Here we offer a 2023 outlook for the South African construction industry, for the remainder of this year and into 2024.
Despite obvious challenges, the local construction sector is slowly rebuilding.
Growth, albeit muted, is on the horizon – and that’s on the back of a three-year, R36 billion contraction, ending in the second quarter of 2022. Now that we’re well into 2023 and the dust is beginning to settle, it’s useful to consider how the industry is shaping up.
How the South African construction industry fared last year
According to Afrimat’s Construction Index (ACI), 2022 was another torrid year for South African construction companies.
After returning to 2019 levels, the index dipped to below the 1.3% decline in GDP in the fourth quarter of 2022.
Year-on-year results were more positive. The ACI improved by 1.9% to outperform the local economy.
A steep drop in building activity took its toll on companies operating in the space. Based on figures released by Stats South Africa, as many as 94 construction businesses shut up shop in 2022.
Compulsory and voluntary liquidations soared by 56% and 29% respectively, year-on-year.
What is projected for the construction industry in 2023/24?
Several factors are conspiring to dampen economic growth in the year ahead. The knock-on effect is likely to determine the outlook for all economic sectors.
Notwithstanding negative sentiment, The South African Construction Industry Report has pegged growth at 5% in 2023. It expects output to reach upwards of R232 million.
Construct Africa’s publication, the South African Construction Market Report, is more circumspect. It projects an annual growth rate stabilising at around 3% over a four-year period.
In the 2023/24 budget, government committed R157 billion to infrastructure spend.
That, together with the R2.2 trillion infrastructure investment plan announced two years ago, is good news for the industry.
Renewable energy opportunities
The electricity crisis has forced government to make concessions around the roll out of renewable energy projects.
The easing of administrative red tape, and a higher ceiling for private power generation, has escalated investment in renewables.
Several large projects are expected to come onstream in the next six to 18 months.
In its Capital Expenditure Project Listing for 2022, Nedbank announced R60 billion in funding for endeavours in the renewable energy sector.
Excluded from that amount are three mega-projects the bank is financing. They are the:
- Green Hydrogen plant in Coega (R75 billion)
- 5th and 6th rounds of the Renewable Energy Independent Power Producer Procurement Programme (R46.4 billion)
- Seriti coal mine wind farm project (R12 billion).
Business confidence in South Africa is tanking. CEIC Data reported an 18.9% drop in February 2023, compounded by an 8.8% year-on-year decrease the previous month.
Loadshedding, the country’s grey listing by the Financial Action Task Force (FATF) and downgrades by ratings agencies are behind growing negative sentiment.
On the bright side, confidence within SA’s construction industry is recovering. According to IOL, confidence levels rose to a six-year high in the first quarter of 2023. Players in the construction sector remained positive in the second quarter too.
New challenges and problems
Along with persistent loadshedding, construction mafia are a growing threat to South African construction businesses. Criminal syndicates, posing as local business forums, are making it difficult for many companies to operate.
According to a Global Initiative Against Transnational Organised Crime report, 183 infrastructure construction projects, worth more than R63 billion, were impacted by violent jobsite disruptions in 2019.
Since then, the problem of systematic extortion and intimidation has metastasised across the country.
Economist Azar Jammine believes the so-called construction mafia is behind a steep decline in international investment, and a mass exodus of skills.
How KH Plant can help
The short-to-medium outlook for the South African construction industry may be constrained, but we remain positive. SA construction businesses of all sizes continue to find a way forward, and the fundamental needs driving the industry remain as strong as ever.
One potential way for construction businesses to improve profitability is to invest in the right equipment. And opting for rebuilt heavy equipment makes it possible to minimise equipment costs. At KH Plant, we rebuild Caterpillar 140G, 140H and 140K motor graders and grader components to as-new condition.
An expertly rebuilt grader looks, performs and lasts like a new machine, at a fraction of the new price.
Contact us for more information about our rebuilt motor graders, and here’s to an improved outlook for the construction industry in 2023 and beyond.