SA construction slumps in Q1

South Africa's construction sector is facing challenges despite showing subdued signs of recovery in the first quarter of 2022. The Afrimat Construction Index revealed a decline in the fourth quarter of last year to the first quarter of this year, indicating a trend that is linked to the retail sector's performance. Dr. Roelof Botha, an economist at Afrimat, explained that while the quarter-on-quarter drop is concerning, the index is actually up by 3.6% on a year-on-year basis, adjusted for inflation. However, this growth is still inadequate as the country needs between 5% and 10% real growth in the construction sector annually to address unemployment and infrastructure development. Botha highlighted the main challenges facing the construction sector, including a decline in salaries by over 15% in real terms, indicating a shift towards more capital-intensive practices. He emphasized the importance of creating jobs in the labor-intensive construction sector to drive economic growth. Botha also pointed out that only 4% of the infrastructure project pipeline's value is currently being added by the construction sector, with the remaining 96% stalled due to bureaucratic inefficiencies and corruption. He urged the government to address these issues to unlock the sector's potential for job creation and economic development. Another major obstacle facing the construction sector is intimidation, extortion, and violence at construction sites, perpetrated by criminal groups operating under the guise of business forums. Despite government initiatives to combat these construction mafias, progress has been slow, with the task force established to tackle the issue yet to yield significant results. Botha called for urgent action to emulate successful strategies used in other countries to eliminate such criminal activities and create a safer environment for construction companies. Additionally, rising interest rates globally are expected to further dampen construction activity in South Africa, emphasizing the need for swift action to expedite infrastructure projects and enhance corporate governance in the sector. Botha expressed cautious optimism for a potential ramp-up in construction activity by the second half of the year if project identification and tender processes are accelerated with private sector collaboration. Looking ahead, Botha foresaw a brighter outlook for the construction sector next year, anticipating the appointment of more competent personnel in the public sector following the upcoming ANC elective conference. Despite the current challenges, he believed that President Cyril Ramaphosa's leadership would steer the country in the right direction towards sustainable growth and development in the construction industry.