Company Announcement - The construction industry is facing an extremely challenging year, Master Builders Association North has been warned by a leading economist.

Speaking at MBA North’s 112th annual general meeting in Midrand recently, ABSA economist, Miyelani Maluleke, said with government spending on infrastructure starting to slow down after the global economic collapse at the end of 2008, private sector investment at least had remained buoyant. "However, there are strong indications that property developers will have to take a more cautious approach forward. This will have a negative impact on the order books of the building industry: from architects, consulting engineers, contractors and in fact, the entire supply chain," he cautioned.

“The construction sector has always been closely connected to GDP growth so we can not expect any strong growth from this industry soon. South Africa  should experience only a 0,9% GDP growth rate this year. This means the building industry is going to have to search much harder to find work."

While Maluleke attributed many of the economic woes SA was experiencing to the dismal state of the world economy, there were local extenuating circumstances that had compounded the situation, such as the severe drought that would, inevitably, result in an increase in food imports, placing further strain on the consumer. The price of maize was now already 150% higher than a year ago.

Players in the retail property space would also feel the impact of subdued growth in durable, semi-durable and non-durable goods, as well as related services. “Confidence is weak across all income groups so the consumer is not going to supply the growth the economy needs.”

The situation is like a double-edged sword considering that dwindling water and electricity resources would also eventually curtail private sector property developments, particularly because of the drought.  “Dam levels have fallen by 55%. It is not a crisis yet - but it's very difficult to predict what lies ahead."

Maluleke said rating agencies were not comfortable with the state of the SA economy and were keeping a close eye on the scenario. “SA might not be downgraded to junk status, but there is a lot of pressure on government. We are looking at a very tough outlook this year.”

He warned that this, together with a rapidly increasing public sector wage bill and social grants, would lead to an increase in taxes. But, because this was an election year, it was highly unlikely the public sector would reduce its wage bill, but rather opt for a more “politically-correct” package by cutting on spending on hard infrastructure.

"All signs lead to a tough year ahead and the building industry may find itself following the example of civil engineering that is undergoing a process of 'right-sizing', while pursuing more lucrative contracts across the country’s borders. But be warned: choose your African destination carefully. The end of the commodities super cycle, and the drastic drop in the price of oil, have also left many other African countries in a very precarious economic situation," he added.