Despite negative perceptions, South Africa’s economy remains resilient, while the construction industry remains healthy and continues to perform well, says JSE-listed open-pit mining company and industrial mineral and construction material supplier Afrimat CEO Andries van Heerden. This is evident in the Afrimat Construction Index (ACI) having expanded by 22.7% between the third quarter of 2010 (the base period) and Q1 this year – more than double the growth rate in the economy as a whole (in real terms).
After reaching an eight-quarter high of 127 in Q4 2016, the ACI decreased to 122.7 in the first quarter of this year; however, the construction sector at large remains on a stronger footing than in 2010 (seven years ago). The ACI, which is released quarterly, is a composite index of the level of activity in the building and construction sectors and is compiled by economist Dr Roelof Bothaon behalf of Afrimat.
The ACI is calculated from nine constituent indicators: the volume of building materials produced; the sales value of building materials; the value of buildings completed in larger municipalities; the value of building plans passed by larger municipalities; the First National Bank/Bureau for Economic Research (FNB/BER) building confidence index; the FNB/BER civil construction index; retail trade sales of hardware, paint and glass; formal employment in construction; and the value added by the construction sector.
The ACI index trend has not escaped the negative impact of recent events, including Pravin Gordhan’s dismissal; allegations of State capture; a ratings downgrade of sovereign bonds to junk status by two ratings agencies; and a return to a technical recession. Nevertheless, the expansion in construction activity up to the first quarter of 2017 as indicated by the ACI has been driven mainly by improved retail sales values for hardware, glass and paint, and the volume of mined building materials.
Confidence levels in the construction sector were also considerably higher in the first quarter of this year than what they were in 2010, with more than 400 000 additional formal-sector jobs created in construction since the base period. However, the value of building plans approved by the larger municipalities was the worst-performing indicator in the period.
Botha says the ACI is likely to remain under pressure during Q2, owing to the declining trend in overall business confidence, socio-political unrest and a delay by the South African Reserve Bank in adopting a more accommodating approach to monetary policy.
Further, the real value of outstanding mortgage loans has not yet recovered from the previous recession in 2009 and this traditional source of funding for a significant portion of construction sector activity remains expensive, he argues.Activity in the construction sector, as indicated by the ACI, bodes well for the economy and players that can adapt and embrace circumstances, Van Heerden stresses.
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