Construction index data shows that the sector might be out of the woods
Economy / 19 September 2019, 04:30am / Edward West
CAPE TOWN – The Afrimat Construction Index (ACI) data for the second quarter continued to rise, showing that the sector might be “out of the woods” - albeit off a low base - if the trend continued to the end of the year, economist Dr Roelof Botha said on Wednesday.
The ACI is a composite index of the level of activity within the building and construction sectors.
In the second quarter of 2019, the ACI virtually mirrored the performance of total economic activity, recording an identical increase to that of second quarter gross domestic product (GDP), namely 3.1 percent quarter on quarter. The latest ACI value, however, still lags that of a year ago marginally.
Botha said a new growth phase might have started in construction. He said real gross capital formation - growth in the value of production assets - had increased by “a staggering 18 percent quarter on quarter, following a declining trend that has lasted for several years.”
There was traditionally a 90 percent correlation between capital formation and GDP, he added.
There had also been a 15.8 percent increase in the value of buildings completed.
In addition, the latest FNB Property Barometer reported a 90 percent increase in the value of flats and townhouses completed in June, compared with the same month a year previously, an increase in densification, which partly explained the continuing decline in the value of building plans passed, as reflected in the ACI.
“The construction sector is not on its knees as commonly thought. It did well in the second quarter, compared with the first quarter. The signs are everywhere.”
As examples, Botha said he last counted 17 construction cranes in uMhlanga; there was a great deal of building activity in Limpopo; companies were already tendering for some of the R40 billion of tenders that Sanral planned to issue over two to three years; and motor groups such as Nissan, Ford and others continued to invest in expansion, “which all drives construction”, he said.
Botha said the declining trend in the ACI’s four-quarter average value, which lasted for seven successive quarters, had been halted and a new growth phase might have commenced on the back of interest rate relief, albeit marginal.
He said the ACI could receive a boost from the implementation of National Treasury’s new growth plan, which had largely been welcomed by the private sector.
“Construction is the most labour-intensive sector of the economy and stands to gain from pragmatic and focused growth policies, such as resuscitating the RDP housing scheme,” he said.
Compared to the first quarter of 2019, the best-performing indicators in the ACI were the values of buildings completed, labour remuneration (15.2 percent) and the volume of building materials produced (3.2 percent).
Only two indicators declined – building plans passed (-7.8 percent), and construction value added (-1.2 percent) which was in line with the traditional recovery of construction activity during the second quarter of each year.
Botha said he was confident that construction activity would improve further during the second half of the year, gaining momentum in 2020.