Now that we’re properly into the year, we consider the outlook for the South African construction industry – for the rest of 2024 and beyond. We also look back at how the industry fared last year.
Overall, the stability and strength of the industry has gradually continued to improve. This after an exceptionally rocky ride through the final years of the 2010s, followed by lockdowns in 2020.
However, growth is slow and construction businesses (big and small) continue to face some unique challenges.
How the South African construction industry fared in 2023
Loadshedding remained a challenge for the construction industry in 2023. South Africa saw more loadshedding days last year than any of the years since loadshedding began.
Despite these unprecedented levels of power outages, the construction industry contributed 2.7% to South Africa’s total GDP.
According to Lula, South Africa’s first dedicated SME banking platform, this percentage is set to increase.
“Construction has been one of the fastest growing sectors in the SA economy in the past quarter and I expect this will continue in 2024,” says Garth Rossiter, chief risk officer at Lula.
What is projected for the construction industry in 2024/25?
Despite rocky years in the construction industry, forecasts are generally positive. A South Africa Construction Market Report Overview projects the industry will achieve an average annual growth rate (AAGR) of more than 3% between 2024 and 2027.
The South Africa Construction Industry report on Q1 of 2023 put the compound annual growth rate (CAGR) at 5.8% between 2023 and 2027. The report predicts the construction output in the country will reach R276 million by 2027.
The government’s National Infrastructure Plan 2050 (NIP 2050), which was announced in 2022, plans to pump more than R2 trillion into infrastructure development over the next few decades.
Along with massive improvements to regional infrastructure, one of the NIP 2050’s goals is to rebuild an empowered civil construction and supplier industry.
Despite these positive predictions, there are challenges ahead in 2024 for the construction industry. These include ongoing loadshedding, increases in material and labour costs, logistics disruptions, labour shortages, lack of access to funding and slow technology uptake.
Renewable energy opportunities
In light of the energy crisis and the need for renewable energy sources, it has become easier for renewable energy projects like solar and wind to get off the ground.
Government has made concessions that allow for a higher ceiling for private power generation. In 2023, it lifted the 100MW licensing threshold for private power generation. Solar and wind projects of any size can now be built without a licence.
Funding for renewable energy projects has also been accelerating. Standard Bank plans to establish a US$1 billion fund to support the shift towards renewable energy.
The fund aims to invest in a pool of energy transition and project loans for renewable energy projects and other clean technologies.
Business confidence in South Africa
Overall business confidence in South Africa has taken a serious knock in recent years, predominantly impacted by loadshedding and multiple downgrades by international ratings agencies.
From September 2000 to September 2023, there has been an average decline in business confidence of 1.2% in South Africa.
However, business confidence in the construction sector hit a six-year high in early 2023. This continued to rise in the third quarter.
Challenges facing the construction industry in 2024
Loadshedding remains an on-going problem for most industries in South Africa, including construction.
Another, perhaps less well-known, issue is the so-called construction mafia that threatens the future of construction companies in South Africa. These criminal syndicates forcefully extract protection fees from construction companies through intimidation tactics.
The threat posed by the construction mafia has led to a steep decline in international investment, and a mass exodus of skills. Some construction contractors have been forced to abandon construction sites due to alleged intimidation and violence.
Thankfully, some progress was made in 2023 in combatting these syndicates. According to Special Investigating Unit spokesperson Kaizer Kganyago, hundreds of arrests have been made. As of December 2023, there were 52 convictions.
What KH Plant offers
Despite the obvious challenges, we remain positive about the future of the construction industry. Small to large construction businesses in South Africa are versatile and adaptable. They continue to find a way forward.
Investing in the right equipment is one way to ensure your construction company stays relevant in a competitive environment. However, specialised heavy equipment can be costly.
Instead of opting for untested second-hand equipment that can introduce a range of problems, consider rebuilt construction machines.
At KH Plant, we rebuild Caterpillar 140G, 140H and 140K motor graders and grader components. Rebuilt graders look, perform and last like a new machine, but at a much lower price.
Contact us for more information about our rebuilt motor graders and how they can help you make your mark in the South African construction industry in 2024 and beyond.
