There is no end in sight to the construction industry's slump with the Afrimat Construction Index (ACI) showing that building activity slowed down in the fourth quarter of 2019.
The index, a composite indicator of the level of activity in the building and construction sectors, shows that investment during the quarter in fixed assets such as machinery and equipment reached its lowest levels since 2013.
Capital formation as a percentage of GDP has been declining since 2014.
The index, published by listed open-pit mining company Afrimat, also shows a significant decrease in building plans passed (13.1%), volume of building materials (11.7%) and value of completed buildings (6.5%).
“The construction industry is in trouble,” economist and author of the index Roelof Botha said on Wednesday. The sector’s underperformance suggested “an obvious and urgent” need to expand infrastructure, especially in electricity, housing, transport and water.
“It is clear that a combination of high interest rates, uncertainty over land reform, inefficiencies within the public sector at large and lethargic overall economic growth continue to place the construction sector under pressure,” Botha said.
He said the decline in volume and sales value of building materials produced reflected the downward trend in the value of building plans passed by larger municipalities.
Rate relief
“The latter was the worst-performing indicator included in the index and declined by more than 13% in the fourth quarter of 2019, compared with the third quarter.”
The economy as a whole and construction activity in particular remained in desperate need of meaningful interest-rate relief to reduce the cost of fixed-capital formation and stimulate growth and employment creation, he said.
The index shows increases in salaries and wages (11.4%) and hardware retail trade sales (8.9%). Botha attributed the increases in salaries and wages mainly to overtime and bonuses in December.
He said the SA economy desperately needed “meaningful” interest-rate relief to boost investment, stimulate growth and create jobs.
“High interest rates act as a disincentive for venture capital and fixed capital formation.”
Afrimat CEO Andries van Heerden said that the index reflected the difficulties the construction industry experienced in the past two or three years. Van Heerden said Afrimat’s diversification into iron ore shielded the company from the full effect of the construction slump.
The company’s construction-materials segments had experienced an increase in tenders. “We are seeing some tenders coming through from the SA National Roads Agency and the Airports Company SA among others, but these will take time to work through the system to a point where Afrimat will benefit from them.
“We’re working on other opportunities instead of looking to [the] government to intercede or simply hoping things will improve,” Van Heerden said.
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