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Gross Fixed Capital Formation 3rd Quarter 2024

Investment in Construction show unexpected contraction in Q3, despite labour force expansion. 

GDP showed a surprise 0.3 percent q-q contraction in Q3 (seasonally adjusted and annualised), with a larger than expected contraction in the Agriculture sector (down 28.8 percent).  The Construction industry outperformed economic performance, with a 1.1 percent q-q increase, following the 0.5 percent q-q increase in Q2. This is the strongest growth reported in construction over the last 2 years (3rd Quarter 2022).

However, the numbers in real terms, measured on a year on year basis, tells a slightly different story.

Investment in construction fell by 4 percent y-y in real terms (not seasonally adjusted) in the 3rd quarter of 2024, following a (revised) 7.7 percent contraction in Q2.  This comes as a surprise, given the 1.7 percent y-y increase in the construction labour force reported by Stats SA for Q3. Residential investment declined by 4.2 percent following a 7.3 percent contraction in Q2, Non-Residential investment edged up by 0.3 percent, (from a 3.4 percent contraction) while the rate of decline slowed in Construction Works from -9.5 percent in Q2 to -5.3 percent in Q3. This translates to a R2.3bn loss in real terms compared to the same period in 2023, and an 8 percent decrease for the first nine months of 2024 compared to 2023, or R14.6bn. The construction labour force created 24 000 job opportunities in Q3, or 1.7 percent y-y, to 1.3 million, with the strongest increase reported by the Free State, where the labour force expanded by 25 000 (or 74 percent y-y) to a record breaking 58 000. Mpumalanga also recorded a stronger construction labour force, up 11 percent y-y to 113 000.  Gauteng recorded the steepest decline during Q3, down 24 000 opportunities (or 7 percent y-y) to 323 000.

We are yet to see the expected positive impact on investment following the robust increase in civil tender values during 2023, with a concerning decline in the pipeline announced during the second half of 2024.  The rate by which civil projects are being postponed remains a concern, particularly post-election period.  The declining trajectory for the residential market was sustained (as expected) given the slowdown in private sector building approvals, that has severely affected the outlook for the residential market.  Economic fundamentals are however moving in the right direction, with interest rate cuts of 50 basis points already announced between September and November 2024, and business confidence improved to a level of 45 in Q4, the highest level since March 2022.  It has not yet reached a level of 60 or 70, an ideal level necessary to stimulate higher levels of investment in the building industry, but the underlying fundamentals put in place by the GNU in July,  is supportive that this more positive trajectory may continue.  The outlook for the non-residential market segment has improved, with selected provinces showing a recovery in demand for mainly industrial and retail space.

The rate of decline in total GFCF slowed to 3.2 percent y-y in Q3, from -7.3 percent in Q2, with investment by general government showing only a marginal contraction of 0.4 percent y-y. Investment by SOE’s rebound with a 7.9 percent y-y increase, but it is the 5.5 percent decline by the private sector that continues to negatively impact overall investment in the country.  This negative trajectory also raises the question as to the (real) progress being made in terms of accelerating Privatisation and Public-Private Partnerships.  We understand that the scope of the current projects in focus, mainly within the energy and transport sectors, are complex and will be implemented over a much longer period.   Given the contraction in GDP of 0.3 percent in Q3, due to a robust 28 percent contraction in the Agriculture sector, Investment as a percentage of GDP rose moderately to 14.2 percent of GPD from 14.1 percent in Q2.

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