rates compared to Q1 2023.

The ACI, compiled by economist Dr Roelof Botha, is a composite index of the level of activity within the built environment.

For the crucially important indicator of job creation, it is encouraging to note that construction took the honours on a quarter-on-quarter basis, adding more than 100 000 jobs and outperforming all other sectors of the economy, including those with much higher employment levels,” he notes.

The ACI recorded a level of 115.4 in Q2 2023 compared to 109.1 in Q1 2023.

The quarter-on-quarter increase of 5.8% is higher than the increase in the country’s GDP and is a welcome improvement on the decline recorded in the first quarter. Unfortunately, the year-on-year increase was less than one percent, signalling the dire need for macro-economic policies aimed at encouraging the further expansion of construction activity in the country,” he adds.

Over and above the sterling performance of new job creation in the construction sector, other highlights were the positive real growth in the category ‘Wholesale Sales Values of Construction Materials’, the rebound in the ‘Value of Building Plans Passed’, and the increase in ‘Volume Of Building Materials Produced’.

 “It should be pointed out that the construction sector component of GDP only includes the value added by contractors, whilst the ACI is based on a composite index of construction sector activity that includes another eight indicators, all of which are measured in real terms, i.e., adjusted for inflation. The ACI is therefore a very comprehensive barometer of the state of the construction sector.”

Botha explains that the results of the ACI in the second quarter are especially encouraging against the background of very high interest rates and a generally subdued macro-economic environment. “The positive trend has been influenced by the increase in the public sector’s spending on capital formation, which will hopefully continue and gather momentum over the next couple of years, as the damage done to the country’s infrastructure by state capture is addressed.”

He believes that the lethargy in the year-on-year performance of construction sector activity is, in the main, the result of the South African Reserve Bank’s hawkish monetary policy, which has resulted in the highest interest rates in 15 years. “Hopefully, interest rates will be lowered before the end of the year, which will go a long way to restoring consumer confidence and to lower the costs of construction-related projects, which are essential for the quest to restore the quality of the country’s infrastructure.”

Botha further noted that a new-found urgency is emerging within government on the dire state of South Africa’s infrastructure, which promises to breathe some life into construction sector activity. “It is encouraging to witness evidence of closer cooperation between government and the private sector in the identification and design of crucial interventions to upgrade roads, harbours, freight railways and electricity supply.”