Johannesburg, 11 June 2024 – Afrimat, the JSE-listed mid-tier mining and materials company providing construction materials, industrial minerals, bulk commodities, and future materials and metals, has released the findings of its Afrimat Construction Index (ACI) for the first quarter of 2024. The ACI is a composite index of the activity level within the building and construction sectors and is compiled by economist Dr Roelof Botha on behalf of Afrimat.
According to Dr Botha, the weak economic growth during the first quarter of the year was evident in the construction sector, with eight of the 10 constituent indicators of the ACI recording year-on-year declines and the ACI growth rate slipping to just below zero. The index recorded a level of 103,7 in the first quarter, compared to 117,3 in the previous quarter, and 105 in the first quarter of 2023.
He adds that the 1.3% year-on-year decline in the ACI compares to the annualised 0.5% increase in the country’s GDP, with a decline of almost 9% in the construction sector’s value-added being of concern. “On the upside, the decrease was somewhat offset by the 10.1% year-on-year increase in the value of wholesale sales of construction materials.”
Botha says that while the year-on-year increase of 14,000 jobs in the sector is encouraging, the total employment figure of just over 1,2 million is still 128,000 shy of the number of jobs that existed in the first quarter of 2020.
The lethargy in the construction sector has been caused by a combination of factors, including:
- The high cost of capital in South Africa, with the current prime overdraft rate of 11.75% a full 175 basis points higher than before COVID-19. Lending rates are at their highest level in 14 years, despite the consumer price index having been within the South African Reserve Bank’s (SARB) target range for inflation of 3% to 6% for eleven straight months and the long-standing absence of demand inflation in the economy.
- Dozens of municipalities in South Africa have been dysfunctional for many years, which prevents them from accessing conditional National Treasury grants earmarked for infrastructure upgrading
- Fiscal constraints because of weak economic growth have prevented any significant increase in construction-related capital expenditure in the 2024/25 National Budget.
Botha points out that construction activity is also traditionally quite subdued during the first three months of the year, due to lengthy summer holiday period and the Easter holidays “There may also have been a measure of hesitancy with new construction projects because of the uncertainty surrounding the elections, especially due to early indications that parties with populist agendas would garner substantial votes.”
He said that, fortunately, the two largest political parties appear to be committed to maintaining the Constitution and the principle of private property rights. “South Africa has now joined the majority of democracies where executive governance will in future be based on some form of cooperation between two or more parties – either through coalition or a government of national unity”
Looking ahead at the prospects for the construction sector for the rest of the year, Botha is confident that the consistent decline in the Consumer Price Index will force the S RB’s hand to lower interest rates at the July meeting of the Monetary Policy Committee, especially now that the European Central Bank has cut its key rate from 4% to 3.75%. “Significantly lower interest rates are required to incentivise capital formation and construction activity and the proverbial ball should start rolling soon.”
Afrimat’s CEO, Andries n Heerden, said that while the construction sector has remained relatively weak, the recent results achieved by the Group itself were outstanding thanks to the team’s collective efforts.
“These results, the highest in the Group’s history, were underpinned by focus on cash generation, strict capital allocation, and maintaining a strong balance sheet, which continues to support diversification. The Bulk Commodities segment was responsible for the bulk of the profitability, although the Construction Materials division also increased revenue due to increased demand from the road and rail industries.”
Talking specifically to market demand in the construction space, Van Heerden indicated that efforts by SANRAL and maintenance by Transnet are showing positive momentum demand for aggregates in particular, further supported by large road maintenance projects in KwaZulu-Natal.
“The integration of Lafarge not only brings Afrimat full circle to its origins in quarrying but also opens up new opportunities for the Group. The additional products, together with a broader national footprint, are expected to positively alter the delivery capability of the Group and the Construction Materials segment. This exciting project is anticipated to deliver significant results in the future.”
-Ends-
Issued for: Afrimat Limited
- Contact: Andries van Heerden, Chief Executive Officer (CEO)
- Tel: 021-917-8853
- Email: andries@afrimat.co.za
- Website: www.afrimat.co.za
- Issued by: Keyter Rech Investor Solutions
- Contact: Vanessa Rech
- Tel: 083-307-5600
- Email: vrech@kris.co.za
