JSE-listed construction materials supplier Afrimat’s latest Afrimat Construction Index (ACI) rose by 4% in the third quarter, compared with the second quarter.
This follows a gain of 7% between April and June.
The ACI is now more than 9% higher than after the sharp decline that occurred in the first quarter.
The ACI is a composite index of the level of activity within the building and construction sectors and is compiled by economist Dr Roelof Botha.
“This reflects a welcome and broad-based recovery of the level of activity in the South African construction sector, with all of the eight constituent indicators recording gains over the second quarter.
“It is also encouraging that the overall result has improved by 17.6% since the first quarter of 2011, which is the base period, and the figure is considerably higher than the increase in the country’s real gross domestic product (GDP) of 11.2% over the period,” said Botha.
He indicated that the best performing indicators of the ACI during the third quarter were the value of hardware sales, the value of buildings completed and building plans passed in the country’s larger municipalities, and the volume of building materials produced.
“Since the base period for the index in the first quarter of 2011, all eight indicators have also recorded gains, with the most impressive ones being employment in construction, salaries and wages in construction, the value of hardware sales, and the value of buildings completed in the larger municipalities.”
Botha pointed out, however, that the recovery in construction activity had not been sufficient to lift the ACI into the record territory recorded in the fourth quarter of 2016.
He said four factors had contributed to the declining trend in the four-quarter average index value.
These factors include lethargic general economic growth; high interest rates, which is especially burdensome for industries that rely on debt financing; policy uncertainty around land expropriation without compensation; and the serious drought that struck the Western Cape, which placed a damper on building construction activity in the province with the fastest growing construction sector.
Botha, meanwhile, stated that the initial success of President Cyril Ramaphosa’s investment drive boded well for the sector’s prospects for 2019, especially after traditional nervousness surrounding Parliamentary elections had dissipated.
So far, the combined value of pledged investments by foreign and local companies in this regard is close to the R700-billion mark.
“A clear indication of the improved sentiment towards South Africa by the international investment community is the fact that inward foreign direct investment reached a new high of more than R21-billion during the first half of 2018 – in terms of average quarterly inflows,” said Botha.
He added that Ramaphosa had already begun to forge closer cooperation between government and the private sector, which promised to reduce the level of policy uncertainty in the medium to long term.
Combined with the prospects for an increase in capital formation, in absolute terms and as a percentage of GDP, it seems likely that 2019 could witness solid growth in construction activity.