The fourth quarter of 2020 saw activity levels in the building and construction sectors continue on a pronounced recovery path that started in the previous quarter. But the recovery is expected to stall in the first quarter of 2021
The fourth quarter of 2020 saw activity levels in the building and construction sectors continue on a pronounced recovery path that started in the previous quarter.
The latest Afrimat Construction Index, a composite index of the level of activity within the building and construction sectors, released on Tuesday, revealed that the index improved to 111.3 in the fourth quarter of 2020, which is 60% higher than during the Covid-19 lockdown-hit second quarter of 2020.
Economist Dr Roelof Botha, who compiles the index on behalf of Afrimat, said the index is now virtually at the same level it was at the beginning of 2018.
Botha said it is particularly encouraging that two-thirds of the constituent indicators of the index recorded positive growth in the fourth quarter of 2020 compared with the previous quarter.
However, Botha doubts the index will pick up substantially in the first quarter of 2021, although he is confident about a further recovery by the sector during the calendar year.
Botha said this view on the first quarter of 2021 is based on the building and construction activity lost in January 2021, because of the more stringent lockdown regulations in place until the end of that month, the fact that February is the shortest month of the year, and shortages of steel and bricks, which are impacting negatively on activity in the sector.
He said the index is now at 111 compared with 100 in the first quarter of 2011, which means it has moved by 11% in 10 years.
“That is crazy! In a decade with our type of population and population growth and infrastructure and housing needs, it should be where hardware sales is sitting, which has gone from 100 to 160 or even wholesale sales of building materials and hardware materials, which has gone from 100 to 145.”
Municipality lethargy not helping
Botha said the improvement in the index has been hamstrung by the lethargy at municipalities, with building plans passed and approved both below 100, while the value added and the volume of building materials in the formal sector are both still also below 100.
“There are a lot of bottlenecks that the government needs to address,” he said.
The index was below the base period last year for only the second quarter, despite construction contributing poorly towards GDP growth in the 2020 calendar year.
Also read: The South African Economy grew by 1.5% in Q4 of 2020.
Botha attributed this to productivity in the construction sector not being what it should be and the failure of Statistics SA surveys on GDP to capture all the informal building and construction activity taking place in the economy.
However, he said the quarter-on-quarter change in the index between October and December 2020 amounted to a satisfactory increase of 2.5%, which was slightly lower than the comparable figure of 3.8% for GDP, and the index is down by 4.4% compared with the fourth quarter of 2019, which is very close to the year-on-year decline in the GDP of 4.1%.
Botha said the early start to the summer holiday season in December 2020 prevented an even stronger recovery of construction activity, with the key sub-indices in the index for building material sales and volume of production both recording negative quarter-on-quarter growth during the fourth quarter of 2020.
“The systematic lifting of most of the lockdown regulations has clearly resulted in a V-shaped recovery for most sectors of the economy, including construction.
“It seems clear that retail sales for hardware and building materials, and the value of building plans passed, and of buildings completed, are fuelling the latest recovery phase in the construction sector,” he said.
Confidence levels
Andries van Heerden, the chief executive of JSE-listed Afrimat, said the continued improvement in the index is a very welcome sign of some recovery in the South Africa construction sector.
Van Heerden said Afrimat is similarly experiencing this positive momentum and is fortunately in a good position to counter the effects of the Covid-19 pandemic through its diversification and very strong balance sheet.
The latest FNB/Bureau for Economic Research (BER) building confidence index released this week revealed that confidence in the sector declined by two index points on a 100-point scale to 27 in the first quarter of 2021 after rising to 29 in the fourth quarter of 2020.
FNB senior economist Siphamandla Mkhwanazi said the non-residential building sector performed dismally in the first quarter of 2021, adding that the oversupply of office and retail space was exacerbated by the Covid-19 pandemic and is likely to continue through 2021 at the least.
David Metelerkamp, senior economist at construction market intelligence firm Industry Insight, said it is difficult to see what is going to stimulate current demand in the non-residential segment of the building sector, because there has been a relatively permanent structural shift within the office market with many people now working from home.
The 2021 Budget Review revealed that the government plans to spend R791.2 billion on infrastructure investment over the next three years.
However, this budget represents a cut to the R865 billion earmarked for infrastructure expenditure two years ago over the Medium-Term Expenditure Framework period.
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