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Understated outlook for construction industry, but potential positives

1st March 2024

By: Tasneem Bulbulia

Senior Contributing Editor Online

     

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Some positive growth experienced in several indicators in the construction sector tapered off in the last quarter of 2023, and this loss in momentum continued into this year. It remains to be seen how this will play out, especially when factoring in the national elections, Industry Insight CEO and founder Elsie Snyman says.

Presenting the company’s outlook for the sector during MDA Construction Attorneys’ tenth yearly Collective Wisdom conference, held on February 29, she said the company had an understated outlook for the sector.

She explained that factors including a fairly negative outlook in terms of the building indicator, and a collapse in social infrastructure expenditure, informed this perspective.

She also mentioned total fixed investment in construction showing no recovery since 2020, with it losing 36% in real terms since 2015/16 (or R140-billion).

Also, building approvals were at near record low levels (bar the Covid-19 period), with less than 12-million square metres approved last year, falling at the fastest pace since 2020, down 16%, Snyman pointed out.

Referencing work undertaken by the company, Snyman also pointed out that business confidence was also far from the requisite level it needed to be to promote investment, and further, even the lower level of interest rates did not boost investment, given that business confidence did not support this. 

Any growth will have to come off lower levels, with a sharp contraction experienced recently in infrastructure, Snyman averred.

She said the company expected “mediocre” overall growth in the sector, with 0.4% slated for this year and 0.6% for 2025.

An area of particular concern is the reduction in public infrastructure, with public sector infrastructure as a percentage of gross domestic product at about 4% growth last year and this year.

Also, government social infrastructure estimates, based on the 2024 medium-term expenditure framework (MTEF), are expected to decline 10% in 2023/24, with a higher rate of decline of 6% over the 2024 MTEF period, which Snyman warned could pose significant socio-economic implications.

Public sector infrastructure average growth of 4.5% last year is expected to shift to a 0.1% average decline this year, with weaker growth across all client types.

Snyman warned that less funds going towards social infrastructure was a serious constraint and problem that needed to be addressed, especially as this directly impacted civilians and could lead to unrest.

However, on a more positive note, Snyman highlighted that the company’s last provincial construction forecast report, which was released in September last year and monitored the pipeline of construction projects that had been approved and were out to tender, showed the pipeline growing by about 12% and sitting at about R224-billion.

Therefore, there was an overall expansion in the project pipeline, she said, with opportunities at various local and provincial levels.

Snyman also mentioned that private sector participation in the sector was growing, with a “more earnest” approach from government in bolstering performance.

She posited that successes had been seen in renewable energy, and gains were starting to emerge in transport, for example.

Once a framework was established for this to take place at an integrated, widespread level, and confidence started returning, such investments could present considerable opportunities with significant projects, Snyman highlighted.

She cautioned, however, that the risk of losing market share to foreign investment must be considered and managed.

Meanwhile, public procurement law researcher Dr Allison Anthony explored the possible impacts of the Public Procurement Bill currently being pursued, and emphasised that there was a need for construction procurement to be viewed as a separate entity to general procurement, with this not seeming to be the case in the latest version.

Another issue of concern in the Bill was a lack of assurance on e-procurement, she mentioned.

She also highlighted the importance of continuing to pursue transformation in the construction and procurement sector, with the period since democracy obviously not being inadequate to engender requisite levels, and work therefore needing to be expedited.

She pointed out that, once this reaches the requisite level, transformation targets, which were never intended to be permanent, could be eased up, which would allow the sector to be more internationally competitive.

One of the areas that require more focus is in gender parity, with Anthony noting an unwillingness to pursue this.

She also noted that there is a lack of adequate data around transformation in the sector and in procurement, which makes it difficult to gauge the successes and what more needs to be done. 

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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