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• Create Date July 10, 2024
• Last Updated July 10, 2024

Construction Monitor June 2024

Following tough negotiations during the establishment of South Africa’s Government of National Unity, the cabinet for the 7^th administration was finally sworn in.  What seems to have been favourably received by the markets, the rand strengthened to below R18.30/$ by the 1^st week in July. With inflation still sticky above 5 percent, a stronger currency coupled with lower oil prices comes at an opportune time to alleviate inflationary pressure, at a time when the SARB may potentially be nearing a cycle of monetary policy easing.   Economic conditions remain under pressure, seen in weak growth in terms of retail and wholesale trade spending and vehicle sales along a steep decline in ABSA’s PMI indices.

The City of Cape Town received a credit rating upgrade from Moody’s, enabling significant infrastructure investments totaling R39.5 billion over three years and creating 130,000 jobs. Planned projects include revitalizing Zeekoevlei and Rondevlei Weirs and developing new social housing in Woodstock. While seeking private investment to improve port efficiencies, Transnet has refused private partnerships for Cape Town's container operations. In Gauteng, Rand Water’s maintenance caused water disruptions, while Johannesburg Water's R729 million renovation plan aims to improve water infrastructure. Tshwane reported better capital budget spending and plans to generate 80% renewable energy by 2050 and was recently acknowledged by the South African Local Government Association’s municipal awards ceremony for their improved financial management, a feather in the cap for Tswane mayor Cilliers Brink that has held office since March 2023 amidst significant turmoil and strike action in the municipality. A key priority, for all municipalities, should be to stabilise finances, clean up audit outcomes and improve budgetary infrastructure expenditure rates.  Unfortunately, payments remain a concern at local government level, where aggregate payments outstanding for more than 90 days, increased to 78.6 percent in the 1^st quarter of 2024, meaning over R83bn are still owed to suppliers by local governments after 90 days.

The sector faced a difficult 1^st quarter, with larger companies experiencing significant declines in turnover and weaker profitability. However, the construction sector saw a 14% rebound in wholesale trade sales of materials in April 2024, while retail hardware sales remained flat. Construction material prices exceeded consumer inflation but showed signs of slowing.  Public sector building tenders fell 58% in May 2024 but remains higher by 31% over the past year, with the public sector’s contribution to building investment rising to close to 30 percent. Despite challenges with project postponements and cancellations, particularly in road and water projects, the industry's outlook remains cautious, with potential recovery tied to future interest rate adjustments and increased government spending on infrastructure.

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