Good news for the construction industry looking ahead
JOHANNESBURG - Construction industry activity may increase substantially in the third and fourth quarters of this year, economist Dr Roelof Botha forecast yesterday (thur).
He was commenting after the release of the Afrimat Construction Index (ACI), which increased by 1.2 percent in the first quarter, year-on-year, an “encouraging” figure considering the zero real growth recorded for the broader economy since the first quarter of last year, he said.
Gross domestic product declined more than 3 percent in the first quarter over the last quarter of 2018 and the recessionary environment of the construction industry was reflected in that the index was exactly where it was six years ago, Botha said in a telephone interview.
He said his research indicated that while the ACI might remain relatively subdued in the second quarter, it was likely to improve after that, “without a shadow of a doubt”.
He said it appeared that some of the uncertainty among businesses and consumers ahead of the last election had started to dissipate.
“We now have a President who is committed to economic growth and job creation. It won’t happen overnight, but investor confidence will increase,” he said.
The gradual implementation of the recommendations of the National Development Plan, especially the emphasis on creating new infrastructure and targeting sectors with high growth potential, could soon lift construction to a new sustained growth path.
He said the biggest inhibitor to growth in the construction sector, however, remained the restrictive monetary policy.
The South African repo rate was more than 450 basis points higher than the Eurozone real central bank rate and there was no reason for this high level considering there was no demand inflation in the economy, said Dr Botha.
The real cost of capital had increased by 100 percent since Gill Marcus, previous governor at the SA Reserve Bank, retired, he said.
The best performers during the first quarter of 2019 were the values of building plans passed and buildings completed, when compared with the last quarter of 2018.
Compared with the same quarter last year, the best performers were buildings completed and building material sales, while the other six indicators recorded declines, although this was not unexpected due to the traditional spike in construction activity in the second half of each year.
Factors that contributed to the low level of activity in the sector in the first quarter included fiscal restraint due to slowing tax revenues and the need to curtail the growth of public debt, uncertainty over land expropriation without compensation, less efficiency among public sector agencies and government departments ahead of the elections, as well as high levels of crime being experienced at building sites.
He said a welcome development for construction activity in Gauteng was an announcement by Transnet that a concession would soon be awarded for a public-private partnership to build and operate a R2.5 billion inland container terminal.
The terminal would be built on 607 hectares near Vosloorus, and it was expected to catalyse a further R20bn of further logistics related investments over 15 years, while the Gauteng provincial government would spend an additional R6.5bn to strengthen the road infrastructure around the Tambo Springs Logistics Gateway.