Afrimat’s Q4 construction index grows 3% y/y

South Africa's construction sector has shown promising signs of recovery with the Afrimat Ad Construction Index reflecting a 3% year-on-year real growth in the fourth quarter. This growth can be attributed to increased job creation and wholesale sale of construction materials. Dr. Rudolf Boother, economic advisor for Optimum Investment Group, expressed his surprise at the positive growth, stating that while the sector is still recovering from the impact of COVID-19, the 3% growth rate surpasses the country's GDP growth rate of 1.2%. Boother noted that the construction sector typically experiences a slowdown in the fourth quarter due to seasonal factors, but the upward trend indicates further recovery in the industry. However, he emphasized the need for lower interest rates to stimulate construction activity and drive economic growth. Boother highlighted the current high cost of capital in South Africa, with the real prime rate at 6.5%, hindering investment and expansion in the construction sector. He called for a significant reduction in interest rates by at least 100 basis points to boost construction activity. Boother warned that delaying interest rate cuts could lead to a postponement of employment creation and limit the country's tax base expansion. Moreover, he underscored the importance of competitiveness on a global scale, pointing out that high interest rates could deter international companies from entering the market and hinder local companies from expanding abroad. By lowering interest rates, Boother argued that South Africa could increase manufacturing capacity utilization, reduce fixed overhead costs, and stimulate demand. This, in turn, could alleviate inflationary pressures and promote growth across sectors, including construction. Boother also addressed the impact of high interest rates on consumers' affordability, particularly in the bond market. He noted that rising interest rates have led to a decline in home loan applications and increased financial burden on existing mortgage bond holders. Boother explained that first-time home buyers now require a significantly higher deposit, while existing mortgage holders are paying substantially more on their monthly repayments. This additional financial strain limits consumer spending on other goods and services, affecting the broader economy. Boother emphasized the need for a broader tax base and job creation to drive economic recovery in South Africa. Despite the challenges posed by high interest rates, the construction sector's growth in the fourth quarter reflects a positive trajectory and signals potential opportunities for expansion and development in the industry.