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Stellar improvement in construction activity

The resilience of the South African economy during the second quarter of the year has been showcased by the construction sector, with eight of the nine constituent indicators of the Afrimat Construction Index (ACI) recording positive real growth rates, compared to the first quarter of the year.

The index results for the 2nd quarter of the year were published on 13 September, showing a quarter-on-quarter increase of 5.8%, which is substantially higher than the increase in the country’s GDP and is a welcome improvement on the decline recorded in the first quarter of the year.

Unfortunately, the year-on-year increase was less than one per cent, signaling the dire need for macro-economic policies aimed at encouraging the further expansion of construction activity in the country.

In addition to the sterling performance of new job creation in the construction sector, other highlights were the positive real growth in wholesale sales values of construction materials, the rebound of the value of building plans passed and the increase in the volume of building materials produced.

The results of the ACI in the second quarter of 2023 are especially encouraging against the background of very high interest rates and a generally subdued macro-economic environment. The positive trend has been influenced by the increase in the public sector’s spending on capital formation, which will hopefully continue and gather momentum over the next couple of years, as the damage done to the country’s infrastructure by state capture is addressed.

A new-found urgency seems to be emerging within government on the need to tackle the dire state of South Africa’s infrastructure, which promises to breathe some life into construction sector activity. It is especially encouraging to witness evidence of closer cooperation between government and the private sector in the identification and design of crucial interventions to upgrade roads, harbors, freight railways and electricity supply.

They include:

  • Progress has been made with the Olifants Management Model Programme (OMMP) in Limpopo, which is a collaboration between the Department of Water and Sanitation, several municipalities and 17 large private sector companies, mainly in the mining sector. It is being funded on a 50:50 basis between the public and private sectors and will involve the construction of 800km of bulk water pipelines.

  • In an attempt to improve regional trade between the countries comprising the Southern Africa Development Community (SADC), Government has announced that six land ports of entry had been identified for major infrastructure and security upgrades via a public/private partnership

Now that inflation is virtually in line with the middle of the Reserve Bank’s target range, no reason exists for the Monetary Policy Committee to continue its restrictive policy stance.

Hopefully, interest rates will be lowered before the end of the year, which will go a long way to restoring consumer confidence and also to lower the costs of construction-related projects, which are essential in the quest to restore the country’s infrastructure.

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