SA’s construction and infrastructure sector needs a revival of the reconstruction and development programme (RDP) housing project to bolster activity as it shows signs of recovery and pockets of growth driven by the private sector.
This comes as the latest Afrimat construction index (ACI) released on Monday showed the industry had recovered in the second quarter, shored up by the average monthly value of building plans passed and buildings completed by larger municipalities, and an increase in employment in construction during the second quarter.
The ACI increased 2.4% from the first quarter of the year as the construction sector increased the value added to the economy by 4.1% in real terms.
The composite index of nine indicators shows a positive trend over the last quarter as six out of the nine grew, but a gloomier year-on-year picture with only three increasing.
According to the construction industry report released by Stats SA in June, 11,000 construction jobs were lost between 2011 (484,000) and 2020 (473,000).
The latest Stats SA data describes the construction sector as “currently in the worst shape” among six industries that have not yet recovered, saying the construction industry is 24% smaller than it was before the pandemic.
Economist Roelof Botha, who compiles the ACI on behalf of the JSE-listed open-pit miner, said both public and private sectors needed to come together to consider a resuscitation or a revisit of the RDP housing programme to boost activity in the crucial sector.
“We don’t have to reinvent the wheel, we must just do what we have done, and what other countries have done,” he said. “The skills are there and the building materials are there it just needs a catalyst, something to draw everything together,” he said.
The socioeconomic policy was first implemented by the government of president Nelson Mandela in 1994, which saw dramatic growth in construction in the early years of ANC rule but which began petering off in later years.
Emphasising that infrastructure is central to the country’s economic reconstruction and recovery plan, President Cyril Ramaphosa announced projects in the pipeline that will cut across several sectors such as energy and social services, worth more than R100bn from the infrastructure fund.
However, the pace of rolling out projects has been slow.
The report illustrated that the volume and the value of building material sales showed a positive trend, with a 9.6% quarter-on-quarter acceleration and 4.4% year-on-year gains, hinting at future construction activity.
But the economist said progression was not happening quickly enough.
“I’m afraid infrastructure SA, despite all the lofty ideals, has just not been active enough in launching new projects,” he said, also decrying the high interest rates consumers and companies have been facing and the over-regulation of the construction and infrastructure industries.
“Infrastructure investment by [the] government has not yet resulted in higher levels of public sector expenditure on capital projects,” Botha said.
He added that the public sector is lagging the private sector in the “crucial area” of capital formation, which shows inventory replacement and spending on fixed assets such as buildings and machinery.
The private sector capital formation jumped 8.7% year on year in real terms. Yet capital formation by state corporations grew in real terms over the last quarter and the year, but by less.
Research published by the University of Fort Hare’s Noah Marutlulle in 2021 suggests that protests, informal settlements, health challenges, shack fires, flooding, violence and criminality, corruption and xenophobic attacks are the ramifications of housing inadequacy in SA.
It calls for the government to engage the private sector, state-owned enterprises, provinces and municipalities to unlock strategic parcels of land suitable for human settlements development, the provision of which — especially for low-income groups — should be at subsidised rates.
Botha noted that fiscal constraints were not the root cause of the lack of public-sector expenditure on infrastructure, but rather over-regulation and the dysfunctional state of a large number of municipalities.
The auditor-general’s latest report on municipalities highlighted a trend of low expenditure on infrastructure maintenance and resultant crumbling infrastructure and poor service delivery in numerous provinces.
Bottlenecks at the municipal level, owing to the litany of regulations and bureaucracies, are still slowing down progress, despite Ramaphosa’s promise to deal with red tape.
While the construction sector in quarter two shrugged off the devastating floods in KwaZulu-Natal, there were strikes at mining companies, weaker prices for precious metals and iron ore, load-shedding and higher fuel costs.
Afrimat CEO Andries van Heerden said: “Though there has been an uptick in the performance indicators of this edition of the ACI, we can attest to the fact that construction and infrastructure activity remains low.”
Updated to include some background on the crisis in the sector
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