South Africa – Construction industry trends are showing signs of recovery which will have a positive impact on aggregate demand.
Expected government infrastructure expenditure is in fact set to lift the industry considerably above 2014’s figures.
The positive effect this will have on the aggregate and sand industry, which accounts for more than 11% of all building materials sold by value in South Africa, will be significant.
As the second biggest sector of the building materials industry it is a welcome boost and will have positive spin-offs for its large workforce and related industries.
According to Nico Pienaar, director of the Aggregate and Sand Producers Association of Southern Africa (Aspasa), the industry has been in a steady growth phase since 2012, although growth has been somewhat slower than expected. “With the amount of building plans passed rising steadily in 2015 and banks’ high availability of mortgages we can safely assume that it will be a good year. “
Important economic driver
“After cement (16.21%), our products make up the largest value of building product sold in the country. By volume we are the largest, moving well over 100 Mt of material to the building industry each year. Our members supply products for use in the manufacture of concrete, building of road foundations and running surfaces, as well as providing stones for railway line ballast etc.
“The labour intensive nature of quarries and the further processing and transport of materials is a major contributor to employment in the country and growth of the industry can have an overwhelmingly positive effect on overall employment figures in South Africa. However, being largely reliant on overall construction industry growth, our members have experienced a somewhat up-and-down period with a stop-start economy.
“This year looks better with good growth being indicated in the residential market (especially affordable housing), we are also expecting to see more confidence returning to the construction sector which will have a positive effect on our industry.”
“When government releases the funding for its R800 billion infrastructure projects we will see further growth and this should sustain the expansion of the aggregates industry fuelled by large scale construction which requires a large requirement for sand and aggregates,” says Pienaar.
Inflation to remain stable
According to a report compiled by BMI – Building Research Strategy Consulting Unit, net mortgages in the pipeline suggest that mortgages for building projects are once again available and this bodes well for the construction industry.
However, it cannot yet be assumed that growth will be strong, due to other market factors that can affect the industry. These include energy shortages, slow global growth and weak demand for commodities from traditional market in Europe.
On a more positive note, the report also indicates that the inflation rate in South Africa remains stable and that will allow the Reserve Bank to continue with its measured approach to inflation targeting which means that interest rates should remain largely unchanged for the remainder of the year (with a possibility of just a 0.25% increase late in the year).
The report also shows that large construction firms are not committing to certain market segments that are deemed less feasible or critical to their future sustainability. Growth is being sought outside of the countries borders and it is reported that some of the largest construction firms are generating up to 60% of their revenue offshore.
As a result of lower demand for building material suppliers are currently being under-utilised and spare capacity exists within these operations. Expansion plans have also largely been put on hold.
Government plans such as the bold National Development Plan (NDP) include plans to build 1.5 million houses in the next six years. An annual investment of between R30 and R35 million per annum has already been allocated for this purpose.
Other well documented plans to upgrade and expand road, rail, power generation and other infrastructures will further unlock the construction industry and will result in the full utilisation of resources and expansions being undertaken once again wherever these are required.
“Overall we are satisfied that the sand and aggregate industry in South Africa is in good shape overall considering the challenges that it has been faced with in recent years. We believe it is a good time to invest in the industry, just in time to benefit from expected faster in the industry,” Pienaar concludes.