Consultancy laments construction sector decline

There is a paradox in the South African construction sector of large construction firms collapsing amid a housing backlog of about 2.3-million units

CONTRADICTORY MUCH? There is a paradox in the South African construction sector of large construction firms collapsing amid a housing backlog of about 2.3-million units

13th November 2020

By: Mamaili Mamaila



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The construction sector experienced a significant contraction in terms of the change in value added to the gross domestic product year-on-year in quarter two of 2020, at -30.7%, compared with -2.2% in quarter one of 2020 and -0.9% in the fourth quarter of 2019.

Market research, strategy and monitoring and evaluation consultancy Birguid senior researcher Tatenda Zingoni says the construction sector has been plagued by a myriad of challenges such as declining government infrastructure spend, rising material costs and a decline in profit margins.

All construction activities were shelved when the national lockdown started in March, with the exception of the repairs and maintenance of essential services infrastructure; this contributed to the sector’s contracting when it was subjected to low demand even before the pandemic, he adds.

Zingoni explains that gross fixed capital formation in South Africa declined by a seasonally adjusted and yearly rate of 59.9% quarter-on-quarter. This decline, according to Statistics South Africa, was mainly owing to decreasing investments in construction works (a 76% decrease), residential buildings (a 76.6% decrease) and non-residential buildings (an 80.8% decrease).

Moreover, Zingoni highlights a paradox in the South African construction sector of large construction firms collapsing amid a housing backlog of about 2.3-million units.

“The expertise embodied in these construction firms could easily be deployed to help in addressing this backlog.

However, he points out that “in the 2020 National Budget Vote Speech, Finance Minister Tito Mboweni detailed a reduction in funds allocated to the human settlements sector of R14.6-billion”.

This reduction over the Medium-Term Expenditure Framework 2016/17 to 2022/23 is expected to result in fewer subsidised houses, serviced sites and associated bulk and connector infrastructure.

The shift in government’s housing policy from building costly subsidised housing units to the provision of serviced sites is unlikely to dampen the backlog.

“The serviced sites are being placed for people to build their own houses on serviced stands, but with the loss of incomes, owing to the slowdown in economic activity, demand for such sites is likely to be subdued in the short to medium term.”

Notwithstanding, he emphasises that the National Development Plan proposes that by 2050, transformation of human settlements must result in “equitable and efficient spaces with citizens living in close proximity to work, with access to social facilities and essential infrastructure”.

The realisation of this vision requires a concerted effort among various role-players in the construction sector, with government at the forefront, adds Zingoni.

Such efforts include making prime land, close to cities, available for infrastructure development, investments by private sector companies in social housing and public–private partnerships to increase efficiency of project roll-outs, he underscores.

Edited by Zandile Mavuso
Creamer Media Senior Deputy Editor: Features




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