South Africa’s construction confidence jumps 9.3%

South Africa's construction sector has experienced a significant boost in the third quarter of 2023, with the Afrimat Construction Index showing a remarkable increase of 9.3%. This surge in construction activity comes at a crucial time when the country's economy has faced a contraction. The index, which now stands at 131.5 points, marks the third consecutive quarterly rise, highlighting positive growth in six out of the nine categories. To delve deeper into this impressive performance, Roelof Botha, Economic Advisor at Optimum Group, sheds light on the factors driving this growth and the potential outlook for the sector. Botha attributes the robust performance of the construction sector to key indicators such as the significant increase in the value of wholesale construction material trade and a standout 11% year-on-year growth in employment within the construction industry. This surge in employment has led to the creation of 145,000 new jobs in the construction sector this year alone, reflecting a positive trend across various levels of construction activities. Residential housing projects, as well as renewable energy plants, have contributed to this upward trajectory, indicating a broad spectrum of growth within the sector. Despite the encouraging momentum witnessed in the third quarter, Botha emphasizes the need for a more extensive and sustained growth phase in the construction sector. He highlights that for this growth to be maintained and enhanced, there is a requirement for a broader positive outlook across all categories. This includes the necessity for more building plans to be passed and completed, as well as an increased value addition for construction in line with index metrics. An essential factor that Botha points out for further bolstering the construction sector is the adjustment of interest rates. He stresses that the current high prime lending rate in South Africa, close to 12%, is a hindrance to the sector's full potential. Botha advocates for a lower interest rate environment, suggesting that a decrease to around 8% would significantly stimulate construction activities by reducing the cost of capital and facilitating access to loans. Furthermore, he underscores the importance of closer collaboration between the public and private sectors in implementing infrastructure and public works programs to drive growth in the construction industry. Looking ahead, Botha highlights the potential of larger-scale projects such as the upgrading of Durban Harbour and railway lines to support the construction sector. Additionally, he emphasizes renewable energy projects, including solar and wind farms, as significant drivers for construction demand and job creation. Botha sees a positive trajectory for construction activities linked to renewable energy projects, indicating a promising outlook for the sector's future. In conclusion, the construction sector in South Africa has displayed resilience and growth potential despite economic challenges. With the right policy interventions, such as adjusting interest rates and fostering public-private partnerships, the sector has the opportunity to flourish further and contribute significantly to the country's economic recovery and development.