Afrimat, the mid-tier mining and materials company listed on the JSE, has released its findings on the Afrimat Construction Index (ACI) for the fourth quarter of 2023.
Compiled by economist Dr. Roelof Botha on behalf of Afrimat, the ACI serves as a comprehensive gauge of activity within the building and construction sectors.
Dr. Botha observed that the economy's sluggishness during the fourth quarter of the previous year was particularly evident in the construction sector.
Five out of the 10 constituent indicators of the ACI recorded negative quarter-on-quarter real growth rates, resulting in a 1.2% decrease in the ACI.
However, when examined on a year-on-year basis, the index outperforms the economy with a 3% real growth rate, compared to real GDP growth of 1.2%, largely driven by strong performances in employment and wholesale sales of construction materials indicators.
Dr. Botha expressed optimism regarding the year-on-year expansion of the ACI, especially in light of South Africa's high cost of capital, adding that job creation expanded in 2023 with 110 000 new jobs created, compared to 31 000 in 2022.
The index stood at 118.9 in the fourth quarter, down from 120.3 in the previous quarter and 116 in the second quarter. Notably, the latest four-quarter average reading of the ACI, which accounts for seasonal influences, has risen and is nearing pre-COVID-19 levels.
This suggests that construction activity has largely recovered from the negative impact of the lockdowns and recession associated with the pandemic.
Dr. Botha stressed that the index values for the fourth quarter are not directly comparable to the previous quarter due to the expansion of the base of constituent indicators to include the real value of construction works, a component of gross fixed capital formation in the economy.
He also pointed to the encouraging quarter-on-quarter increase of 9% in the value of new buildings completed, albeit from a low base.
However, concerns remain about the real value of construction works, which still lags behind the fourth quarter of 2019, indicating pressures from fiscal constraints, dysfunctional municipalities, and restrictive monetary policies.
According to Botha, the two indicators in the ACI that continue to fare very poorly are the “Value of Building Plans Passed” and “Buildings Completed at Larger Municipalities”.
He explained that these data sets are aligned with the continued decline in the number of mortgage bond applications administered by BetterBond and a hefty increase in the average deposit required for a home loan.
In 2019, first-time homeowners required a deposit of around R60,000, on average, to access a mortgage loan. “This has now shot up to just below R250,000, which acts as a significant deterrent to residential property market activity.”
According to Botha, several key drivers have come to the fore that may lead to an expansion of construction activity in 2024 and beyond, including the following:
• Further progress with the switch to renewable energy, much of which is intrinsically linked to construction activity.
• Visible signs of closer cooperation between the private sector and government agencies in the maintenance, repair, and expansion of the country’s logistics infrastructure.
• The consistent decline in the CPI and PPI, which should lead to a series of interest rate declines in 2024. Several economists polled by Unisa’s Bureau for Market Research expect interest rates to decline by up to 100 basis points during 2024 and even further in 2025.
Comentarios