South African Construction

The construction industry plays a crucial role in South Africa’s economy, contributing significantly to our GDP.

2015 was a challenging year for many sectors of the South African economy, and construction was no exception. The first part of 2016 yielded even more instability, with continuing political turbulence and concerns over the fluctuating value of the rand.

Currently though, there appear to be growing signs of hope that the industry is stabilising.

A cycle of poor performance

According to the third edition of PricewaterhouseCoopers’ SA Construction study for the financial year ending in June 2015, eight of the nine top construction companies listed on the JSE showed a decrease in market capitalisation. In fact, the study found that relative to the previous financial year, market capitalisation had decreased by 38%.

Once clear reason for the decline in performance has been the weakening of the rand, which has raised the cost of construction projects. In turn, this has led to a decrease in the demand for construction, particularly in the residential housing sector.

Other issues have also plagued the construction and building sector (along with other sectors) – political uncertainty, low investment in national infrastructure, corruption, low margins, overcapacity in the construction market, labour strikes and health and safety concerns.

Signs that the construction industry is stabilising

In spite of continuing volatility, business confidence showed a marginal increase in 2016, with the FNB/BER Civil Confidence Index rising from 34 in the second quarter of 2016 to 38 in the third quarter.

All the sub-sectors – excluding building sub-contractors – registered higher confidence in the third quarter of 2016.

Also, the June 2016 Quarterly Employment Statistics (QES) survey by Statistics South Africa reported that quarterly employment losses were seen in all industries except for the electricity and construction industries.

There’s more hope on the horizon as the government pumps up spending in social infrastructure, potentially creating projects for the construction industry. In addition, the government’s National Development Plan and construction projects for the 2022 Commonwealth Games will create a number of opportunities for the construction industry.

Prospects in the mining industry

For the South African mining industry, prospects continue to look somewhat bleak. According to a report released by the Chamber of Mines in June 2016, mining contributed only 7,7% to South Africa’s GDP in 2015, compared to 14,7% in 1993.

Perhaps, though, there may be a silver lining. Michal Kotzé, mining industry leader for PwC Africa, argues that the mining industry has likely reached “the bottom of the cycle” – implying that even if it stays there for some time to come, we might be able to count on a little more stability going forward.

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