Confidence in South Africa’s construction industry has taken a significant hit, reflecting broader concerns about the economy and investment trends. According to the FNB/BER Building Confidence Index, which reveals the percentage of respondents that are satisfied with prevailing business conditions in six sectors covering the entire building construction pipeline, confidence plummeted to 27 in the first quarter of 2024, down from 43 in the previous quarter. This sharp decline, reaching its lowest level since mid-2020, signifies a stark dissatisfaction with current conditions among industry stakeholders.
Added to this, Stats SA reports that the real value of investment in buildings contracted by an annual rate of close to 6% in Q4 2023 – possibly due to a slowdown in the installation of solar panels and other energy investments being made by households and businesses.
Amidst these challenges, the availability of cheap cement imports has emerged as a potential catalyst for revitalising the construction sector. These imports alleviate cost pressures, stimulate infrastructure projects, and promote accessibility and affordability. Projects that were previously stalled due to financial constraints or deemed financially unfeasible can now move forward, contributing to job creation, national development, and economic stimulation.
Yet, it’s essential to recognise the nuanced impacts of substituting local cement production with imports. While these imports offer immediate financial benefits, they also pose significant risks, including potential job losses and economic value erosion. A report commissioned by local cement manufacturer PPC and conducted by the Centre for African Management and Markets (CAMM) highlights these risks, noting that over 2,200 jobs are potentially at risk, primarily in marginalised communities where the cement industry serves as a vital source of employment. Furthermore, there’s a potential loss of R2.6 billion per year in economic value, and PPC’s significant contribution to GDP of around R8.8 billion across its value chain is at risk.
Quality concerns also loom large in the debate. While cheaper alternatives may offer immediate financial benefits, they may also come with compromises in quality control. Structural engineers and architects play a crucial role in ensuring the integrity and safety of construction projects, with meticulous planning and inspection required to mitigate risks associated with potentially lower-grade materials. Despite assurances that lower-quality cement can yield durable structures, the importance of upholding quality standards remains paramount to safeguarding public safety and long-term investments.
Most recently, the construction industry is showing signs of resilience and adaptability in the face of government having pledged more towards essential infrastructure projects. In his keynote address at the 2024 Sustainable Infrastructure Development Symposium, President Cyril Ramaphosa underscored a pivotal commitment to bolstering South Africa’s construction sector. With over R230 billion-worth of projects currently under construction and an additional R170 billion in procurement, the nation’s infrastructure agenda appears promising. Moreover, the government’s 2023 allocation of R903 billion to infrastructure until 2026 signals a clear intention to drive economic growth and address critical needs in, especially, water and sanitation, and transportation.
Water and sanitation projects, facilitated by simplified procurement processes and legislative changes, offer hope for infrastructure development and job creation. In the 2023 Budget Review, government prioritised 11 strategic projects with an estimated value of R115 billion. These projects span the entire country and are expected to create about 20,000 jobs during construction and 14,000 jobs during operation. Projects are at various stages of funding and are expected to be completed between 2026 and 2030. In the meantime, municipalities are contracting smaller works out that will see improvements being made in the number of leakages in local water supply facilities.
Similarly, ongoing maintenance and refurbishment of roads, coupled with the emergence of smaller-scale retail and residential projects, reflect a semblance of momentum in the sector. While not without their hurdles, these initiatives underscore the industry’s potential to drive economic recovery and social progress.
As an insurer that’s active in the engineering, construction and building sector, King Price is keeping a close eye on developments pertaining to confidence in the sector, factors that affect projects, like the availability and price of raw materials, and the insurance needs of the contractors that are busy with projects. For our part, we’ve recalibrated our offering to meet the immediate risk mitigation needs of smaller contractors and project owners, and have implemented a ‘back to basics’ approach that empowers businesses in the sector to tailor insurance policies that address their unique risk profiles. By streamlining our engineering products and providing comprehensive coverage options for risks at all stages of construction projects, we aim to bolster confidence and resilience across the construction ecosystem.
