Construction Monitor June 2017

Political events dominated headlines in June, with the public protector suggesting that the Reserve Bank should rather focus on growth, rather than protecting the value of the currency and the core mandate of price stability. Credit rating firm Standard & Poors' has warned that the credit rating of the economy could be cut deeper in sub-investment grade if the government were to meddle with the critical independence of the Reserve Bank. In the beginning of the month of June, Minister of Mineral Resources tabled the new mining charter, which is an effort to stimulate transformation in one of South Africa’s key sectors, which will require a minimum of 30 percent black economic empowerment for mining rights, up from 26 percent. It also requires a company’s shareholding be a minimum of 51% black held in order to be granted prospecting rights, amoung other changes. The chamber of mines has said that mining companies do not believe the new changes are practical in the current environment.

According to Stats SA’s latest release of Quarterly Financial Statistics (Source P0044), profitability in the construction industry, fell by 84 percent y-y compared to the same quarter in 2016, recording an overall loss of R2.1bn compared to a profit of R6bn in Q1 of 2016.  Profitability has moderated over the last three quarters, but this is the most significant loss recorded, dating back to 2002. The nominal value of civil projects awarded decreased by 71 percent in April, which marks the third consecutive month of decline, off the back of a 22 percent decline in April. Overall, over the last 12 months, civil activity is still in positive growth territory, with strong growth towards the end of 2016 and first two months of 2017. This is according to the value of civil projects awarded. Over the last year there has been an increase in the estimated nominal value of all civil projects awarded, by 14.4 percent in May, down from 17.2 percent at the end of the previous month. With the latest data in, it looks like the market has turned in the short term. Overall, the nominal value of building projects awarded increased by 55 percent in May 2017, compared to May last year.  This comes as some respite, as the building sector has gotten off to a relatively bad start to 2017. Housing, low cost housing an education projects made up the bulk of the projects awarded in May, in terms of value. Tender activity was also up, by 29 percent y-y.

In terms of pipeline activity, the bad start to the year has continued, with 33.4 percent fewer SQM approved for private building construction reported in April y-y, from a 13 percent contraction in March. Both the residential and non-residential sectors suffered declines in April, and this brings the average growth rate further down into negative territory. Over the last 12 months, the number of SQM approved fell by 8.7 percent y-y and is synonymous with the performance of the overall economy. We expect this trend to continue into the rest of the year. Without strong economic growth, we unfortunately do not expect a recovery of any sort over the next 12 months.

 © Industry Insight 2017