06 December 2019

The Afrimat Construction Index (ACI), a composite
index of the level of activity in South Africa’s building and construction
sectors, increased by 5.1% quarter-on-quarter in the third quarter.

Economist Dr Roelof Botha, who compiles the ACI on behalf of construction
materials, industrial minerals and bulk commodities provider Afrimat, on
Thursday said it was encouraging that the third-quarter ACI was at a higher
level than the year before.

“Most important, however, is the continuation of a
more stable trajectory, as measured by the four-quarter average for the ACI. It’s
clear there is still some life in the construction sector, with improved levels
of activity having been recorded since the first quarter of 2019 in the values
of buildings completed, building plans passed and both the value and volume of
building materials produced.

“The declining trend in the ACI’s four-quarter
average value that kicked in during the second quarter of 2017 has now been
reversed, and the new growth phase should gain some momentum in 2020 as a
result of the solid performance of capital formation growth over the last two
quarters,” he stated.

Botha noted, however, that interest rate relief was
“desperately” needed in the economy, in general, and the construction
sector, in particular, for growth to become sustained and to accelerate.

He found it puzzling that the South African Reserve
Bank’s Monetary Policy Committee refused to switch to a more accommodating
monetary policy, since figures released by Statistics South Africa confirmed the
declining trend in the inflation rate, as measured by the Consumer Price Index

During the first ten months of the year, the CPI
averaged 4.2%, the lowest rate in over a decade. In real terms, adjusted for
inflation, the prime overdraft rate, the benchmark commercial lending rate, had
increased by more than 100% from its average level during the tenure of the
previous SARB governor Gill

“It stands to reason that high interest rates act
as a disincentive for capital formation, especially in the residential property
market, as it precludes many individuals from being able to afford the purchase
of a home. Ever since the 2008/9 recession, the residential property market has
been in a slump (in real terms), which represents one of the major reasons for
the poor growth in construction activity over the past decade,” Botha pointed

He is, nevertheless, confident that construction
activity should be stimulated by the success attained with securing investment
pledges during the second Presidential Investment Summit held in Sandton during
November. Investment pledges valued at R363-billion were made at the summit.

Further, Botha said the new Infrastructure Fund,
which would be managed by the Development Bank of Southern Africa (DBSA), was
also good news for the construction sector in 2020 and beyond.

The DBSA has announced that a project pipeline valued at more than R700-billion has already been identified by the fund, one of the initiatives underpinning government’s new Economic Stimulus and Recovery Plan.

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