Photo by: Duane Daws
The building industry is an essential component of the South African economy as it contributes about 15% to the gross fixed investment that drives the economy. However, with the country’s economy going through a tough time currently, this, in turn, reflects on the building industry.
Relating the economic status of the industry in the Master Builders South Africa (MBSA) 2015 annual report, economy analyst firm Medium-Term Forecasting Associates director Dr Johan Snyman notes that, together with civil works, the building industry makes up 45% of total investment, which is the most essential component of infrastructure development.
Snyman points out that both international and domestic economic situations have affected the state of the economy in South Africa.
“The global economy has yet to recover fully from the 2008/9 financial crisis that engulfed the world. The world’s second-largest economy, the Chinese economy, is growing by roughly 6% yearly, sharply lower than the 12% rate to which one had grown accustomed, while commodity prices have fallen sharply. Consequently, as South Africa is a major exporter of commodi- ties, the local economy has suffered severely,” he explains.
Domestically, Snyman highlights, according to the South African Reserve Bank, the economic growth rate of the first quarter of 2015 is 2.1%, compared with the first quarter of last year, which shows that the cyclical performance is below par.
MBSA 2014/15 president Neil Cloete mentions that adding to the pressures experienced in the industry, low levels of business confidence, falling commodity prices, weak domestic demand, pressure on costs and profitability, uncertainty around labour regulation and a lack of clear direction from government on major initiatives such as the National Development Plan also affect the industry.
The report further indicates that, during 2014, the total building demand dropped by –3.6%, while investment in residential building declined by –5.8% and the nonresidential sector also dropped by –1.5%.