SOE construction investment increases in Q3, private sector decline continues to negatively impact overall investment

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04-12-2024
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Property Wheel
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SA’s construction industry outperformed economic performance during Q3 2024 with a 1.1% quarter-on-quarter increase, following the 0.5% quarter-on-quarter increase in Q2 2024 – the strongest growth reported in the industry over the past two years (Q3 2022).

However, the numbers in real terms, on a year-on-year basis, tell a slightly different story says Industry Insight.

Investment in construction fell by 4% year-on-year in real terms (not seasonally adjusted) in Q3 2024, following a (revised) 7.7% contraction in Q2. This comes as a surprise, given the 1.7% year-on-year increase in the industry’s labour force reported by StatsSA.

Residential construction investment declined by 4.2% following a 7.3% contraction in Q2 with commercial construction investment edging up by 0.3% (from a 3.4% contraction) while the rate of decline showed in construction works from -9.5% in Q2 to -5.3% in Q3. This translates to a R2.3 billion loss in real terms compared to the same period in 2023 and an 8% decrease for the first nine months of 2024 (R14.6 billion).

SA’s built environment created 24 000 jobs in Q3 2024 or 1.7% year-on-year to 1.3 million with the strongest increase reported by the Free State where the labour expanded by 25 000 (or 74% year-on-year) to a record breaking 58 000. Mpumalanga also recorded a stronger construction labour force, up 11% year-on-year to 113 000. Gauteng recorded the steepest decline during Q3, down 24 000 opportunities (7% year-on-year) to 323 000.

The sector is yet to see the expected positive impact of investment following the robust increase in civil tender values during 2023 with a concerning decline in the pipeline announced during the second half of 2024. The rate by which civil projects are being postponed remains a concern too, particularly post-election period. The declining trajectory for the residential construction market was sustained, given the slowdown in private sector building approvals that have severely affected the market’s outlook.

However, economic fundamentals are moving in the right direction with interest rate cuts of 50 basis points announced between September and November 2024, and business confidence improving to the highest level since March 2022.

The rate of decline in gross fixed capital formation (GFCF) slowed to 3.2% year-on-year in Q3 2024 from 7.3% in Q2 with investment by general government showing a marginal contraction of 0.4% year-on-year. Investment by state-owned enterprises (SOEs) rebounded with a 7.9% year-on-year increase but it is the 5.5% decline by the private sector that continues to negatively impact overall investment in the country.

This negative trajectory also raises the question as to the (real) progress being made in terms of accelerating privatisation and public-private partnerships, factoring in the scope of current projects in focus, mainly within the energy and transport sectors, which are complex and to be implemented over a much longer period.

Given the contraction in GDP of 0.3 percent in Q3, due to a robust 28 % contraction in the agriculture sector, investment as a percentage of GDP rose moderately to 14.2 % of GPD from 14.1 % in Q2.