Afrimat Construction Index reflects downward trend in construction activity in Q1

20 June 2018

It is concerning that the construction sector – South Africa’s most labour-intensive sector in terms of labour/capital ratios – is not growing, said economist Dr Roelof Botha on Tuesday at the release of the Afrimat Construction Index (ACI) for the first quarter.

The ACI, compiled by Botha on behalf of Afrimat, mirrors prevailing trends in a variety of construction-related indicators, most notable of which is the sharp decline in the First National Bank/Bureau for Economic Research (FNB/BER) civil construction confidence index and the volume of building materials sold.Compared with the fourth quarter of 2017, only two of the nine ACI subindices recorded improvements in the first quarter of this year.

Further, seven of the nine indicators also declined when compared with the first quarter of 2017.Some of the reasons behind the poor showing of the ACI relate to interest rates that are still too high; policy uncertainty, especially regarding the issue of land reform; the strong rand, which has caused the mining sector to contract in the first quarter this year; as well as fiscal pressures resulting from an unavoidably conservative budget in February.

Additionally, dysfunctional local authorities hampering infrastructure development is also to blame, said Botha.He added that although seasonal influences are evident in the construction industry, with the first quarter of every year taking a traditional knock, the four-quarter moving average for the ACI confirms that South Africa’s construction sector requires policy intervention.

“Demographics and the urgent need for infrastructure expansion dictate that construction activity should be growing at a healthy pace, not contracting.”He stated that the trend in the ACI contradicts, to some extent, the surge in several indices of consumer and businessconfidence, including the South African Chamber of Commerce and Industry Business Confidence Index and the FNB/BER Consumer Confidence Index.

The latter index recorded an all-time high of 26 in the first quarter of this year, which is the first reading above the neutral zero level in 15 quarters.The construction sector, nevertheless, remains on a stronger footing than seven years ago, he added, noting that with the ACI having expanded by 10% since the first quarter of 2011, the same rate of growth recorded by the economy as a whole between 2011 and 2017 in real terms.

Botha said the composite index provides a balanced and realistic view of the level of activity in the construction sector as it evens out the contradictory trends of conditions in the construction sector that are often portrayed by the individual components that comprise the index.Afrimat CEO Andries van Heerden stated that while circumstances are challenging, the entrepreneurial flair of the businesses within the group did not allow conditions to dictate performance.

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