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Tough trading conditions for the construction sector to continue.

SA’s GDP growth for the first quarter of 2013 grew by just under 1 percent, the poorest result since the second quarter of 2009 when the economy shrank by 2.7%. A 2.1% growth was recorded in the previous quarter.  And while leading economists don’t seem to think that growth will shrink below 1% for the year, most now do not expect it to expand much beyond 2.2%. The rand is expected to remain under pressure for 2013, closing at R9.10 to the US Dollar in the fourth quarter of 2013. Rate cuts are likely but will not impact growth.

PPC’s cement sales, a good indicator of building industry activity, grew by 6% in the period until March 2013, mostly from market growth in neighbouring territories, but also from some improvements in local building activity.  PPC expect local cement demand to grow moderately in the short to medium term.  Glass demand in SA is also expected to grow moderately at about 2.5% for the same period, pointing to some improvements in sectors of the construction industry. Energy efficiency legislation is expected to shift glass demand to higher performance glass products that consume more glass.  The construction industry contributes 3% to SA’s GDP.

But profitability in the construction sector will remain under pressure for 2013. Low levels of business confidence and risk factors including political uncertainty and labour issues are expected to continue to dampen levels of development investment in the private sector for much of 2013.  Governments throttling of public expenditure, specifically public works, and its long tender adjudication periods will continue to negatively impact public sector growth for the medium term. Fierce competition for scarce building work in both private and public sectors will see current cutthroat bidding wars continue – pushing industry margins downward, and depressing industry profitability and cash flows significantly through 2013.

Economists forecast a gradual lift in construction industry confidence and activity only in 2014 as the cap on government spend reduces and the knock-on effect of that investment spreads. A recovery to pre-boom construction activity levels is expected to take at least a two to three years to achieve at current rates.

Firms competing in a highly competitive Southern African construction sector are increasingly looking to new markets to sell capacity – specifically neighbouring territories who are registering growth of 6% and more – 4% better growth than in SA.

DesignMind
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