Construction sector activity moved strongly into positive territory in the third quarter of the year, with the latest Afrimat Construction Index (ACI) outperforming the overall economy.

The latest gross domestic product (GDP) data released by Statistics South Africa  pointed to a real growth rate of 1.6% (quarter-on-quarter) for the economy as a whole, with the construction sector recording real growth in value-added of virtually double this rate, at 3.1%. 

Afrimat is a midtier openpit mining company and provider of industrial minerals, bulk commodities, construction materials, future materials and metals.

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.

Botha points out that the ACI has now virtually fully recovered from the effects of the Covid-19 pandemic.

“At an index value of 123.4, the ACI is now 23.4% higher than the base period, which was the first quarter of 2011.”

He adds that the ACI remains lower than its record-high index value of above 140 in the third quarter of 2016 – “a clear indication of the erosion of investor confidence that characterised the latter years of the State-capture era”.

The ACI is made up of nine indicators.

When studying the performance of the individual indicators, it confirms a reversal of fortunes from the second quarter of the ‘Value of wholesale sales of construction materials’, which was the star performer during the third quarter.

“This key indicator has increased by 13.3% to an all-time record high of R42.5-billion, quarter-on-quarter, in real terms,” says Botha.

“Together with a double-digit real growth rate quarter-on-quarter in the ‘Volume of building materials produced’, these two indicators ensured a hefty quarter-on-quarter growth rate for the ACI of 7.2%,” says Botha.

Despite the positive news, Botha is concerned about the slow pace of recovery of gross fixed capital formation in the economy. 

“Although new investment in productive capacity by the public and private sectors combined staged an impressive expansion of 5.5% from the second quarter and by 8.5% year-on-year in real terms, the third quarter figure of R239-billion is still more than 9% down on the third quarter of 2019.

“What is more disturbing is that capital formation in the third quarter only represented 7.1% of GDP, a far cry from the global average of 26% and not remotely adequate for a country with a population of more than 60-million people that is expanding relentlessly.”

Botha says that emerging markets such as Senegal, Chile, Croatia, India, Hungary and Mexico all enjoy capital formation:GDP ratios in excess of 20%. 

“Against the background of an expected tax revenue overrun of around R80-billion during the current fiscal year, it has become incumbent upon government to expedite expenditure on infrastructure – both for maintenance and for the expansion and improvement of network industries, especially energy, road and rail.” 

Botha points out that the fixed investment category for residential buildings was the only one to have expanded in real terms on both a quarter-on-quarter and year-on-year basis during July to September, with non-residential buildings and construction works still in the doldrums. 

“Unless government provides significantly more fiscal resources for infrastructure development in the 2023 budget and addresses the delays in tender processes, the construction sector will remain relatively subdued, ” warns Botha.