Optimum Investments economic adviser Dr Roelof Botha cautioned against reading too much into GDP statistics on construction. Photo: Ayanda Ndamane (ANA)
Gross domestic product (GDP) statistics show the construction sector has not yet recovered from Covid-19 and is still 24 percent smaller than before the pandemic, but there are signs of a slow improvement, according to Optimum Investments economic adviser Dr Roelof Botha.
He said indications of a “very slow, but very sure” improvement in construction activity included an improvement in the value of new buildings completed in the second quarter, and improving private sector capital formation, with particularly the hospitality sector likely to show some improvement in this regard, in the short term.
He said large infrastructure investment by the state was “chugging along” at a low level, something he expected would improve as the national government had started taking steps to improve service delivery capacity at major municipalities.
He cautioned against reading too much into GDP statistics on construction, as they only include the value-add of contractors, do not include data from for example construction material producers and retailers, and the figures also exclude informal construction activity.
Construction and Engineers South Africa (CESA) CEO Colin Campbell said there were several factors retarding the construction sector’s rebound.
The most prevalent was onerous and often ill-informed procurement processes.
“In the words of the Minister of Finance at our CESA Conference recently, he reiterated that we do not have a money problem in this respect. We have insufficient up-front feasibility analyses of projects to justify investment, we have insufficient technical resources at municipal level to manage the process for large projects that would contribute significantly to the GDP in respect of the sector’s contribution.”
Campbell said this constraint also limited the ability of the construction sector for brownfields and maintenance projects.
He said there were other factors also preventing acceleration in the roll-out of projects, such as the construction mafia risks, load shedding, and political uncertainty, all of which fuel limiting investor confidence.
He said there were some new government tender bids coming to the market at present and creating a sense of optimism, but he warned that many of these may later be cancelled, often even after bidders had responded to these bids.
“Our most recent survey still reflects a cancellation of as much as 35 percent of the tenders invited,” he said.
He said key areas of infrastructure spending post the pandemic had been identified as water and sanitation, transportation, power generation and supply along with digital infrastructure.
“The pandemic has also exposed shortcomings in many parts of our social infrastructure, such as schools and hospitals, together with local government service delivery of sustainable local infrastructure.
“The latter has not seen much change owing to many of the factors mentioned earlier, whereas the former too seem to be limited, and led by crises which emanate from power outages and insufficient infrastructure for water supply and treatment,” he said.
“We are aware that Eskom and entities such as Rand Water are planning to roll out a large number of projects, but this has not happened yet and certainly the industry looks forward to this. Many, however, remain sceptical, having held their breath several times before when such pronouncements were made,” said Campbell.
edward.west@inl.co.za
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