The Afrimat Construction Index (ACI) staged a swift recovery from the Covid-19 induced slump that occurred during the second quarter of 2020, increasing by 60% in the next quarter. 

Since then progress has been muted. However, the ACI in the third quarter of this year managed to record a quarter-on-quarter rate of increase of 2.8% during a time several sectors of the economy were under severe pressure owing to the July unrest in parts of KwaZulu-Natal and Gauteng.

Afrimat is a JSE-listed open-pit mining company specialising in industrial minerals, bulk commodities and construction materials. The ACI is a composite index of the level of activity within the building and construction sectors compiled by economist Dr Roelof Botha on behalf of Afrimat.

The newest ACI report notes that another encouraging feature of the latest index is the fact that the building and construction sectors have outperformed most other sectors, including the domestic economy as a whole. 

According to Statistics South Africa data, the country’s gross domestic product (GDP) shrank by 0.3% during the third quarter compared with the second quarter. 

A full recovery in the construction and building sectors from the effects of the pandemic will probably only be realised in 2022, with the current value of the ACI (108.9 index points) still more than 5% shy of the value recorded in the third quarter of 2019, adds the report.

The ACI notes that the stand-out performers during the third quarter of 2021 were building material sales; hardware retail sales; the volume of building materials produced; and the value of buildings completed in the country’s larger municipalities. 

According to Botha, ongoing efforts to rebuild the facilities that were damaged during the July unrest should continue to boost construction-related activity during the four quarter, which, combined with the absence of strict lockdown regulations during these three months, could witness a further recovery in the ACI to close to its pre-Covid-19 level.

“Construction-related activity is inherently labour intensive and, hopefully, government will not react too harshly to the fourth wave of Covid infections, which does not seem to be as severe as the previous wave in terms of hospitalisations,” notes Botha.

“One point of concern is the decision by the South African Reserve Bank to raise interest rates at a time when there is clearly an absence of excessive demand in the economy and when unemployment keeps rising. Private-sector credit extension also remains on a downward trajectory, which makes the Reserve Bank’s return to more stringent monetary policy quite strange,” he adds.

“Fortunately, however, the prime overdraft rate at 7.25% is still low by historical standards, which should not deter the construction sector to continue on a growth path during 2022.” 

Botha points out that only three of the nine constituent indicators that comprise the ACI recorded negative outcomes in the third quarter compared with the second quarter. 

“The year-on-year performance was even more impressive, with eight of the nine indicators recording positive growth rates.”

He says that an interesting feature of the latest building statistics is the increase in the share of alterations and additions, which had averaged 15% in 2019, but increased to more than 20% during 2021, with a new quarterly record high of almost 29% during the third quarter of 2021. 

According to property market experts, this phenomenon may become a permanent one, owing to the occurrence of semigration, a term used to describe the migration of South Africans to smaller/other towns.

Houses in these areas are seldom suited for people used to a fast-moving urban environment and usually require substantial renovation, especially in the area of creating a de facto home office.

Botha is confident that the current momentum of recovery in construction can be taken forward into 2022. 

“Further recovery of the construction sector is on the cards for next year.”

He says he is basing his optimism on the presence of a number of growth drivers, including the need to repair and maintain infrastructure that has fallen behind schedule as a result of the lockdown regulations induced by the pandemic; promises made during the recent municipal elections by the largest political parties to improve service delivery throughout the country; and renewed business confidence, as reflected by several authoritative indices, including the Reserve Bank’s leading business cycle indicator and the Absa/BER Purchasing Managers’ Index for the manufacturing sector, with both of these indicators recently recorded all-time record highs. 

Botha also points out that several companies in the construction and materials sectors of the JSE continue to record impressive financial results. 

This JSE sector has outperformed the JSE all share index (Alsi) by a considerable margin during 2021, recording an increase in market capitalisation of 57% between early January and early December. 

By comparison, the JSE Alsi improved by 12%, albeit from a much higher base.