Confidence in the future of SA’s construction sector reached its highest level in five years despite a marked decline in business activity in recent months.
This is the main finding of a survey conducted by the Bureau for Economic Research on behalf of the Construction Industry Development Board (CIDB).
The survey results show that even though the construction sector has been hit hard by the economic downturn, which was worsened by the Covid-19 pandemic, there is still positive sentiment that the industry might be on the road to recovery.
The quarterly SME Business Condition index released this week shows that business conditions for May increased to 42 in the second quarter from 35 in the first quarter, reaching the highest level since 2017.
Bongani Dladla, CEO of the CIDB, said the results show a huge improvement in sentiment and that the construction sector has seen a slow but steady rise for the past seven quarters since the early days of the pandemic.
The survey is a snapshot of sentiment among contractors in the building and civil engineering sectors at a time when the economy is under severe pressure. The report is important for the country given that the construction sector is a harbinger of broader economic activity.
The construction industry, a significant contributor to employment and growth in SA, has been in a slump since 2009.
The industry has been steadily declining since 2017, and 2020 saw a pandemic-induced crash due to hard lockdowns which resulted in the value of plans passed for building construction falling by 37% year on year in the first 11 months of 2020.
In 2021, the government announced its plan to invest R791.2bn in public sector infrastructure over the period from 2021 to 2024. The industry is hoping this spending will support its recovery.
Covid vaccination requirements continue to be a contentious issue within the industry as some companies consider whether to make them mandatory.
In a note, Dumisani Madi, chair of GVK-Siya Zama, one of the largest privately owned construction companies in the country, said businesses are keenly aware of supply chain risks and likely to prioritise steps for mitigating these.
“However, inconsistency and procurement delays are still major challenges. A downward trend in markups may continue, with less work available and increased competition among contractors as a result,” Madi said.
A report by KH Plant, SA’s specialist motor grader rebuild centre, said SA’s construction sector will only be able to stabilise at an annual average growth of 3.1% between 2023 and 2025.
The quarterly SME Business Condition index also showed that even though confidence trended higher in May, activity in the sector continued to deteriorate.
Dladla said the slow activity means that overall profitability remained relatively weak.
“The sector continues to be plagued by a number of constraints, most notably the availability of new work. Other constraints relating to the adequate availability of raw material and access to credit have also moved higher,” Dladla said.
He added that the outlook, as gauged by the rating of the availability of new demand as a constraint, remains downbeat.
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