Better times ahead for SA's vital construction industry

The construction industry is one of the biggest employment creators in South Africa, and central to the future growth of the economy, so it is good news that it is expected to start improving next year after being in decline since 2016.

A new sector report* from leading international market research company ResearchAndMarkets.com anticipates that this recovery will be supported by public and private sector investments in transport, renewable energy, and water and housing infrastructure, and that the SA construction industry as a whole will achieve an average annual growth rate of 3% in the medium term from 2024 to 2027.

As things stand now, the industry is expected to show a 1.9% decline in 2023, compared to a 3% decline in 2022, and would likely have improved even more were it not for high fuel prices and the unavailability of key construction materials because of the supply problems caused by Russia-Ukraine conflict.

It has also been negatively affected by a drop in the value of building plans passed this year, and a forced decline in business activity due to loadshedding.

However, industry spokesmen have welcomed the remarks made by finance minister Enoch Godongwana during the recent medium-term budget review that underline the government's commitment to facilitating a "quantum shift" in the delivery of infrastructure by mobilising private sector financing and technical expertise at scale.

An increase in both the quantity and quality of infrastructure such as roads, railways, and ports is also going to be essential to achieve any significant growth and job creation in SA's greater economy.

The construction sector has also applauded plans to amend Treasury Regulations and key elements of municipal legislation to align with recommendations emanating from the completed review of the Public-Private Partnerships (PPP) framework, as PPPs are increasingly recognised as the best mechanism for government, in conjunction with the private sector, to unlock many infrastructure projects that have been held up, often for years, through lack of funding or the required technical or project management expertise.

Particularly interesting are government's plans to create new ways for private-sector investors and multilateral institutions to co-invest with government on selected infrastructure projects and thus address the high cost of public sector borrowing due to the country's credit downgrade.

According to the February 2023 Budget, government is looking at being able to spend a total of R7,1-trillion on infrastructure between now and 2026, with the major allocations being to roads (R233,1bn), water supply and purification (R121,3bn) and housing infrastructure (R45,9bn).

In addition, the international sector report notes, construction industry growth will be supported by investments related to the South African Automotive Masterplan, the government plan to increase SA vehicle production to 1% of global production by 2035, and simultaneously increase local content in SA manufactured vehicles to 60%.

Other exciting prospects for the industry include a growing number of multimillion rand mega-solar projects in SA and its neighbouring countries, which are being multi-laterally funded. (See https://www.weforum.org/agenda/2019/08/this-mega-solar-initiative-will-help-southern-africa-shine/)

*The full report on the SA construction industry is available at https://www.researchandmarkets.com/r/vyun3y