Declines continue in the construction sector, as state infrastructure projects delay

The report showed that the construction industry’s total revenue in 2020 was R436.7 billion compared to R470 billion in 2017.


Signs of confidence and activity in the country’s construction sector were fading. Not only was confidence low, but revenues also took a hit, dropping 2.4% between 2017 and 2020. That’s according to the report from Stats SA, which measures activity in the sector over a three-year period. year.

The report showed that the construction industry’s total revenue in 2020 was R436.7 billion compared to R470 billion in 2017. The biggest drop was recorded for the construction of civil engineering structures, which lost R58.8 billion in revenue. However, revenue increases were reported for building construction and for electrical contractors, who earned R18.2 billion and R5.6 billion respectively.

Even though the Afrimat Construction Index (ICA) outperformed the GDP growth rate in the first quarter on an annual basis, it returned to its traditional trend of registering a decline between the fourth quarter of each year and the three first months of the following year, recording a 3.5% drop in the value of the index from 118.8 to 114.7.

The ACI composite index – compiled by economist Roelof Botha on behalf of Afrimat – records activity levels in the building and construction sectors.

Botha said the lifting of most lockdown regulations led to a V-shaped recovery for most key sectors of the economy in the second half of 2020, including construction:

Since then, several sectors have completely recovered and moved into a new phase of expansion, but activity in the construction sector remains subdued.

“Since the ACI recorded its highest level ever of 143.8 during the third quarter of 2016, a combination of high interest rates, weak economic growth, the capture of state, public sector incompetence and high levels of violent crime have dampened activity in the country’s construction sector,” he added.

Another measure of confidence, the FNB/BER Confidence Index, showed that sentiment in the building materials manufacturing sector was weighing on overall confidence; it fell by 43 index points.

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FNB economist Siphamandla Mkhwanazi said the surge in residential construction at the height of the Covid-19 pandemic offered a ray of hope for a sector under pressure:

We are now starting to see a recovery in what we call the basic building sector and a slowdown in the sub-sectors that have been buoyed by the pandemic. During the pandemic, people extended their homes to build an extra office or renovated them because they were spending time at home – leading to a massive increase in the confidence of manufacturers of building materials as well as hardware retailers, but we are now seeing a reversal of this trend.

“We are seeing a recovery in the basic construction sector, but this is largely due to the ongoing reconstruction in KwaZulu-Natal or the intention to rebuild after the floods, as well as the ongoing conversion of offices into residential units, so it’s not big projects, but small, specialized projects that we’re seeing right now.

Mkhwanazi said the construction sector, which was on a downward trajectory, was suffering from sluggish demand.

“You have two things. Demand from the household sector is generally weak. We had a period before 2019 where there was a massive spike in the supply of new residential buildings, so there was excess supply at a time when employment in the sector was high. And during the Covid-19 pandemic, we lost 2.3 million jobs and around 1.5 million weren’t recovered.

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Official data showed construction employment fell by 7.2% annually between 2017 and 2020, with steep declines recorded for civil engineers.

Botha said that in the first quarter of 2019, employment was on an index value of 129.9 and is now at 104 points. “In the first quarter of 2019, there were over 1,339,000 people employed in construction and in the first quarter of 2022 this number fell significantly, to 1,073,000 – that’s a loss of 266,000 jobs; it’s terrible, it’s absolutely terrible.

Mkhwanazi added that whatever green shoots of KwaZulu-Natal’s reconstruction are, they will not be sustainable and their contribution to overall GDP growth will be limited:

Reconstruction in KwaZulu-Natal is stimulating only one of the sub-sectors, not the entire construction sector. These kinds of projects will not be enough to stop the decline.

“What we really need is faster deployment of these infrastructure projects which will then drive the entire building value chain. Without this, unfortunately, we will continue to see the construction sector contribute negatively to GDP,” he added.

Public sector capital expenditure on new construction has fallen by over R25 million in 2020, while total capital expenditure has fallen by almost R29 million over the same period.

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