Construction industry expected to bounce back in 2021

South Africa’s construction industry is expected to bounce back in 2021 after being the sector with the poorest performance in 2020.

Construction GDP slumped by 20.3% in the last year, the industry’s fourth consecutive year of decline.

David Metelerkamp, senior economist at construction market intelligence firm Industry Insight, is, however, anticipating “a reasonable bounce back” by the civil industry – though he believes the opportunities for an improvement in the building industry are limited.

Statistics SA data shows the civil industry contracted by just more than 18% in 2020 while investment in the residential building industry contracted by 20.9% and the non-residential building industry by 25.3%.

Not an ‘essential service’

Industry Insight attributes the construction industry GDP being down by “a crippling 20.3%” in 2020 to the fact that, unlike other countries, the construction industry was not declared an essential service in SA during the hard lockdown period in April and May 2020 and the government and the private sector disinvested massively from both the building or civil infrastructure segments of the industry.

Metelerkamp says the civil industry performed slightly worse than forecast in 2020 while the performance of the residential and non-residential sectors, despite being extremely poor, was slightly better than forecast.

He says the civil and building industries are both coming off a low base and expects “an about 10% bounce back” by the civil industry in 2021 but opportunities for an improvement in the building industry to be limited and for it to achieve “low single-digit growth in 2021”.

“The data is definitely better for civil construction because there are a lot of big projects coming out for tender and there are tenders that are being awarded.

“But the negative is the state of the fiscus, which is a big worry but probably more in the medium term.

“Then there is also the implementation paralysis economists talk about in terms of implementing all of these Sips [Strategic Infrastructure Projects],” he says.

Despite slightly improved prospects for the civil industry, Metelerkmap stresses that investment in the civil industry will get “nowhere near to previous levels”.

He says about R170 billion was invested in the civil industry in 2020 and Industry Insight is only forecasting this to improve to R150 billion in 2025.

Metelerkamp says building prospects are very limited and “a big bounce back” in private sector demand for housing and shopping centres unlikely.

“We have definitely moved onto a lower growth path going forward for the next five years at least, despite building coming off a very low base.”

Industry Insight said an analysis of client investment unsurprisingly revealed that the private sector heavily disinvested in the construction sector in 2020, but state-owned enterprises (SOEs) also massively disinvested in the industry.

“What could be seen as more encouraging is that ‘general government’ actually increased their investment in the civil industry, for example, by 2.5% in real terms while SOEs disinvested in civil infrastructure by 27.2%.

“This is a worrying trend as a lack of investment continues to damage the productive capacity of the economy, potentially shifting the economy,” it said.

This article first appeared on Moneyweb and was republished with permission.

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