Construction industry capacity only operating at roughly 15% in Level 4

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CAPE TOWN - Some 50 percent of construction industry capacity should be operational in Level 4 of the lockdown, but the actual percentage is much lower because necessary, but lengthy new health and safety administration issues have prevented the companies from getting on site.

In terms of Level 4 of South Africa’s phased lockdown, public sector construction is allowed to resume, and government tenders make up about 50 percent of all construction industry tenders, Industry Insight senior economist David Metelerkamp said on Tuesday.

Speaking at an industry webinar hosted by Afrisam, he said that “even though a sizeable chunk of the industry can go back to work it hasn’t happened” and he estimated the industry was only currently operating at about 10-15 percent of capacity.

His discussions with contractors revealed that there was no standard or set rules for new health and safety regulations, which posed time and cost problems for construction companies with different sites, and who were doing work for different government authorities and in different regional jurisdictions.

Many construction companies were struggling to get the various health and safety permits for various reasons, before they could return to construction sites, and even though the new measures were necessary, they also involved substantial additional costs and time for the contractors, he said.

Metelerkamp also said that many projects, such as the R35 billion John Dube Mega City project in Ekurhuleni, had been put on hold due to the uncertain investment environment, a trend that was likely to accelerate this year.

“Some contractors have been waiting for two weeks just for confirmation to get back on site,” he said.

Building industry activity was expected to be much harder hit than civil engineering this year due to falling consumer demand and incomes this year, as the country battles the Covid-19 pandemic.

Metelerkamp said investment in the building sector was expected to decline by 28.2 percent this year. According to a forecast by FNB property market analyst John Loos, the residential housing market was only expected to recover, in terms of real house price increases, in about 3.5 years time.

Metelerkamp said that in February already, before the Covid-19 virus came to South Africa, the level of residential building plans passed through municipalities had already hit the lowest level since the early 1990’s, so the sector had already been entering a recession.

He said the top half of income earners in South Africa were expected to experience a 25 percent decline in incomes this year, and this would likely drive down the demand for new residential building activity, and for commercial building such as for offices and shopping centres.

Home builders were also expected to be the last in the industry to be allowed to resume operations through the lockdown, and were currently designated to be allowed to return to work at Level 2 of the lockdown, possibly only in September, he said.

Activity in the civil construction sector, where most of the work was derived from government projects, was expected to weaken over the longer term due to less funds being available for infrastructure, as government dealt with “massive pressure on the fiscus” from much lower tax revenue, the higher cost of debt and the fact that fiscal stimulus would need to be repaid,

Metelerkamp said President Cyril Ramaphosa had said, right at the beginning of his speech announcing the fiscal stimulus package, that a key government intervention to get the economy going would be through infrastructure investment, but the details of this had not been outlined, as had been suggested by the President.

“We hope to hear more about this in the new Budget expected to be announced by the end of June,” said Metelerkamp.


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