south african construction industry

There's no denying that the last decade, and 2020 in particular, were tough. However, construction companies of all sizes continue to meet needs in South Africa – and we believe in their capacity to be resourceful.

Here we outline forecasts for the year, along with some of the top challenges facing South African construction businesses in 2021.

The construction industry forecast in South Africa

In 2019, the construction industry’s output value contracted by 3.3% in real terms. Inevitably, the COVID-19 pandemic meant the industry was particularly hard hit in 2020.

The first quarter showed a 5.3% year-on-year decline. There was a complete cessation of all non-essential construction activities during the hard lockdown in the second quarter. Construction only resumed in June 2020.

According to a report on South Africa’s construction industry key trends and opportunities, the industry’s output value is forecast to contract by 14.3% in 2020.

Between 2021 and 2024, construction output is expected to grow on average by just 1%. This growth is expected to come from private and public investments in transport infrastructure and electricity projects.

Fiscal sustainability in the industry is a priority for the government. Unfortunately, the June 2020 supplementary budget showed sharp deterioration in the fiscal outlook for the 2020/21 financial years.

Top challenges for 2021

These are some of the top challenges the construction industry faces in 2021 and beyond.

Limited growth

The industry is forecast to see very limited growth over the next few years. Stable investors must be secured to give the industry the boost it needs.

Reduced demand

The impact of the pandemic and lockdown on the economy will mean a reduction in demand for construction and general building services in the short- to medium-term.

Fierce competition

The lack of demand for building services with fewer than usual construction projects will lead to fierce competition within the industry.

Load shedding

Load shedding will remain an issue going forward into 2021. The threat of frequent blackouts will damage the economy and the industry.

Corruption

Corruption and maladministration remain serious problems for the construction industry through tender manipulation and soliciting of bribes amid an atmosphere of little-to-no penalties.

Rising construction costs

The usual rise in the cost of materials and overheads won’t help already struggling construction companies. Materials shortages may be an issue in the short term.

A weak rand

The rand took a serious knock during the hard lockdown, but has since recovered somewhat. However, the probability of a weaker rand by the end of 2021 is still about 40%.

Skills shortages

Despite rampant job losses in 2020, finding skilled workers remains a challenge due to a lack of accessible training. Skilled workers also represent a higher wage commitment.

Is there hope for the future?

Most industries faced exceptional challenges in 2020. As we start to recover from the economic impact of the pandemic, we should see some recovery in the construction industry too.

There are other causes for optimism too. South Africa's need for infrastructure remains high - a strong, basic driver for the industry - and government has committed to expanding (and actually paying for!) infrastructure projects. Also, private and urban, residential projects continue to be a lucrative source of contracts.

Some useful links

These previous KH Plant articles might be useful for construction companies looking to tighten their operations and boost profits in 2021:

KH Plant

At KH Plant, we can help your business contain costs as you confront the many challenges facing the South African construction industry.

We specialise in restoring Caterpillar 140G, 140H and 140K motor graders and components to as-new condition – so you can get the benefits of a new motor grader at a fraction of the cost of a new machine. Contact us for more information or to discuss your needs.

Contact us for more information