Declines continue in construction sector, as state’s infrastructure projects delay

BUSINESS

The report showed that total income for the construction industry in 2020 was R436.7 billion from R470 billion in 2017. The largest drop was recorded for construction of civil engineering structures, which lost R58.8 billion worth of income. However, income increases were reported for buildings construction and for electrical contractors, which gained R18.2 billion and R5.6 billion, respectively.

Even though the Afrimat construction index (ACI) outperformed the first quarter GDP growth rate on a year-on-year basis, it returned to its traditional trend of recording a decline between each year’s fourth quarter and the first three months of the following year, recording a drop of 3.5% in the index value from 118.8 to 114.7.

The ACI composite index – compiled by economist Roelof Botha on behalf of Afrimat – records levels of activity within the building and construction sectors.

Botha said the lifting of most of the lockdown regulations resulted in a V-shaped recovery for most key sectors of the economy during the second half of 2020, including construction:

“Ever since the ACI recorded its highest level yet, namely 143.8 during the third quarter of 2016, a combination of high interest rates, low economic growth, state capture, public sector incompetence and high levels of violent crime have dampened activity in the country’s construction sector,” he added.

Another measure of confidence, the FNB/BER building confidence index, showed sentiment in the building material manufacturing sector weighed on overall confidence; it fell by 43 index points.

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FNB economist Siphamandla Mkhwanazi said the uptick in residential construction during the height of the Covid-19 pandemic offered a glimmer of hope to a sector that’s under pressure: 

“We are seeing a recovery in the core building sector but it’s largely due to the rebuilding that is happening in KwaZulu-Natal or the intention of rebuilding after the floods, as well as the ongoing conversion of the office space into residential units. So, it’s not large projects, but small and specialised projects that we’re seeing at the moment.”

Mkhwanazi said the construction sector, which had been on a downward trajectory, was suffering from muted demand.

“You’ve got two things. Demand from the household sector is generally low. We had a period before 2019 when there was a massive spike in the supply of new residential buildings so there was excess supply at a time when employment in the sector was high. And during the Covid-19 pandemic we lost 2.3 million jobs and about 1.5 million have not been recovered.”

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Official data showed that employment in the construction sector dropped 7.2% per annum between 2017 and 2020, with large declines recorded for civil engineers.

Botha said, in the first quarter of 2019, employment was on an index value of 129.9 and now it was at 104 points. “In the first quarter of 2019, there were over 1 339 000 people employed in construction and in the first quarter of 2022 that number was significantly down, to 1 073 000 – it’s a loss of 266 000 jobs; it’s terrible, it’s absolutely terrible.”

Mkhwanazi added that, whatever green shoots were there from the KwaZulu-Natal rebuilding would not be sustained and their contribution to overall GDP growth would be limited: 

“What we really need is a faster rolling out of those infrastructure projects which will then stimulate the entire building value chain. Without that, unfortunately, we are going to continue seeing the construction sector contributing negatively to GDP,” he added.

Public sector capital expenditure on new construction works dropped by over R25 million in 2020, while total capital expenditure was down by almost R29 million in the same period.

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