Construction activity in South Africa is not as depressed as suggested by the media, large construction firms or industry analysts, says Afrimat CEO Andries van Heerden.

Afrimat is a JSE-listed openpit mining company, as well as industrial mineral and construction material supplier.

The company on Thursday released the findings of the inaugural Afrimat Construction Index (ACI) in Johannesburg.

The ACI is a composite index of the level of activity within the building and construction sectors. It will be released on a quarterly basis.

The index, compiled by economist Dr Roelof Botha on behalf of Afrimat, indicates a relatively strong performance in construction activity since the third quarter of 2010, used as the base year for the ACI.

“The third quarter of 2010 was exactly one year after the end of the 2008/09 recession, and is regarded as a statistically representative base period for a medium-term time-series based index,” said Botha.

In the 25 quarters since then, activity in the construction industry expanded by 28.1%, until the fourth quarter of 2016.

By comparison, South Africa’s real gross domestic product expanded by 11.5% over this period, indicating the relatively strong performance of construction activity since the end of 2010, at more than double the rate of increase in all economic activity in the country.

Van Heerden noted that Afrimat had, over the last few years, seen a shift from large construction projects to smaller projects.

He said “this made sense” in an environment where government was seeking to stimulate service delivery, black economic empowerment and employment.

This shift, however, did not benefit large construction companies, which often “had the ear”of the media. The pressure large cement companies experienced was also caused more by past deals and expansion projects in Africa, rather than South African market conditions, he noted.

All of this negative publicity created the impression with investors that the construction industry “was not the place to be”, said Van Heerden.

However, “the results of this study support Afrimat’s argument over the last five years that construction is healthier than many people believed”.

Looking Ahead
The ACI also uses provisional data obtained during the first three months of 2017 to provide a forecast of construction activity in the current quarter.

The index shows the likelihood of a marginal decline in the level of construction activity, owing mainly to weak values for building plans passed by larger municipalities.

Botha noted, however, that this indicator might not include all building activity, as many residential extensions and renovations were not reported to local government.

Also, political turmoil following the municipal elections in the second half of last year might have skewed the numbers.

The ACI is calculated from six different indicators: the building materials sales index; buildings completed within larger municipalities; building plans passed by larger municipalities; the FNB/Bureau for Economic Research (BER) Building Confidence index; the FNB/BER Civil Construction Index and retail trade sales of hardware, paint and glass.

The expansion in construction activity up to the end of 2016, as indicated by the ACI, has been driven mainly by improved retail sales values for hardware, glass and paint, with domestic demand for building materials and number of residential buildings plans approved by the larger municipalities also showing strong growth.

Retail hardware store sales have improved by more than 70% since the third quarter of 2010, whilst the sales of building materials and the value of building plans approved both improved by 24% over the past 25 quarters.

Further, longer-term expansion in construction activity is indicated by a rising trend for hardware and building material sales. This is supported by a rise of three points in the FNB/BER Building Confidence Index for the first quarter of 2017, its best level in 12 months.

According to Botha, the ACI was likely to increase in the rest of 2017 as a result of higher economic growth, modest employment creation and lower interest rates.

He believed the South African economy might expand by 2% in 2017 – a “conservative” estimation – boosted by the expectation of an 85% increase in the country’s maize crop.