Construction activity declines in the first quarter due to high rainfall in four provinces

IOL News

3 days ago

The Afrimat Construction Index for Q1 2025 indicates a 2.6% decline in construction activity, attributed to high interest rates and adverse weather conditions, highlighting the ongoing challenges faced by South Africa's construction sector.
Image: Leon Sadiki/Bloomberg
Construction industry activity in the first three declined due to high rainfall and no meaningful impact from the marginal drop in the prime overdraft rate since September, according to findings of the first quarter, Afrimat Construction Index (ACI).
The ACI is an index of the level of activity within the building and construction sectors, compiled by economist Dr Roelof Botha and commissioned by the mid-tier mining company that produces and supplies construction materials, iron ore, anthracite, phosphate, and industrial minerals, Afrimat.
The year-on–year comparison with the first quarter of last year in the ACI showed a decline of 2.6%. Dr Botha said he believes the reading is an accurate reflection of the government's lack of willingness to spend on economic assets.
'Following a sharp drop during the pandemic, the ACI recovered swiftly to within a whisker of its pre-COVID level, but the recovery was then stymied by inadequate fiscal support for infrastructure expansion and the hangover from the state capture era, where the effectiveness of key State-owned enterprises and public sector agencies was eroded. Over two years, these problems have been exacerbated by the South African Reserve Bank's restrictive monetary policy,' said Dr Botha.
He said the sector had been hamstrung ever since the high interest rates started to bite into the pockets of prospective home-owners and property developers, as indicated by the decline in the real value of building plans passed by the metros and larger municipalities. These had declined in Gauteng, Western Cape and KwaZulu-Natal (KZN) over three years.
He said in an interview interest rates were well above pre-Covid levels, a time when the government was already being criticized for an excessively stringent monetary policy.
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The value of construction activity by the public sector has fallen markedly since 2015, while the value of construction by the private sector has increased on slighltly since them.
Image: Afrimat
'Construction is the most labour intensive sector in the economy, and the restrictive monetary policy has not only prevented this sector from recovering from the pandemic but has also contributed to the sector entering a deep recession,' he said.
Above-average rainfall in some provinces in the first quarter also severely impacted construction activity. KZN had a noticeable increase over its historical average, Gauteng experienced above-average rainfall, particularly in January, while the North West saw a notable increase compared to its historical average.
The high rainfall was a major factor to the decline of some of the indicators in the ACI, with only two indicators showing growth. Employment in construction was up 2.1% year-on-year and hardware retail trade up 0.2% on the same basis.
High rainfall in some provinces and a continuing high interest rate contributed to a decline in construction activity in the first quarter on a year-on-year comparison basis.
Image: Afrimat
Dr Botha said the value of annual construction activity by state-owned enterprises had dropped by 61% since 2015, while the percentage decline for all government departments including municipalities for the same period came to 45%.
He said the roadmap for higher and sustained economic growth in South Africa recently published by the World Bank at the request of the government, provided an opportunity to eliminate some of the impediments to a revival of the construction sector, especially in enhancing decision-making in relevant public sector agencies.
Afrimat CEO Andries van Heerden said they were happy that their experience stood in contrast to the ACI's findings, in that both the group's cement kilns were running, and market demand was significantly stronger than originally anticipated.