SA’S ECONOMIC OUTLOOK AND ITS IMPACT ON THE CONSTRUCTION SECTOR

Caption: Eric Diack, AfriSam executive chairman and CEO opening the presentation.

Economist Azar Jammine shed light on the nation’s economic landscape, particularly focusing on the construction sector at the 2024 edition of AfriSam’s national budget presentation.

As South Africa gears up for the upcoming elections, Jammine presents a mix of sobering and promising news for the industry.

Jammine begins by examining South Africa’s GDP trajectory over the years, noting a steady rise until around 2013-2014, followed by a slowdown exacerbated by events like the global financial crisis and the Covid-19 pandemic. While the economy has shown marginal growth post-Covid, it remains largely stagnant in comparison to pre-pandemic levels. Despite this, South Africa’s economic standing isn’t the worst globally, with forecasts placing it slightly above the eurozone and the UK. However, relative to population growth, living standards in the country have seen minimal improvement.

Several medium-term contributors hinder South Africa’s economic performance. Chief among these is the issue of load shedding, with a significant spike experienced in the first half of the previous year. Although recent months have seen a decrease in load shedding incidents, energy availability remains a concern, with levels falling below 50% of potential capacity. While improvements have been made in coal-fired power station functionality, challenges persist, such as breakdowns leading to intermittent load shedding.

Transition to renewable energy

Despite these challenges, there’s a glimmer of hope in the form of increased adoption of solar energy. Jammine highlights a significant uptake in solar energy usage among consumers and businesses, amounting to 6 000Mw of electricity. This shift towards renewable energy sources presents an opportunity for businesses, including those in the cement and construction industries, to capitalise on the growing demand for renewable energy infrastructure.

The government’s recent Integrated Resource Plan aimed at addressing the electricity situation has faced criticism for its continued emphasis on coal-generated electricity. Critics argue that the plan lacks sufficient focus on developing renewable energy sources, with some in government fearing potential job losses in the coal industry. This reluctance to transition swiftly to renewable energy poses a challenge to fully leveraging the opportunities it presents for sectors like construction.

While South Africa’s economic outlook may seem mixed, the construction sector finds itself at a crossroads of challenges and opportunities. As the nation grapples with issues like energy availability and policy directions, stakeholders in the construction industry must navigate these uncertainties while strategically positioning themselves to capitalize on emerging trends, particularly in the renewable energy space.

Moreover, the transportation sector poses another significant hurdle, particularly concerning the decline in rail freight and the subsequent strain on road infrastructure. The shift from rail to road transport has led to congestion and bottlenecks, notably impacting port operations. The resultant decrease in seaborne cargo throughput has adversely affected the economy, with neighbouring countries like Mozambique and Namibia benefitting from diverted trade.

Amidst these challenges, there are glimpses of hope. Recent changes in management within Transnet have shown promising signs of addressing some longstanding issues. Additionally, collaborative efforts between the government and private sector stakeholders, notably through initiatives like Business Leadership South Africa, aim to tackle core issues such as energy shortages, transport bottlenecks, and crime, including challenges posed by the construction mafia.

While South Africa’s construction sector faces formidable obstacles, there are indications of gradual improvement, albeit with caveats. Addressing systemic challenges requires concerted efforts from both public and private sectors, emphasising the importance of collaborative strategies to overcome hurdles and unlock the sector’s potential for sustainable growth.

As the nation navigates through these complexities, the path forward lies in embracing innovation, fostering partnerships, and maintaining a steadfast commitment to addressing underlying structural constraints.