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Construction activity in the second quarter of 2017 has contracted, and the sector’s contribution to GDP has shrunk. According to the Bryte Construction Activity Monitor, South Africa saw 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. 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.

Construction contracts in Q2

Public-sector infrastructure spend
Source: National Treasury

In addition, the value of approved building plans decreased by 12.9% - the equivalent of R5.8 billion – between January 2017 and May 2017, when compared to the same period in the previous year. 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 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,” says Xolile Kahla, Product Technical Specialist at Bryte Insurance.

“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.”

The Bryte Construction Activity Monitor found that construction projects peaked around 2008, followed by a steady decline of activity in the last few years. The sharp spike reflected in the second quarter of 2008 can be attributed to an increase in construction projects in preparation for the 2010 FIFA World Cup.

The construction industry’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.

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