Afrimat Construction Index declines by 8.6% in Q1’23

Afrimat, the JSE-listed open pit mining company, has recently unveiled the findings of the Afrimat Construction Index for the first quarter of 2023. Dr. Botha, who compiled the index on behalf of Afrimat, highlighted a significant drop in the index by 8.6%, reflecting the challenging economic conditions that have plagued the construction sector. This decline stands in stark contrast to the marginal growth of 0.4% seen in the real GDP quarter-on-quarter. Dr. Roelof Botha, Economic Advisor at Optimum Group, shed light on the underlying factors influencing this quarter's performance, particularly focusing on the impact of higher interest rates and debt costs on mortgage bonds. The average mortgage bond in South Africa has seen a substantial increase since the Reserve Bank initiated its interest rate hiking cycle, leading to a noticeable strain on consumers' finances. The ripple effect of higher interest rates has been felt across various sectors, including the construction industry. Dr. Botha emphasized the adverse effect of the interest rate hikes on the AFRIMAT Construction Index, attributing a significant portion of the decline to a sharp drop in the value of new building plans passed. However, he expressed optimism that the construction sector may see a turnaround in the near future, with the potential easing of interest rates following recent inflation readings. Despite the challenging economic landscape, Dr. Botha highlighted several positive developments within the construction sector, offering a glimmer of hope for its future growth. One key aspect was the uptick in construction sector value added, indicating a potential resurgence in business confidence. Additionally, the public sector's increased capital formation ratio to GDP and a substantial rise in employment within the sector were identified as promising signs of progress. Dr. Botha underlined the crucial role of government spending on infrastructure projects, citing the upcoming election as a potential catalyst for increased investment in construction works. He emphasized the urgent need for infrastructure development, particularly in addressing the housing shortage and improving transportation networks. Looking ahead, Dr. Botha expressed optimism regarding the growth potential of the construction sector, highlighting the downward trend in producer and consumer inflation as a positive indicator for the economy. He suggested that lower interest rates could stimulate a construction sector boom akin to the RDP housing boom witnessed in the past. Furthermore, Dr. Botha emphasized the importance of private sector involvement in infrastructure planning and execution, noting the critical role it plays in addressing the country's infrastructure challenges. He underscored the need for accountable governance and merit-based appointments to drive progress and efficiency in infrastructure projects. With the prospect of a more conducive economic environment and increased collaboration between the public and private sectors, the construction industry in South Africa may be poised for a revitalization and sustained growth.