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Construction Monitor September 2024

The South African Reserve Bank (SARB) cut interest rates by 25 basis points in September 2024, lowering the prime lending rate to 11.50%. Further cuts are expected, with the repo rate projected to reach 7.25% by the end of 2026. SARB forecasts modest economic growth of 1.1% for 2024, with inflation slowing to 4.4%, the lowest in 40 months. Rating agency Fitch do not share the SARB's sentiment and projects weaker growth for SA over the next two years by comparison to the SARB's growth projections. The stronger rand has eased inflationary pressures, although challenges persist in sectors like vehicle sales and mining, which remain sluggish. However, renewable energy projects are gaining momentum, driven by rising electricity tariffs and the need for energy security.

In September 2024, significant developments across South Africa's provinces highlight ongoing infrastructure and investment activities. In the Western Cape, the City of Cape Town is progressing with major projects despite opposition, including housing developments and an R18 billion water infrastructure upgrade. Gauteng faces housing and financial challenges, with only modest progress in reducing the housing backlog and the first payment towards e-toll debt looming. The Eastern Cape is advancing road infrastructure projects and LNG terminal plans, while KwaZulu-Natal reports substantial investment in affordable housing and road developments.

The wholesale of construction materials continued to underperform in July 2024, declining by 0.1% year-on-year (y-o-y), which contributes to a 1.9% decline in construction wholesale trade for the first seven months of 2024. This compares to a 0.7% increase in overall wholesale trade. Retail hardware sales dropped by 4.5% in July, reflecting weak consumer demand in this segment, though overall retail trade showed a positive 5.3% growth.  The construction pipeline, which tracks future projects, is declining at an accelerated pace, primarily due to a steep decline in public sector projects post-election. However, some provinces like Free State and KwaZulu-have bucked the trend.  The mining of building materials remains under pressure, while construction input costs have been rising, with reinforcing steel prices slowing their escalation but still adding to overall costs. While public sector tender activity has declined significantly after the election, some provinces are offering growth opportunities.  Public sector building contract awards rose by 57% in the first eight months of 2024, indicating that despite a decline in private sector building approvals, there is still significant activity in public sector construction.

 Outlook: Despite these challenges, the SARB’s expected interest rate cuts may provide relief for the construction sector in 2025, particularly for residential development. However, delays and cancellations of civil projects remain a significant concern, with over 240 civil projects affected in the first eight months of 2024. This uncertainty could limit future growth prospects for the industry, even as the outlook for some regions shows signs of improvement. Overall, while parts of the construction sector continue to struggle, strategic public investments and potential monetary easing offer hope for recovery in the medium term.

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