SA construction sentiment slips in Q1 on weak economic growth

Weak economic growth during the first quarter of this year was evident in the construction sector, according to the ACI. Picture: Leon Lestrade Independent Newspapers

Weak economic growth during the first quarter of this year was evident in the construction sector, according to the ACI. Picture: Leon Lestrade Independent Newspapers

Published Jun 12, 2024


The weak economic growth during the first quarter of this year was evident in the construction sector, with eight of the 10 constituent indicators of the Afrimat Construction Index (ACI) recording year-on-year declines with the index growth rate slipping to just below zero.

Afrimat, the JSE-listed mid-tier mining and materials company, released the findings of its ACI for the first quarter of 2024 yesterday.

The ACI, a composite index of the activity level within the building and construction sectors, is compiled by economist Dr Roelof Botha on behalf of Afrimat. The ACI recorded a level of 103.7 in the first quarter compared to 117.3 in the previous quarter, and 105.0 in the first quarter of 2023.

Botha said the 1.3% year-on-year decline in the ACI compared to the annualised 0.5% increase in the country’s gross domestic product (GDP), with a decline of almost 9% in the construction sector’s value-added being of concern.

“On the upside, the decrease was somewhat offset by the 10.1% year-on-year increase in the value of wholesale sales of construction materials,” Botha said.

He said that while the year-on-year increase of 14 000 jobs in the sector was encouraging, the total employment figure of just over 1.2 million was still 128 000 shy of the number of jobs that existed in the first quarter of 2020.

The lethargy in the construction sector was said to have been caused by a combination of factors, including the high cost of capital in South Africa, with the current prime overdraft rate of 11.75%, a full 175 basis points higher than before Covid-19.

Dozens of municipalities in South Africa were said to have been dysfunctional for many years, which prevented them from accessing conditional National Treasury grants earmarked for infrastructure upgrading.

The fiscal constraints because of weak economic growth had also prevented any significant increase in construction-related capital expenditure in the 2024/25 National Budget.

Botha pointed out that construction activity was also traditionally quite subdued during the first three months of the year due to a lengthy summer holiday period and the Easter holidays.

“There may also have been a measure of hesitancy with new construction projects because of the uncertainty surrounding the elections, especially due to early indications that parties with populist agendas would garner substantial votes,” he said.

Looking ahead at the prospects for the construction sector for the rest of the year, Botha was confident that the consistent decline in the consumer inflation would force the SA Reserve Bank’s hand to lower interest rates at the July meeting, especially now that the European Central Bank has cut its key rate from 4% to 3.75%.

“Significantly lower interest rates are required to incentivise capital formation and construction activity and the proverbial ball should start rolling soon,” he said.

Afrimat’s CEO, Andries van Heerden, said that while the construction sector had remained relatively weak, the recent results achieved by the group itself were outstanding, thanks to the team’s collective efforts.

“These results, the highest in the group’s history, were underpinned by a focus on cash generation, strict capital allocation, and maintaining a strong balance sheet, which continues to support diversification,” Van Heerden said.

“The Bulk Commodities segment was responsible for the bulk of the profitability, although the Construction Materials division also increased revenue due to increased demand from the road and rail industries.”

Talking specifically to market demand in the construction space, Van Heerden indicated that efforts by the SA National Roads Agency Limited (Sanral) and maintenance by Transnet were showing positive momentum demand for aggregates in particular, further supported by large road maintenance projects in KwaZulu-Natal.

“The integration of Lafarge not only brings Afrimat full circle to its origins in quarrying, but also opens up new opportunities for the group,” he said.

“The additional products, together with a broader national footprint, are expected to positively alter the delivery capability of the group and the Construction Materials segment. This exciting project is anticipated to deliver significant results in the future.”