Modern Quarrying

Afrimat, a leading open pit mining company providing industrial minerals and construction materials, has released the findings of its Afrimat Construction Index (ACI) for the first quarter of 2018. The ACI is a composite index of the level of activity within the building and construction sectors, compiled by renowned economist, Dr Roelof Botha, on behalf of Afrimat.

Downward construction activity in Q1 2018According to Dr Botha, the index mirrors the existence of prevailing trends in a variety of construction-related indicators, most notably the sharp decline in the FNB/BER civil construction confidence index and the volume of building materials sold. He believes it remains a point of concern that the country’s most labour-intensive sector in terms of labour/capital ratios is not growing, as confirmed by first quarter GDP data from Statistics SA.

Compared with the fourth quarter of 2017, only two of the nine sub-indices included in the ACI recorded improvements. Using a year-on-year comparison (Q1 2017 to Q1 2018), the picture is equally bleak, with seven of the nine indicators also having declined.

Afrimat Construction Index

Some of the reasons behind the poor showing of the ACI relate to the following:

  • Interest rates that are still too high (considering that the Consumer Price Index has declined by 230 basis points since December 2016, but the Reserve Bank’s repo rate has only been lowered by 50 basis points).

  • Policy uncertainty, especially regarding the issue of land reform.

  • The strong rand, which has caused the mining sector to contract in the first quarter of 2018.

  • Fiscal pressure resulting from an unavoidable conservative budget in February.

  • Dysfunctional local authorities hampering infrastructure development.

Dr Botha says that although seasonal influences are evident in the construction industry, with the first quarter of every year taking a traditional knock, the four-quarter moving average for the ACI confirms that South Africa’s construction sector requires policy intervention. “Demographics and the urgent need for infrastructure expansion dictate that construction activity should be growing at a healthy pace, not contracting.”

He adds that the trend in the ACI contradicts, to some extent, the surge in several indices of consumer and business confidence, including the Business Confidence Index of the South African Chamber of Commerce and Industry and the FNB/BER Consumer Confidence Index. The latter index recorded an all-time high of +26 in the first quarter of 2018, which is the first reading above the neutral zero level in 15 quarters.

“It is also encouraging that South Africa’s leading business cycle indicator has surged by more than 10% since the first quarter of 2016, gaining momentum since the end of last year. Hopefully, the ACI will soon start to reflect the new mood of optimism that has been evident since the change in the executive political leadership.”

The data underpinning the ACI clearly shows that Afrimat has been weathering the storm of low GDP growth and negative construction sector growth quite well.

“The construction sector nevertheless remains on a stronger footing than seven years ago, with the ACI having expanded by 10% since the first quarter of 2011, the same rate of growth recorded by the economy as a whole between 2011 and 2017 in real terms.”

Dr Botha says the composite index provides a balanced and realistic view of the level of activity in the construction sector as it evens out the contradictory trends of conditions in the construction sector that are often portrayed by the individual components that comprise the index. The ACI is calculated from nine different constituent indicators.

Andries van Heerden, Afrimat CEO, says that while circumstances are no doubt challenging, the entrepreneurial flair of the businesses within the group did not allow conditions to dictate performance. He adds that Afrimat’s strong position in the market also meant it is feeling market pressure later than its peer group.  “We expect the business climate will continue to be demanding to navigate. However, the group’s continued positioning, product marketing and drive to counter economic impacts is what will continue to pull us through.”

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Title: Editor
Name: Munesu Shoko
Email: quarrying@crown.co.za
Phone: (011) 622-4770


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Name: Bennie Venter
Email: benniev@crown.co.za
Phone: (011) 622-4770
Fax: (011) 615-6108

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