News Research

Current momentum in SA’s construction sector may herald a new sustained growth phase

The lethargy of SA’s economy was not evident in the construction sector during Q3 2023, according to Afrimat’s Construction Index (ACI), with six of its nine constituent indicators recording positive real growth rates compared to Q2 2023.

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

The index recorded a level of 131.5 in Q3 2023, compared to 120.3 in the previous quarter.

Significantly, this is the highest level since Q4 2016 and, if the current momentum can be maintained in Q4 2023, it may herald a new sustained growth phase in the construction sector,” he says.  

He adds that it is especially encouraging that the important indicator of job creation continued to record a healthy growth rate with 145 000 new jobs having been created since the beginning of 2023. “Equally encouraging is the increase of almost 10% in the volume of building materials produced compared to the previous quarter, with year-on-year growth also having returned to positive growth.”

The quarter-on-quarter increase of 9.2% is in sharp contrast to the marginal decline in the country’s GDP and builds on the positive ACI growth rate of 5.8% recorded in the second quarter. “Also worth noting is that the year-on-year increase has moved from less than one per cent in quarter two to 5.4 in quarter three, signaling the likelihood that construction sector activity may have entered a new, sustained growth phase.”

Botha further pointed out that the only two indicators in the ACI that fared poorly were the ‘Value of Building Plans Passed’ and ‘Buildings Completed at Larger Municipalities’. He explains that these data sets are aligned to a sharp decline in the number of mortgage bond applications administered by BetterBond and a hefty increase in the average deposit required for a home loan.

The residential property market is suffering at the hands of unduly restrictive monetary policy in South Africa. With the consumer price index within the South African Reserve Bank’s target range for inflation and no sign whatsoever of demand inflation in the economy, lower interest rates are overdue and will certainly serve to boost construction activity further.”

According to Botha, several key drivers of further growth in the construction sector may strengthen or emerge during 2024:

  • Progress with public and private partnerships or outright privatisation in repairing, maintaining, and expanding the country’s logistics infrastructure.
  • Progress with the inevitable and gradual switch to renewable energy, intrinsically linked to construction activity.
  • New capital formation in the economy, which recorded its seventh successive double-digit growth rate during the third quarter of 2023.
  • Closer cooperation between SAPS and contractors to prevent undue criminal activity at building sites, including adequate fiscal support.
  • A larger measure of price stability in the economy, which may lead to lower interest rates by early 2024.

In addition to the sterling performance of wholesale sales of construction materials, new job creation, and the volume of building materials, other highlights were the positive real growth in the value of building material sales, retail hardware sales and remuneration of construction workers (quarter-on-quarter).

Botha concluded by saying that the impressive uptick in the ACI in this latest reading is especially encouraging against the background of extremely high interest rates and a generally subdued macro-economic environment.

The positive trend seems to have been influenced by the increase in the public sector’s spending on capital formation, which will hopefully continue and gather momentum over the next few years as the damage done to the country’s infrastructure by state capture is addressed.”