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Construction sector set to recover from the effects of the pandemic in 2022

The ACI nevertheless managed to record a quarter-on-quarter rate of increase of 2.8 percent when several sectors of the economy were under severe pressure due to the July unrest. Picture: John Woodroof.

The ACI nevertheless managed to record a quarter-on-quarter rate of increase of 2.8 percent when several sectors of the economy were under severe pressure due to the July unrest. Picture: John Woodroof.

Published Dec 10, 2021

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A FULL recovery of the construction sector from the effects of the pandemic would probably only be realised in 2022, with the value of the Afrimat Construction Index (ACI) still more than 5 percent shy of that recorded in the third quarter of 2019, economist Dr Roelof Botha said yesterday.

He said at the release of the findings of the ACI for the third quarter, that it had staged a swift recovery from the Covid-19-induced slump in the second quarter of 2020, increasing by 60 percent the very next quarter. Since then, however, progress was muted, with a year-on-year improvement of 4.5 percent.

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The ACI nevertheless managed to record a quarter-on-quarter rate of increase of 2.8 percent when several sectors of the economy were under severe pressure due to the July unrest.

He said in particular hardware retail sales continued to outperform, while construction material sales were at levels “we haven’t seen in years”, which pointed to “momentum gathering” in the sector.

The ACI is a composite index of the level of activity in the building and construction sectors, compiled by Dr Botha on behalf of Afrimat.

The sector had also outperformed most others, including the economy as a whole. Gross Domestic Product shrank by 0.3 percent during the third quarter compared to the second quarter.

The stand-out performers in the third quarter of 2021 were building material sales, hardware retail sales, the volume of building materials produced, and the value of buildings completed in the larger municipalities.

Dr Botha said ongoing efforts to rebuild facilities that were damaged during the July unrest should continue to boost construction-related activity in the fourth quarter, which, combined with the absence of strict lockdown regulations, could witness a further recovery in the ACI to close to its pre-Covid-19 level.

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“Construction-related activity is inherently labour intensive and, hopefully, the government will not react too harshly to the fourth wave of Covid-19 infections, which does not seem to be as severe as the previous wave in terms of hospitalisations,” said Botha.

He was, however, concerned about the recent increase in interest rates at a time when there was an absence of excessive demand and when unemployment kept rising. Private sector credit extension also remained on a downward trajectory, which made the return to tighter monetary policy “quite strange”, he said.

However, the prime overdraft rate at 7.25 percent was still low by historical standards, which should not deter the construction sector to continue on a growth path during 2022.

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Botha said only three of the nine constituent indicators that comprise the ACI recorded negative outcomes in the third quarter, compared to the second quarter.

“The year-on-year performance was even more impressive, with eight of the nine indicators recording positive growth rates,” he said.

The latest building statistics showed that alterations and additions, which had averaged 15 percent in 2019 had increased to more than 20 percent during 2021, with a new quarterly record high of almost 29 percent during the third quarter of 2021.

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He said property market experts had indicated that this phenomenon might become a permanent one, due to the occurrence of “semigration”, a term used to describe the migration of South Africans to smaller towns.

Botha was confident the momentum of recovery in construction could be taken forward into 2022.

This was due to the dire need for infrastructure, repair and maintenance of infrastructure, and promises made during the municipal elections by all of the largest political parties to improve service delivery throughout the country.

There was also renewed business confidence, as reflected by several authoritative indices, including the Reserve Bank’s leading business cycle indicator and the Absa/BER Purchasing Managers’ Index (PMI).

Afrimat’s chief executive Andries van Heerden said their most recent results showed a correlation to the results of this index with our construction materials and industrial minerals segments returning closer to pre-Covid-19 volumes, and margin levels.

“However, we do remain cautiously optimistic that additional momentum will come to the fore during the course of 2022, driven by the much-anticipated infrastructure projects.”

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