While JSE-listed industrial and construction materials company Afrimat's Construction Index (ACI) was down by 12 points year-on-year in the first quarter of this year, there is some hope of a recovery for the construction sector in government’s infrastructure-led economic growth recovery plan post-Covid-19.
The ACI is a composite index of the level of activity within the building and construction sectors, compiled by economist Dr Roelof Botha on behalf of Afrimat.
“The results of the index prove how important the recovery plan is and, given the current low levels, we should see an immediate effect if activity is increased,” he emphasised in a media release on July 2.
Further, in addition to the strong likelihood of a resurgence in infrastructure spending, another key driver of recovery is the lower interest rate environment, Botha pointed out.
"If lending rates remain at their current levels for several years, the imminent post-pandemic recovery should gain considerable momentum in 2021,” averred Botha.
Although the sector represents the third-smallest key sector of economic activity, with a contribution of 3.3% to the country’s total output, construction activity nevertheless possesses a multitude of forward and backward links with most other sectors.
It also plays a pivotal role in the development of new infrastructure, with a dominant contribution to total capital formation of close to 50%, he highlighted.
According to Botha, the quarter-on-quarter decline of more than 25% in the real value of building plans passed by the country’s metros and larger municipalities is a point of particular concern.
Afrimat CEO Andries van Heerden said although the ACI results are down, he was heartened by the proposed infrastructure spend, adding that the assurance given by Presidential Investment and Infrastructure Office head Dr Kgosientsho Ramokgopa that commitments of tens of billions of rands had already been received was good news.
“This bodes well for companies involved in infrastructure development and throughout the supply chain, particularly the construction sector, and our hope is that this can bring about some recovery and help reduce unemployment levels.”
Van Heerden added that Afrimat remained extremely well-positioned to benefit from the promised upswing in infrastructure development, and looked forward to participating in related infrastructure spend that follows given the diversity of products available in the Afrimat arsenal.
The trend of the ACI, as measured by the four-quarter moving average, has declined by 14.5% from its peak, recorded in the first quarter of 2017. The index declined more than 27% from its highest level, recorded in the fourth quarter of 2016.