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Construction continues to grow as economy starts recovering

A v-shaped recovery in the construction sector continued in the fourth quarter of last year, according to the latest finding of the Afrimat Construction Index (ACI). Picture: Ian Landsberg

A v-shaped recovery in the construction sector continued in the fourth quarter of last year, according to the latest finding of the Afrimat Construction Index (ACI). Picture: Ian Landsberg

Published Mar 17, 2021

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CAPE TOWN - A V-SHAPED recovery in the construction sector continued in the fourth quarter of last year, according to the latest finding of the Afrimat Construction Index (ACI).

The ACI is a composite index of the level of activity within the building and construction sectors, and it continued on the pronounced recovery path that started in the previous quarter, the compiler of the index on behalf of Afrimat, and economist Dr Roelof Botha said yesterday.

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“Due to the lockdown regulations, the ACI dropped sharply in the second quarter of 2020, but has bounced back and has remained above the base period level of 100 for two successive quarters now,” Dr Botha said.

The construction sector was starting a return to pre-pandemic levels of economic activity and the extent of recovery of the economy had caught many economists by surprise, he said.

Between October and December last year, the quarter-on-quarter change in the ACI was an increase of 2.5 percent, slightly lower than the comparable figure of 3.8 percent for gross domestic product (GDP).

Compared to the fourth quarter of 2019, the ACI was down 4.4 percent, close to the year-on-year decline in GDP of 4.1 percent.

An index value of 111.3 was recorded in this last quarter, 60 percent higher than the index value during the disastrous second quarter of 2020.

“It seems clear that retail sales for hardware and building materials, and the value of building plans passed and of buildings completed, are fuelling the latest recovery phase in the construction sector,” he said.

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Botha said he was confident that a further recovery of the sector remained the cards this year.

Drivers included the likelihood that inflation would remain within the South Africa Reserve Bank’s target of 3 to 6 percent, interest rates were likely to remain low, which also led to a 30 percent decline in the cost of mortgage financing, the avoidance of additional major taxes in the Budget and the need to boost inventories.

He said the pandemic had caused the worst decline in South Africa’s inventory levels - inventories fell by R165 billion last year - a figure that was more more than 10 times higher than in 2019, when inventories declined by R16bn.

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The Absa Purchasing Managers’ Index (PMI) for the manufacturing sector recently also recovered to reach its highest level in two decades and has been above the neutral 50-mark level for six successive months.

Afrimat chief executive Andries van Heerden said the continued improvement in the ACI was a welcome sign of some recovery in the local construction sector, and Afrimat was similarly experiencing this positive momentum.

“Fortunately, Afrimat is in a good position to counter the effects of the pandemic by way of our diversification and with a very strong balance sheet, having close to zero debt. Aside from this, proactive measures to manage and minimise the impact of the pandemic were implemented,” he said.

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