Construction expected to return to path of recovery
Economist sees signs of a V-shaped recovery after studying newly released Afrimat index
CONSTRUCTION followed the downward trend of all other economic sectors in the second quarter, but it was an abnormal decline due to the Covid-19 lockdown, and activity should regain the recovery path that it had been on since the first quarter of 2018.
This was according to economist Dr Roelof Botha, who was commenting on yesterday’s release of the Afrimat Construction Index for the second quarter of 2020, which fell to a level of well below 100 for the first time when the sector temporarily almost ground to a halt due to the lockdown.
Prior to lockdown, the sector was already in difficulty because of low levels of business confidence, high interest rates, falling government spending on infrastructure and low economic growth in general.
Gross domestic product figures for the second quarter released by Statistics SA this week showed that construction fared the worst of any sector, declining by more than 30 percent compared with the same quarter in 2019 (at current prices).
Botha said in a telephone interview, however, that there were signs of a V-shaped recovery for the sector with, for instance, June hardware retails increasing 4 percent above the level for the same month in 2019.
“That is significant. It shows a recovery is already under way,” he said.
Over the longer term, he expected that government and private sector infrastructure programme would help to boost activity.
A major benefit was that, for the initial 51 projects, most would be mainly funded by the private sector with some guarantees from the state, which means the projects won’t strain the government’s weak fiscal position.
The 51 projects had been gazetted, the projects had been declared strategically important and would be fasttracked for the necessary approvals, such as municipal rezoning and water rights, by the end of September.
Work on the projects should start before the end of October, or at the very least tenders should have been issued in this time, said Dr Botha.
An amount of R340 billion had been earmarked for these projects, and sovereign guarantees and approvals for increased borrowing had been secured, while funding had been agreed with private sector banks and development organisations. “Contractors and builders are under huge pressure to catch up on lost construction time, and the imminent further relaxation of lockdown regulations could pave the way for a bumper fourth quarter for the construction sector,” he said.
Lending rates had also dropped to their lowest level in several decades, and, if sustained, would lower the cost of capital formation over the next few years, he said.