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Provincial Construction Forecast Report April 2024

Overview

 The South African construction industry has faced significant challenges over the past two decades, with a gradual decline in investment since the 2010 World Cup. Political instability and business confidence issues have further slowed private sector investment. The economy grew by 0.6% in 2023, down from 1.9% in 2022, with GDP growth expected to remain below 2% in the short to medium term. The South African Reserve Bank reported a 0.5% increase in construction investment in 2023, driven by a 5.5% rise in non-residential investment, offset by a 2.2% decline in residential investment. Contractors’ confidence has been low for 15 years, but civil contractor confidence improved in 2023 due to increased infrastructure expenditure. However, building contractors' confidence remains low. Public sector building investment offers limited mitigation for the decline in private sector investment, with budget allocations expected to decrease in real terms over the next few years. The construction labor force grew by 10.7% in 2023, the highest increase since 2015, with significant job creation in both formal and informal sectors. Profitability in the sector improved to an average of 5.5% in 2023, driven by smaller businesses, while larger businesses saw modest gains. The contribution of smaller businesses in construction rose to 31.2% in 2023, the highest in five years, while the share of larger businesses declined. However, the number of postponed construction projects increased by 77% in 2023, with delays and cancellations driven by high interest rates and financial constraints in provincial and local governments.

Provincial Summary

In Gauteng, construction indicators showed a 3% nominal increase in 2022 and 2023, driven by a strong civil sector but hindered by lower building investment. A 5% rise is expected in 2024 due to public sector tenders, but overall growth is weak due to declining private sector investment and poor metro performance. The Western Cape saw increased construction activity in 2022 and 2023, but a depressed private building sector may weaken the growth outlook for 2024. Despite civil construction growth, the outlook is less optimistic without building sector support. Increased expenditure by the provincial government in 2024/25 might help, but the private investment slowdown remains a challenge. KwaZulu-Natal announced over R63bn in projects in 2023, potentially boosting the economy, but private investment contraction may slow growth despite increased private building completions and an increase in the tender value of public sector projects. The Eastern Cape saw strong growth in 2022 and 2023, with a 10-15% investment increase expected in 2024 due to the awarding of several multi billion rand SANRAL projects, but the 2025 outlook is muted by a higher 2023 base and declining civil values. Limpopo experienced robust growth in 2023, with further growth expected in 2024 supported by public sector investment in building and civil tenders. Improved local government expenditure and provincial allocations also help. The Free State is expected to see investment improvement in 2024, driven by strong late 2023 performance, with 40-60% growth anticipated, supported by higher civil industry investment. Mpumalanga's investment increased by 5-10% in 2023, with a better-than-expected recovery expected in 2024 due to improved civil tender performance and departmental expenditure. The North West Province recorded a 63% increase in construction indicators in 2023, but a 5% decline suggests a possible slowdown without increased public sector support.  The Northern Cape experienced a 183% increase in the value of construction indicators in 2023, with potential investments in 2024 supported by public sector projects. Renewable energy and mining developments highlight market potential, though they may take years to impact investment directly. New project announcements are continually monitored for their impact on provincial economies and potential construction investment.

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