The Afrimat Construction Index (ACI), a composite index of the level of activity in South Africa's building and construction sectors, increased by 5.1% quarter-on-quarter in the third quarter.

Economist Dr Roelof Botha, who compiles the ACI on behalf of construction materials, industrial minerals and bulk commodities provider Afrimat, on Thursday said it was encouraging that the third-quarter ACI was at a higher level than the year before.

“Most important, however, is the continuation of a more stable trajectory, as measured by the four-quarter average for the ACI. It is clear that there is still some life in the construction sector, with improved levels of activity having been recorded since the first quarter of 2019 in the values of buildings completed, building plans passed and both the value and volume of building materials produced.

“The declining trend in the ACI’s four-quarter average value that kicked in during the second quarter of 2017 has now been reversed, and the new growth phase should gain some momentum in 2020 as a result of the solid performance of capital formation growth over the last two quarters," he stated.

Botha noted, however, that interest rate relief was "desperately" needed in the economy, in general, and the construction sector, in particular, for growth to become sustained and to accelerate.

He said it was puzzling that the South African Reserve Bank's (SARB's) Monetary Policy Committee refused to switch to a more accommodating monetary policy stance, given that figures released by Statistics South Africa confirmed the declining trend in the inflation rate, as measured by the Consumer Price Index (CPI).

During the first ten months of the year, the CPI averaged 4.2%, the lowest rate in more than a decade. In real terms, adjusted for inflation, the prime overdraft rate, which is the benchmark commercial lending rate, had increased by more than 100% from its average level during the tenure of the previous SARB governor Gill Marcus.

“It stands to reason that high interest rates act as a disincentive for capital formation, especially in the residential property market, as it precludes many individuals from being able to afford the purchase of a home. Ever since the 2008/9 recession, the residential property market has been in a slump (in real terms), which represents one of the major reasons for the poor growth in construction activity over the past decade,” Botha pointed out.

He is, nevertheless, confident that construction activity should be stimulated by the success attained with securing investment pledges during the second Presidential Investment Summit held in Sandton during November. Investment pledges valued at R363-billion were made at the summit.

Further, Botha said the new Infrastructure Fund, which would be managed by the Development Bank of Southern Africa (DBSA), was also good news for the construction sector in 2020 and beyond.

The DBSA has announced that a project pipeline valued at more than R700-billion has already been identified by the fund, one of the initiatives underpinning government’s new Economic Stimulus and Recovery Plan.