CONSTRUCTION activity in South Africa surged to its highest level in nearly seven years in the three months to September, and could pick up in 2024 on the back of renewable energy investment and public/private partnerships.
This is according to the findings of the Afrimat Construction Index (ACI) for the third quarter of 2023.
The ACI is a composite index of the level of activity within the building and construction sectors compiled by economist Dr Roelof Botha on behalf of Afrimat.
The index recorded a level of 131.5 in the third quarter, compared with 120.3 in the previous quarter.
According to Botha, the lethargy of the economy as a whole during the third quarter was not evident in the construction sector, with six of the nine constituent indicators of the ACI recording positive real growth rates compared to the second quarter.
Botha also said it was 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.
“Significantly, this is the highest level since the fourth quarter of 2016 and, if the current momentum can be maintained in the fourth quarter of 2023, it may herald a new, sustained growth phase in the construction sector,” Botha said.
“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 ACI has contradicted data from Statistics South Africa released earlier this week which showed that activity in the construction sector declined by 2.8% in the third quarter after declining by 0.2% in the second quarter, as activity in residential buildings, non-residential buildings and construction work weakened.
Botha said the quarter-on-quarter increase of 9.2% was in sharp contrast to the marginal decline in the country’s gross domestic product (GDP) and built 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 percent in quarter two to 5.4 in quarter three, signalling the likelihood that construction sector activity may have entered a new, sustained growth phase,” he said.
Botha said the lethargy in the year-on-year performance of construction sector activity was, in the main, the result of the South African Reserve Bank’s hawkish monetary policy, which had 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,” Botha said.
“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, a number of key drivers of further growth in the construction sector may strengthen or emerge during 2024.
He said these included progress with public/private partnerships or outright privatisation in the area of 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, closer co-operation between the police and contractors to prevent undue criminal activity at building sites, and a larger measure of price stability in the economy, which may lead to lower interest rates by early 2024.
Afrimat’s CEO, Andries van Heerden, said the tremendous recovery in the Afrimat Construction Materials business echoed the sentiment of the findings in this edition of the ACI.
“A strong performance from Construction Materials is due to successful and well-thought-through efficiency drives across the business, as well as an uptick in demand for aggregates and other products for roads and private buildings,” he said.
Meanwhile, Afrimat is anticipating an imminent decision from the Competition Tribunal to ratify the Competition Commission approval of the exciting acquisition of Lafarge South Africa, which will add several well-positioned and resourced aggregate quarries, high-quality fly-ash sources, ready-mix batching plants, an integrated cement plant, cement grinding plants, and cement depots to Afrimat’s arsenal of products.
Van Heerden said Afrimat’s strategic journey toward increasing diversification has enabled growth for stakeholders, shareholders and employees alike.
“We intend to continue this path to ensure sustainable growth and a meaningful contribution to South Africa. The country finds itself in a precarious position, which needs each South African as well as business to come together to assist wherever possible. If we all do our part, no matter how small, I see a bright future for our country,” he said.