The government’s pledge to pick up infrastructure spending in the wake of Covid-19 is already beginning to have an effect on the recovery of SA’s construction industry, which could be set for a bumper year in 2021, according to building materials and minerals group Afrimat.
Major state infrastructure spending, a major growth driver in SA, had been largely absent for about 10 years, said economist Roelof Botha on Thursday, but the recent stimulus measures are “undoubtedly” playing a role in returning construction activity to pre-pandemic levels.
The Afrimat construction index, released on Thursday, shows a jump to 115.9 index points in the third quarter from 65.4 in the second, when SA’s hard lockdown brought construction projects to a halt and had an unprecedented effect on both business confidence and spending.
The index, compiled by Botha, is a composite indicator of the level of activity. The index figure means that third-quarter activity was 115.9% of that of the first quarter of 2011 — which is used as a basis for comparison.
Constituent indicators include salaries and wages, the value of buildings completed, sales of building materials, as well as passing of building plans.
The third-quarter reading is the highest since the fourth quarter of 2019, but still represents a 6.7% decrease year on year, with the value of new buildings completed being the biggest drag on the index, declining 47.4%. The value of new building plans passed declined 29.8% year on year.
This was likely a “hangover” from the effects of the hard lockdown, said Botha, which had, for example, shuttered deeds offices. The ongoing easing of congestion at these offices should have a positive effect in the fourth quarter, he said.
More upbeat were the indices for wholesale trade sales in construction, and retail sales of hardware, which rose 14.5% and 12.3% year on year, respectively.
This fits with what some JSE-listed companies have been reporting, with cement maker PPC saying recently it has seen double-digit sales volume growth since June, and estimating that SA’s cement sales have been in line with 2019’s. The increase in volumes is primarily retail-led, PPC said earlier in December, adding it is also beginning to see the positive impact of increased infrastructure spending.
Bathroomware company Italtile also reported more than double-digit sales growth in the five months to end-November, saying this may have partially been due to consumers channeling the money they would have spent on leisure and travel into home improvement.
Botha said on Thursday that the government’s new infrastructure drive, which represents the cornerstone of the recovery and reconstruction plan announced in October by President Cyril Ramaphosa, could mean the construction sector’s performance in 2021 “shoots the lights out”.
Sixty-two key projects have been identified and a number already gazetted, with Botha saying anecdotally that some firms he has spoken to recently saying they are bidding for more tenders than they did for the entirety of 2019.
The importance of low interest rates should also not be underestimated, he said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.