Is business really booming in the construction industry?
Bafikile Bonke Simelane
After last month’s flurry of distressing news, analysis, decreases in the business confidence index, unemployment statistics and macro-economic data on the country’s recession, GDP contraction, sovereign credit ratings, currency volatility and mounting job losses; it was somewhat heartening to read a Moneyweb article entitled “Business is booming in Building and Construction”.
This is despite decreases reported for non-residential buildings and construction works as indicated by the sharp decline in the FNB-BER Building Confidence Index. According to said article “Companies in the construction industry should be able to make a decent return for shareholders, provided they position themselves correctly on product quality, price and service delivery, says Andries van Heerden, CEO of listed aggregate supplier Afrimat.”
Afrimat and well-known economist Dr Roelof Botha joined forces to develop the Afrimat Construction Index (ACI), which measures activity in the sector. The ACI is calculated from nine different constituent indicators: the volume of building materials produced; the sales value of building materials; the value of buildings completed within larger municipalities; the value of building plans passed by larger municipalities; the 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.
In the fourth quarter of last year the ACI was at a two-year high and since the third quarter of 2010 it has expanded by 22.7%, more than double the growth rate of the economy as a whole (in real terms), says Botha. SA Reserve Bank data that shows substantial growth in investment in construction works over the last five years supports this, says Medium-Term Forecasting Associates Dr Johan Snyman.
Latest data from the South African Chamber of Commerce and Industry’s (SACCI) Business Confidence Index (BCI) is also indicating resilience even though confidence remains under pressure due to political and economic policy uncertainty for these turbulent recessionary times we find ourselves in as a country.
The International Monetary Fund (IMF) also weighed in highlighting the prospect of protracted economic policy uncertainty, together with a continued deterioration in perceptions over the quality of governance, as key risks to South Africa’s growth outlook. The IMF still expects South Africa to grow by 1% in 2017, despite the fact that the country descended into its first recession since 2009 in the first few months of 2017. It expects the economy to expand by 1.2% in 2018. This is not nearly enough to make a meaningful difference and have the desired positive impact. We need game-changers and we need them fast.
The foregoing underscores the need for South Africa to have an inclusive and collective ‘war room’ approach on what immediate action and measures need to be taken by all role players as interested and affected parties to mitigate and ultimately reverse the negative concomitant impact of the country’s low economic growth and low employment creation to stem the tide of rampant job losses which serves to deepen poverty and inequality. This echoes the sentiments echoed by National Treasury as reported in last month’s edition. The situation we find ourselves in needs to be treated with the utmost urgency.
We trust that the Finance Minister will keep his promise and his statement bears repeating in this edition: “We will implement steps to get the economy growing at about 6%.” “We want to get everyone focused on boosting the economy … so that the low growth doesn’t become a vicious cycle.”
We hope the Minister and National Treasury’s Action Plan will inspire much-needed confidence to galvanize the nation around one common goal of Building South Africa. MBSA remains committed to this ideal and stands ready to mobilize its members around a common vision for the future of SA Incorporated.