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Africa|Building|composite|Construction|Energy|Environment|Infrastructure|Logistics|Renewable Energy|Service|Infrastructure
africa|building|composite|construction|energy|environment|infrastructure|logistics|renewable-energy|service|infrastructure

Afrimat Construction Index returns to growth in the third quarter

An image showing a graph from the Afrimat Construction Index

Afrimat has released the findings of the Afrimat Construction Index for the third quarter of the year

7th December 2023

By: Tasneem Bulbulia

Senior Contributing Editor Online

     

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JSE-listed Afrimat has released the findings of its Afrimat Construction Index (ACI) for the third quarter of the year, and according to economist Dr Roelof Botha, the lethargy of the economy as a whole during the period was not evident in the construction sector, with six of the nine constituent indicators of the ACI having recorded positive real growth rates compared with the second quarter.

The ACI is a composite index of the level of activity within the building and construction sectors, which is compiled by Botha on behalf of Afrimat.

The index recorded a level of 131.5 in the third quarter, compared with 120.3 in the previous quarter.

“Significantly, this is the highest level since the fourth quarter of 2016 and, if the current momentum can be maintained in the fourth quarter, it may herald a new, sustained growth phase in the construction sector,” says Botha.

He adds that it was especially encouraging that the important indicator of job creation continued to record a healthy growth rate, with 145 000 new jobs having been created since the beginning of the year.  

“Equally encouraging is the increase of almost 10% in the volume of building materials produced compared with the previous quarter, with year-on-year [movement] also having returned to positive growth,” Botha highlights.

The quarter-on-quarter increase of 9.2% is in sharp contrast to the marginal decline in the country’s gross domestic product and builds on the positive ACI growth rate of 5.8% recorded in the second quarter.

“Also worth noting is that the year-on-year increase has moved from less than 1% in quarter two to 5.4 in quarter three, signalling the likelihood that construction sector activity may have entered a new, sustained growth phase,” Botha avers. 

He points out that only two indicators in the ACI fared poorly – the value of building plans passed, and buildings completed at larger municipalities. He explains that these data sets are aligned to a sharp decline in the number of mortgage bond applications administered by BetterBond and a considerable increase in the average deposit required for a home loan.

“The residential property market is suffering at the hands of unduly restrictive monetary policy in South Africa. With the consumer price index within the South African Reserve Bank’s target range for inflation and no sign whatsoever of demand inflation in the economy, lower interest rates are overdue and will certainly serve to boost construction activity further,” Botha explains.

According to him, a number of key drivers of further growth in the construction sector may strengthen or emerge during 2024.

This includes progress with public-private partnerships or outright privatisation in the area of repairing, maintaining and expanding the country’s logistics infrastructure; and progress with the inevitable and gradual switch to renewable energy, intrinsically linked to construction activity.

It also includes new capital formation in the economy, which recorded its seventh successive double-digit growth rate during the period; closer cooperation between the South African Police Service and contractors to prevent undue criminal activity at building sites, including adequate fiscal support; and a larger measure of price stability in the economy, which may lead to lower interest rates by early 2024.

In addition to the very good performance of wholesale sales of construction materials, new job creation and the volume of building materials, other highlights include positive real growth in the value of building material sales, retail hardware sales and the remuneration of construction workers on a quarter-on-quarter basis.

Botha says the good uptick in the ACI in this latest reading is especially encouraging against the background of extremely high interest rates and a generally subdued macroeconomic environment.

“The positive trend seems to have been influenced by the increase in the public sector’s spending on capital formation, which will hopefully continue and gather momentum over the next few years as the damage done to the country’s infrastructure by State capture is addressed,” he highlights. 

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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