The Afrimat Construction Index (ACI) sunk deeper into the doldrums.  File Photo: IOL
The Afrimat Construction Index (ACI) sunk deeper into the doldrums. File Photo: IOL

Construction taking strain, infrastructure could hoist it

By Edward West Time of article published Mar 12, 2020

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CAPE TOWN - The Afrimat Construction Index (ACI) sunk deeper into the doldrums, to the lowest level since 2013, declining 2.9percent in the fourth quarter of 2019.

However, activity should be boosted by double-digit annual increases in infrastructure spending, economist Dr Roelof Botha - who compiled the index that indicates the level of activity in the building and construction sectors - said in an interview yesterday.

Prospects for an improvement in the long-standing slump in construction activity in South Africa presented a mixed bag.

The local construction sector was relatively shielded from the global economic impact of the Covid-19 virus, but could be affected indirectly via investment uncertainty, he said.

The government was “fast-tracking” infrastructure spending through the implementation team of the Infrastructure Fund, which had finalised a list of so-called “shovel-ready projects” in student accommodation, social housing, water, rail freight branch lines, embedded electricity generation and municipal bulk infrastructure, he said.

However, “a combination of high interest rates, uncertainty over land reform, inefficiencies within the public sector, and lethargic economic growth continue to place the construction sector under pressure,” Botha said.

He was particularly concerned about the 13percent decline in the building plans passed component of the ACI, which was a sure indicator of formal building conditions 6-12 months into the future.

Viewed from the base year for the ACI (the first quarter of 2011), the index had increased by an average annual rate of 1.6percent (in real terms), only marginally less than the average annual increase of 1.8percent in real gross domestic product over this period.

The under-performing construction sector should be ringing alarm bells for the government due to the obvious need to expand the infrastructure, especially in electricity, housing, transport and water, said Botha.

The State of the Nation address and national Budget had paved the way for only a modest increase in construction in 2020, but this could gain momentum in 2021.

Other signs of hope included a plan designed by Consulting Engineers South Africa to inject private engineering skills and expertise into relevant public sector departments and agencies, and the fact that the government had this year unequivocally committed to spending more on water provision, roads and expanding the renewable energy supply.

According to National Treasury, public sector infrastructure spending over the medium-term expenditure framework period is estimated at R815billion.

Botha said of further concern in the fourth quarter was the drop of almost 7percent in the year-on-year level of the ACI, and the continued weakness in both the volume and sales value of building materials produced.

He said the economy as a whole, and construction activity in particular, remained in desperate need of meaningful interest rate relief, to lower the cost of fixed capital formation and stimulate growth and employment creation.

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