The Afrimat Construction Index (ACI) outperformed the economy in the fourth quarter of last year, but activity remains generally muted due to rising interest rates and the inability of municipalities to invest in infrastructure.
This was according to Dr Roelof Botha, a well known economist who compiles the index on behalf of building and future materials and metals and commodity mining group Afrimat, who said yesterday that the ACI’s improvement of 1.9% outperformed the economy year-on-year.
He said in a telephone interview the index fell 22.2% quarter-on-quarter, compared with gross domestic product fourth quarter growth of 1.3%, but this decline was not unexpected given the fourth quarter is traditionally a weak trading period for the construction sector.
He questioned how National Treasury planned to transfer billions of rands of infrastructure spending to municipalities as per the 2023/24 budget, when there were 175 out of 257 local authorities on the brink of financial crisis, while 151 were deemed “bankrupt and insolvent”, and were unable to pay creditors and third parties, including the South African Revenue Service and pension funds.
“It’s fairly obvious the majority of municipalities are not in a position to spend transfers from National Treasury earmarked for infrastructure in (line) with the needs of their respective communities,” he said. National Treasury allocated more than R61 billion for infrastructure spending to the provinces and local governments in the 2023/24 Budget.
He said South Africa’s infrastructure backlog was growing by the day, with for instance, not a single new road being built in Gauteng in 12 years, while 1000 new vehicles were added to the province’s transport system every day.
He said another result of municipal failure has been the widespread building of homes and structures without municipal and building plan approval or oversight, construction activity that was not reflected in official economic statistics.
He said the only way to improve the ability of local governments to repair, maintain and expand infrastructure was for comprehensive private sector involvement at every stage of the process, from planning and tender evaluation to execution, and monitoring and evaluation.
The ACI is a composite index that includes 8 other indexes, of the level of activity within the building and construction sectors in South Africa. He said a highlight was a welcome return to positive growth for value added by the construction sector, both on a quarter-on-quarter and year-on-year basis.
However, he said the ACI had not yet managed to claw back the structural decline from its record high of 143.6 index points in the third quarter of 2016.
“At an index value of 120.9, the ACI is almost 21% higher than the base period, i.e., the first quarter of 2011, until such time as a marked improvement of investor confidence occurs, growth in the construction sector is likely to remain muted.”
Over the past year, the star performer was the value of wholesale sales of construction materials, with an improvement of 9.3%. “Hardware retail sales also provided a boost to the ACI on a quarter-on-quarter basis, with an increase of 8%, but the remuneration of construction workers was the best performing indicator, compared to the third quarter of 2022, achieving a double-digit increase.”
Afrimat’s CEO Andries van Heerden said although the operating environment was not easy, Afrimat continued to see value in its diversification strategy, but added that the structural decline in the public sector’s contribution to fixed investment remained a concern.
“Even through periods of deep crises such as that being faced by South Africa, opportunities still present themselves and we are seeing this across the four segments that make up Afrimat. We will continue to methodically evaluate every opportunity and ensure we can successfully execute what we take on,” he said.
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