A leading construction index released yesterday showed also that eight out of nine industry activity indicators recorded positive inflation-beating growth when compared with the first quarter.
The Afrimat Construction Index (ACI) for the second quarter of 2023 recorded a level of 115.4 in the second quarter compared to 109.1 in the previous quarter.
“The index result was exceptional, and I have no doubt the trend will continue into the third quarter,” economist Dr Roelof Botha said in an interview. Dr Botha compiles the ACI on behalf of Afrimat, the mid-tier construction materials and commodities mining group.
“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,” said Botha.
He said capital equipment imports into South Africa had reached their highest level ever in the first six months of this year at almost R250 billion - the 2020 figure was less than half of this - with much of the imports being for the renewable energy sector.
Botha said he suspected that much of the construction associated with the use of this equipment drove the ACI in the second quarter, and would continue to do so in the third quarter.
The ACI is a composite index of the level of activity within the building and construction sectors compiled for Afrimat by Botha.
“Construction took the honours on a quarter-on-quarter basis, adding more than 100 000 jobs and outperforming all other sectors of the economy, including those with much higher employment levels,” he said.
The quarter-on-quarter increase of 5.8% was higher than the increase in the country’s gross domestic product (GDP) and was a welcome improvement on the decline recorded in the first quarter.
He said the success of collaboration between companies and local authorities for the Olifants Management Model Program involving some 800 kilometres of bulk water pipeline, indicated that the private sector was increasingly able to partner with the government on projects.
Unfortunately the year-on-year increase for the ACI was less than 1%, signalling the dire need for macro-economic policies aimed at encouraging the further expansion of construction activity in the country.
He said he expected interest rates would begin to decline this year, which would help create a more conducive climate for infrastructure investment.
“Over and above the sterling performance of new job creation in the sector, other highlights were the positive real growth in the category Wholesale Sales Values of Construction Materials, the rebound in the Value of Building Plans Passed, and the increase in Volume Of Building Materials Produced, said Botha.
Botha said it should be pointed out that the construction sector component of GDP only included the value added by contractors, whilst the ACI was based on a composite index of construction sector activity that includes another eight indicators, all of which were measured in real terms, i.e., adjusted for inflation.
“The ACI is, therefore, a very comprehensive barometer of the state of the construction sector,” said Botha.
He said a new-found urgency was emerging within government on the dire state of South Africa’s infrastructure.
Afrimat’s CEO, Andries van Heerden, said: “For most of the 2023 calendar year and in the period under review, we have heavily invested in projects that are expected to yield fruitful returns and further strengthen our diversity and competitive advantage in the future.”
“Fortuitously, the Construction Materials segment is experiencing a pickup in activity with concurrent demand for products in roads, building and infrastructure projects, which aligns with the results in this quarter’s ACI data,” said Van Heerden.
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