The Afrimat Construction Index (ACI), which reflects the level of activity within the building and construction sectors, has improved for three quarters in succession – the first time this has occurred since the pandemic lockdowns, re-establishing a familiar trend in the construction sector at large.

The ACI is compiled by economist Dr Roelof Botha who says that the recent lowering of the repo rate, and the prime overdraft rate, has exerted a marginal positive impact on the index with the year-on-year increase of 2.5% outperforming the year-on-year real GDP growth rate of 0.5% by a considerable margin.

However, he points out that for quarter-on-quarter growth rates, the ACI has only increased by 0.5% compared to 1.5% for the economy. “This discrepancy can be explained by withdrawals via the new two-pot retirement system, as well as the two interest rate cuts of 25 basis points each during the end of 2024, which released a measure of pent-up demand for household consumption expenditure,” he explains, adding that household consumption expenditure represents almost 65% of GDP, whilst capital formation, which encompasses most construction activity, represents 14.5% of total GDP.

During Q4 2024, 5 of the 10 constituent indicators comprising the index had year-on-year positive readings with 4 of the top 5 ranked indicators remaining among the previous quarter’s top 5 performers.

“However, it is a point of concern that the real value of construction works remains in the doldrums, with a year-on-year contraction of 3.4% in the fourth quarter in real terms. The public sector’s contribution to overall capital formation in South Africa has diminished quite dramatically since the onset of state capture and, more recently, the restrictive monetary policy stance, which took interest rates to their highest level in one-and-a-half decades.”

The top performers among the ACI’s 10 indicators during Q4 2024 were ‘Value of Building Plans Passed by Metros and Larger Municipalities’ (6.8%), ‘Value of Building Materials Produced’ (6.7%), ‘Value of Building Material Sales’ (5.4%), ‘Employment in Construction’ (2.8%) and ‘Wholesale Trade Sales of Construction Materials’ (2.5%).

Dr Botha says that no doubt exists over the negative effects that record high interest rates have exerted on the economy, in general, and on the construction industry in particular. This is confirmed by several key economic indicators most notably exceptionally high debt-servicing ratios and a persistent decline in the real value of credit extension.

The S&P Global Purchasing Managers’ Index (PMI) for South Africa has been below the neutral 50-mark since the beginning of the year and capital formation declined by 3.7% during 2024 – at a stage when investment in the repair and expansion of the country’s infrastructure has become a critical imperative.

“On a positive note, inflation is well and truly under control, with the February 2025 reading of the CPI remaining at the bottom end of the inflation target range of 3% to 6%. Lower producer prices, combined with declines in the oil price and a resilient Rand exchange rate, should secure further interest rate cuts in the course of 2025.“

Other good news is the welcome return to employment creation in the construction sector thanks to an improved performance during Q3 2024 with total employment in construction having finally managed to return to the pre-Covid level of 1.35 million – although this figure is still well short of the 1.5 million recorded in Q3 2018, he concludes.