Construction Monitor September 2023

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  • Create Date October 10, 2023
  • Last Updated October 10, 2023

Construction Monitor September 2023

One of the key economic events that occurred in the past month was the September 2023 Monetary Policy Committee (MPC) meeting of the SARB (South African Reserve Bank), at which the decision was taken to keep the repo rate at 8,25%, implying commercial banks’ prime rate at 11,75%, for the second consecutive meeting, since the last increase in rates in May 2023.The unchanged rate decision made sense, given that at 4.8% year-on-year in August, consumer price inflation was back well-within the target range of 3-6%.

From a construction perspective, fewer projects were approved for private sector building construction in July, with the annual rate of decline accelerating to 7.2 percent over the 12-month period, although there seems to be an uptick in demand for office space (mainly centred around Gauteng). 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 civil projects out to tender seems to be losing some momentum, with the number of tenders down 10 percent y-y in August 2023, with tender activity significantly lower in terms of building projects.  The possibility of budget cuts in infrastructure poses a real threat to the currently improved outlook for the civil industry as tenders for infrastructure projects may be reined in.  Profitability in the construction sector improved to an average of 6 percent in 2023 (Jan – June 2023), the best performance since at least 2016. But there seems to have been a shift in favour of smaller companies, where the average profit margin rose sharply to 12.4 percent, contributing 60 percent to total profits generated in the first six months (R9bn). Medium companies, after being the star performers in 2022, struggled with an average profit loss of 1.8 percent. Meanwhile, despite industry support to protect the local cement manufacturing industry, imports have continued to increase on a year-on-year basis, with a further 114 000 tons imported in August.  This brings the total tons imported to 608 000 for the eight-month period, up 10 percent.

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Construction Monitor September 2023.pdf