The Afrimat Construction Index (ACI) data for the second quarter continued to rise, showing that the sector might be “out of the woods”. File Photo: IOL
The Afrimat Construction Index (ACI) data for the second quarter continued to rise, showing that the sector might be “out of the woods”. File Photo: IOL

Upswing to more stable trajectory noted

By Edward West Time of article published Dec 6, 2019

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CAPE TOWN - The Afrimat Construction Index (ACI) increased 5.1percent in the third quarter, outstripping the GDP’s 0.6percent decline.

Economist Dr Roelof Botha said yesterday that the upswing was a continuation of a more stable upward trajectory for the construction industry.

Botha said another encouraging feature of the index was the attainment of a higher level than a year ago.

“It is clear that there is still some life in the construction sector, with improved levels of activity having been recorded since the first quarter of 2019 in the values of buildings completed, building plans passed and both the value and volume of building materials produced,” he said.

The ACI is a composite index of the level of activity in the building and construction sectors, compiled on behalf of Afrimat, the listed open pit industrial minerals mining company.

Many large and small construction companies with operations in South Africa have struggled for work this year, due to declining government infrastructure spending and private sector investment activity, but the index has started to increase.

Botha said the star of the index in the third quarter was hardware sales, which grew by 8.3percent.

He expressed concern, however, over the lethargy in construction sector value added statistics, as determined by Statistics SA, charging that the statistics agency had not included sufficient small and medium-sized construction companies in its data.

“The declining trend in the ACI’s four-quarter average value that kicked in during the second quarter of 2017 has been reversed,” Botha said.

“The new growth phase should gain some momentum in 2020 as a result of the solid performance of capital formation growth over the last two quarters.”

Botha said interest rate relief was desperately needed to grow the economy and create jobs, and for the construction sector, in particular, to grow sustainably.

He said it was puzzling why the SA Reserve Bank’s Monetary Policy Committee refused to switch to a more accommodating monetary policy stance.

In the first 10 months of the year, the consumer price index averaged 4.2percent, the lowest rate in more than a decade.

The prime overdraft rate, the benchmark commercial lending rate, increased by more than 100percent from its average level during the tenure of the previous governor of the Reserve Bank, Gill Marcus.

“High interest rates act as a disincentive for capital formation, especially in residential property, as it precludes many individuals from being able to afford the purchase of a home,” said Botha.

“Ever since the 2008/09 recession, the residential property market has been in a slump (in real terms), which represents one of the major reasons for the poor growth in construction activity over the past decade.”

He said construction activity should be stimulated by investment pledges secured during the Presidential Investment Summit in November, where R363 billion of investments were pledged.

In addition, the Development Bank of Southern Africa had said that a project pipeline of more than R700bn had already been identified by the Infrastructure Development Fund, one of the initiatives underpinning the government’s new Economic Stimulus and Recovery Plan.

Afrimat chief executive Andries van Heerden said the company had also seen some evidence of renewed activity, particularly with road tenders becoming available again, but they remained cognisant of the latest statistics from StatsSA.

BUSINESS REPORT 

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