SA’s construction sector showed “positive real growth” in the second quarter of this year, according to the latest Afrimat construction index.
However, the industry remains impeded by stubbornly high interest rates which need to come down to further unleash growth, according to economist Roelof Botha.
Driven by higher levels of public sector spending on large projects, public-private partnerships and the drive by the private sector and individuals to reduce reliance on Eskom, the index recorded a level of 115.4 in the second quarter compared with 109.1 the previous quarter. This represented a 5.8% uptick in the quarter and a 0.6% rise year-on-year.
The index takes into consideration indicators such as employment, sales of building materials, salaries and wages, retail trade sales and building plans passed.
Though the sector remains constrained by a combination of high interest rates, low economic growth, state capture, public sector incompetence and high levels of violent crime, it experienced an 8.6% quarter-on-quarter growth in employment in construction and an 8.5% rise in wholesale construction trade for the period.
Botha, who is the report’s author, said the positive trend, influenced by the increase in public sector spending on capital formation, would hopefully continue and gather momentum over the next couple of years as the damage done to the country’s infrastructure by state capture is addressed.
The 3.7% rise in building materials volumes was encouraging “if you consider the tough conditions out there for the economy in general and construction in particular”, he said.
Noting a newfound urgency emerging in government on the dire state of SA’s infrastructure, Botha said this promises to breathe some life into construction activity.
“It is encouraging to witness evidence of closer co-operation between government and the private sector in the identification and design of crucial interventions to upgrade roads, harbours, freight railways and electricity supply,” he said.
“Whether there is an element of enlightened self-interest from the government side with an eye on the elections or not, as long as it happens [it’s fine] because the state of SA roads is just shocking,” he said, adding that this applies outside the Western Cape.
Though the report showed an overall improvement in activity in the moribund construction sector, with eight of the nine indicators recording positive real growth rates compared with the first quarter, Botha warned the uptick would only be sustainable if interest rates are lowered.
Six of the nine categories rated in the report were still in negative territory year-on-year, with the biggest decline noted in the value of buildings completed, which plunged 33% in the quarter.
Botha attributed the “shocking” outcome of this category to high interest rates, saying a third of people had decided they would not build in the period because of elevated interest rates.
The SA Reserve Bank lowered interest rates during the Covid-19 pandemic in an attempt to get people to spend at a time when consumer confidence was low but has since raised interest rates as it tries to tame high inflation triggered in part by supply-chain issues and the war in Ukraine.
Criticising the Bank’s monetary policy committee models as “simply not accurate enough”, Botha said there was no reason to raise interest rates in the first place because “we did not have demand inflation in our economy”.
“The nature of the inflation we have been experiencing the last two years has been purely supply-side driven,” he said, calling for a lowering of rates. “Inflation peaked at just below 8% and it is now below 5%, so there is no reason for them not to lower interest rates significantly.”
He said as South Africans become more resilient with regard to electricity, the quarter-on-quarter growth in the index should continue to increase.
“The year-on-year figure will continue to pick up as we move towards the bumper period in the fourth quarter with Black Friday and Christmas shopping, and a lot of businesses need to prepare for that with refurbishments and the like. But it will really gain momentum if we can have a more sensible approach towards monetary policy.”
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