Afrimat Q4 Construction Index disappoints

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SIMON BROWN: I’m chatting now with Dr Roelof Botha about the Afrimat Construction Index [which came] out a little earlier this morning. Roelof, I appreciate the time this morning. No surprise, the negative GDP in that fourth quarter. The index did slip a little.

DR ROELOF BOTHA: Yes, it’s very disappointing. But, having said that, the fourth quarter of every year is not great shakes for the construction sector. The main reason for that is there’s a positive and a negative. The positive is that before the closure, [around] mid-December, the industry more or less closes down. There is a spurt of activity to finish some jobs before that happens. But it’s not sufficient.

Traditionally the fourth quarter takes a little bit of a dip after the third quarter. It’s not like retail, where the fourth quarter is brilliant because there is Black Friday, Cyber Monday, Christmas shopping, holiday shopping, etc.

SIMON BROWN: Everyone goes on holiday from December 15th and you lose two weeks of the quarter.

Two of the big issues are highlighted in the index – sharp increases in interest rates and the dire straits of the country’s municipalities. Now, government can talk all it wants around wanting to spend on infrastructure – and they do in places, and I’m thinking particularly of roads – but once it sort of gets down to the municipal level, spending kind of hits a brick wall owing to dysfunctional municipalities.

DR ROELOF BOTHA: Yes, it is very strange that nothing concrete has been done. It’s probably been almost a decade in which everybody in South Africa realises that more and more municipalities are becoming dysfunctional.

At least now there’s no beating about the bush any more; we know the main reason for this is cadre deployment and nepotism. All of this is an outflow of the Zuma era of state capture. And what many people in South Africa don’t realise is the extent of the damage caused by an incompetent public sector in South Africa. Certainly there have been moves to start correcting that. As the two of us know, President Ramaphosa has actually established a mini cabinet in the presidency. I think you’d agree with me on that one, Simon.

SIMON BROWN: Absolutely, yes, almost trying to run it from the centre. The one highlight of it was retail trade sales, hardware remaining strong. It kind of surprised me because I thought we had all done our DIY just past the pandemic.

We’ve seen some weaker numbers from some of the hardware retailers. But in this index those numbers continue to be robust.

DR ROELOF BOTHA: Yes. The good news here is that not only was that indicator on a quarter-on-quarter basis the best; even on a year-on-year basis it hasn’t done too badly. But the good news is that that indicator in particular is quite accurate in terms of the Stats SA survey because it captures a large part of the informal sector activity as well.

I drive through Lethlabile (in the North West) almost every week, and there’s a huge retail outlet there, a Cashbuild. Some of those builders there manufacture their own bricks; they get building material on the dirt roads there. They just stop the truck and dig the sand out and use that. That doesn’t get captured in the data. But at some point in time they need to go and buy cement and they go into Cashbuild. They obviously need other equipment as well, like paint and wheelbarrows and what have you.

So a large part of the informal sector activity is captured in that particular indicator. It’s not captured in the salaries, and it’s also not captured in employment, because the employment in construction in the townships in South Africa is certainly not part of Stats SA’s data. That’s why I don’t really trust those figures.

There are more jobs in construction than the stuff published by Stats SA.

SIMON BROWN: I get you.

DR ROELOF BOTHA: You can see that with your own eyes if you drive through these townships.

SIMON BROWN: Absolutely. It’s that informal economy.

DR ROELOF BOTHA: Bushbuckridge is a very good example if you travel from Hoedspruit to the Kruger National Park. It’s just unbelievable. It’s a city. It just continues for about 30/40 kilometres [with] the building activity there. On my last trip to Kruger, when I travelled that road, Simon, I couldn’t believe my eyes. I stopped counting how many double-storey houses with tiled roofs and pillars in front [there were]. It’s spectacular.

SIMON BROWN: I’ve driven that road and I know exactly what you’re saying.

A quick last question. Capital formation was positive. We saw that in the Q4 GDP as well. Not a giant number, but it sort of gives us a bit of a warm feeling.

DR ROELOF BOTHA: Yes. Unfortunately it’s mainly due to the private sector. The private and public sectors’ combined capital formation as a percentage of GDP in South Africa is more or less half the global average, which is once again frightening. One of the main reasons for that, once again, is that one has to relay back to state capture and the sluggishness, the slowness with which people are replaced – people who do not have the right qualifications and sufficient experience to run public enterprises, to run government departments which are responsible for capital formation.

But my biggest, biggest gripe, Simon, is the fact that they have not resuscitated the RDP housing programme, and that’s why the new townships that you see in South Africa are shocking.

They are just shanties, shacks. I don’t know why they haven’t done that. We created millions of jobs when the RDP housing programme was [under] way.

SIMON BROWN: I take your point on that. There were millions of jobs and, importantly, housing at the same time, and capital formation moving in the right direction. But half of the global average? We are simply not building enough.

Dr Roelof Botha, talking about the Afrimat Construction Index, I appreciate the early morning.

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