• Version
• Download 16
• File Size 2.10 MB
• File Count 1
• Create Date September 18, 2023
• Last Updated September 18, 2023

Construction Monitor August 2023

The BRICS (Brazil, Russia, India, China and South Africa) summit arguably received the most attention of any economy-related news, if one can classify it as such. At this stage, though, it would appear that BRICS impact economically will be limited for the foreseeable future. Geographically, it doesn’t appear to be a particularly good fit, such as the European Union or NAFTA (North America Free Trade Agreement), or our own Common Monetary Area (CMA) between South Africa, Namibia, Lesotho and Eswatini. In addition, smaller countries often fear being “overrun” by larger economies and their multinationals in the event of a customs union or free trade area being formed. We believe, therefore, that for the foreseeable future, limited impact will be felt from BRICS, and for South Africa it will be largely “business as usual”, trading with whoever wants to trade with it, Western or Eastern nations, with membership or non-membership of BRICS playing little role. The release of the July CPI (Consumer Price Index) numbers was probably the most positive and meaningful economic news of the month. From 5.4% year-on-year in June, CPI inflation slowed further to 4.7% in July, which is very near to the midpoint of the SARB’s 3-6% target range. It seems likely that the Bank may wait to see what the ultimate impact of its monetary tightening measures will be, possibly only lowering interest rates in the 1^st half of 2024. In addition, we don’t expect interest rates to fall below a 10% prime rate in the next cutting cycle (repo rate of 6.5%).  Although interest rates are believed to have peaked, it is probably too early to expect any meaningful upturn in the economy just yet. The SARB Leading Indicator for June was down by a massive -10.6% year-on-year, and -0.1% down month-on-month. This doesn’t appear to point to any significant sign of an economic rebound in the near term. Real GDP (Gross Domestic Product) growth recorded a small 0.2% year-on-year rate in the 1^st quarter of 2023.  From a construction perspective, fewer projects were approved for private sector building construction in June, with the annual rate of decline accelerating to 6.0 percent over the 12-month period. The estimated value of civil projects out to tender continues to improve, while the value of civil projects awarded has also shown an improvement.  However, the increase in the number of projects out to tender seems to be losing some momentum and the pending budget cuts that could feed into the infrastructure budget poses a real threat to the outlook for the civil industry as tenders for infrastructure projects may be reigned in. Just as we saw some real evidence that the future for the civil sector has improved, a weak trade balance (partly linked to SA’s pro-Russian foreign policy and a global economic slowdown) and lower mineral sales revenue in the aftermath of the commodity price rally in 2022, resulted in Treasury haven to take drastic measures to restore some sort of fiscal balance.   The SARB meets again in September to decide the next move in terms of interest rates and given the more favourable trend in the CPI there is a broad consensus that rates will likely be left unchanged however higher oil prices with a weaker rand is creating higher levels of vulnerability to the inflation outlook.  Higher lending rates have already impacted on private sector demand, with the future pipeline in the residential market now in a firm decline. The uptick in demand for commercial activity, including office, industrial and retail space, is coming off a very low base, and while it offers some opportunities for growth in certain areas, it is too small to counter the housing market decline. This means the overall outlook for the building sector in 2024/25 remains on the weak side.

In this month's review we also look at the ratio of CIDB Grade 9 projects out to tender vs the number of CIDB Grade 9 contractors registered with the CIDB. On average (nationally), there is only 1 project for every 3 9CE contractors, with Gauteng much worse off with 1 project for every 16 contractors registered. Contractors can however use Gauteng as a headquarter base that can distort the ratio, but this tells a story, that Gauteng is far too concentrated for work that has been available over the last 19 months.  We also look at the most recent project announcements that could have a high economic impact in Kwazulu Natal, Western Cape, Eastern Cape and a few by Government.

Attached Files