Bryte SA construction activity monitor
• Sharp contraction in construction activity in the second quarter of 2017 • Construction contribution to GDP shrinks
Bryte Insurance, a proactive business risk specialist, today released its Construction Activity Monitor for the period ending June 2017. The Monitor provides a high-level overview of activity within the South African construction sector, one that plays a fundamental role in growing the economy through infrastructure investment. It also measures the change, on a quarterly basis, in insured construction projects undertaken by small, medium and large construction entities.
Construction activity trends to June 2017
Graph 1: Gross construction value insured vs quarterly changes thereof
The graph above depicts gross value insured, expressed in quarterly frequency from January 2001 to June 2017. The series on the graph shows changes in value insured expressed in quarterly
The Bryte Construction Activity Monitor (graph 1) reflected a contraction of 15% year-on-year in insured construction activity for the second quarter of 2017 when compared to the same period in 2016. The downward pressure was also reflected in stock performance on the JSE as recorded by the Heavy Construction Index (relating to all listed companies in this category). Share prices fell by 12.88% month-on-month in the second quarter of 2017, when compared to a 2.39% decline in the second quarter of 2016.
To add to this, Stats SA recently reported that the value of approved building plans decreased by 12.9% (R5.8 billion) between January 2017 and May 2017, when compared to the same period in the previous year. Furthermore, the analysis of order books from the seven largest South African construction companies, as reflected in their recent financial results, also showed a 26% contraction during the first quarter of 2017, when compared to previously reported figures. This translates to an average contraction of about 3.8% per company.
The above comes at a time when construction’s contribution to national GDP contracted by 0.32% in the first quarter of 2017. This decline is forecasted to continue for the remainder of 2017.
“The first two quarters of 2017 have proven to be rather challenging for the construction sector due to depressed macro factors and low business and investor confidence,” added Xolile Kahla, Product Technical Specialist at Bryte Insurance.
Graph 2: Public-sector infrastructure spend
Graphic source: National Treasury
Government spending has steadily increased over the years (as shown in graph 2). When examining spend as a total share of GDP (dotted line in graph 2), trends in the Bryte Construction Activity Monitor are mirrored, including the peak in projects around 2008 and the steady decline of activity in the last few years.
The sharp spike reflected in the Bryte Construction Activity Monitor in the second quarter of 2008 can be attributed to an increase in construction projects in preparation for the 2010 FIFA World Cup.
“With the South African economy under pressure, several sectors are faced with a myriad of challenges, and the construction sector is certainly no exception. Opportunities for growth remain immense and for businesses operating within the sector, the value of an experienced risk management specialist that has stayed the course, can be a catalyst in realising potential,” concluded Kahla.
