Building set for take-off if demand is unshackled
CAPE TOWN - The construction industry could grow rapidly from the third quarter if interest rates stay low for some time and the government startsed making progress on its infrastructure ambitions, economist Dr Roelof Botha said yesterday.
Interviewed at the release of the Afrimat Construction Index (ACI) for the first quarter, he said a decade-long slump in the residential housing market amid strong population growth had resulted in significant pent-up demand for housing, particularly among lower-income earners.
The ACI, a composite index of activity level in the construction sector compiled by Botha on behalf of bulk commodity and industrial minerals mining company Afrimat, fell sharply in the first three months, and that was before the lockdown in March.
There were three areas of concern in the index: the big drop in building plans passed (-25.9 percent), the decline in the volume of building materials produced (-16.6 percent), and the decline in the sales of building materials produced (-18.5 percent).
He did not expect the ACI to improve in the second quarter, given the industry was in lockdown, but activity should begin to pick-up from the third quarter.
He said another key driver of future activity was a renewed commitment by the government to speed up infrastructure development, particularly in energy, roads and ports.
Infrastructure spending could resuscitate the economy after the lockdown, he said.
An online symposium on infrastructure development this month announced 55 “shovel-ready” projects, but these were likely to ramp-up over time, said Botha.
He said the first-quarter index showed how important the recovery plan was. The trend of the ACI had declined by 14.5 percent from its peak in the first quarter of 2017. The index
itself had declined 27 percent from its highest level, recorded in the fourth quarter of 2016.
“If lending rates remain at current levels for several years, the imminent post-pandemic recovery should gain considerable momentum in 2021,” Botha said.
Although the sector represents the third-smallest key sector of economic activity, contributing 3.3 percent to the country’s total output, construction activity has a number of forward and backward linkages with most other sectors.
RMB chief executive James Formby said the government did not only need trillions of rands for new infrastructure, but also project prioritisation and a plan to access the specialist skills of people in retirement and working in the private sector.
“The ambitions of the Infrastructure and Investment Office in the Presidency are laudable. We know we need a lot of money. But we also need specialist construction and project management as well as financial people – some of whom have moved to other industries or are retired. We really need them back now,” he said.
Judy Kobus, the co-head of infrastructure finance at RMB, said the fifth round of the renewable energy independent power producer procurement programme would be a good place to start, as South Africa would likely suffer outages again as the economy picked up after the lockdown.