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Databuild Insight January 2018

A snapshot view of key trends in the economy, affecting the local construction industry


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A wave of cautious optimism sweeps through South Africa with a Ramaphosa victory, low inflation, and a stronger Rand. Budget Speech in February remains absolutely crucial to avoid a fully-fledged rating downgrade

Economic Snapshot The local and international business community welcomed the victory of Cyril Ramaphosa in the ANC’s elective conference, and started what is being called a wave of cautious optimism by both consumers and investors alike. Other more positive political developments include what is currently happening at Eskom, with the court’s ruling that Brian Molefe is to pay back the money he received (illegally) as a part of a golden handshake agreement. Several executives have also resigned and have been put under the pump, which many South African are happy about, as the failing state owned entity continues to suck the fiscus dry through inefficiency and corruption. Also on the upside, inflation has come in slightly lower than expected, with prices increasing by just 4.7 percent in December, up marginally from 4.6 percent in the previous month. Core inflation (which excludes transitory price increase of food and energy prices) is at its lowest since 2011. The Rand has also strengthen significantly against major currencies and, at the time of writing this report, the currency is below the R12/dollar mark, which is also the first time in two and a half years. However, a note of caution: while political developments do influence the short term value of the Rand, the local exchange rate’s long term value is largely determined by external factors such as commodity prices, as well as the Dollar’s strength/weakness.

January 2018 Budget Speech in February remains absolutely crucial to avoid a fully-fledged rating downgrade

In partnership, Databuild and Industry Insight have created this monthly dashboard in order to provide insight and monitor trends in the construction industry


Over the same period in which we have seen the Rand appreciate, other emerging markets have experienced a similar phenomenon. This includes currencies such as the Thai Bhat, the Singaporean Dollar, the Malaysian ringgit, as well as the Turkish Lira, which have all seen similar strength. This is due to a weakening Dollar, which increases the demand for emerging market assets. Positive political developments obviously help, but are never the main drivers. What this means is that the Monetary Policy Committee are in a much better position to cut interest rates this year, and possibly several times, which will be a much-needed stimulus to the economy. However, the Reserve Bank did announce that interest rates were to remain unchanged at the latest MPC meeting towards the end of January. Inflation has remained low even though the oil price has increased quite significantly over the last few months. Also positive for the lower inflationary outlook is that Eskom were not allowed the big tariff hike they wanted, and were only granted a 5.2 percent increase by the energy regulator NERSA.

South African Construction Industry The nominal value of civil projects awarded increased by 26.9 percent y-y in December in nominal terms, following a decrease of 64.2 percent y-y in November. This increase was not enough to mitigate an overall decline for 2017, and quite a considerable decline at that, of 19.7 percent. This compares to a nominal 6 percent in 2016, which in real terms is largely flat. What this indicator strongly suggests is that 2017 saw less civil activity relative to the previous year. Three consecutive months of y-y increases in tender activity in the civil sector pushed the overall number of civil projects out to tender in 2017. December saw an increase of 57.8 percent in the number of civil projects out to tender. This brought the growth in tender activity in 2017 to an increase of 3.3 percent, which in theory means that there should be more civil activity going forward, depending on the size of these projects. In December there were three grade 9 projects out to tender throughout South Africa. Meagre growth was recorded in the private building industry in November, according to the latest data released by Stats SA. There were just 1.7 percent more SQM of building plans approved in November, which ended two consecutive months of y-y contractions. The more building plans passed/approved by municipalities should theoretically lead to higher levels of construction in the future, as long as the building is not postponed or permanently shelved. In terms of building plans completed, which shows more what is happening in terms of current activity, there was a big uptick (driven by non-residential building completed).

The dashboard includes an update of selected data pertinent to current and projected developments in the construction industry.


In November, there were 20.0 percent more SQM of buildings reported as completed, compared to the same month last year. This is off the back of asimilarly good expansion of 19.0 percent in the previous month, boosting the prospects of the building industry in 2017, which is largely surprising. Completions have been driven strongly by the non-residential sector, with six consecutive months of expansions in SQM of buildings completed. This brought the 12 month average to a contraction of 6.4 percent. Overall, in 2017, there was a 12 percent drop in the nominal value of building projects awarded compared to 2016. This follows a 14.8 percent increase in 2016. Along with the 6.4 percent decline in SQM of building plans passed, the indicators suggest that 2017 was not a good year for the building industry. Tender activity was also down in 2017, with 8.9 percent less building projects coming out in total, compared to 2016. This is off the back of an 18.8 percent decrease in the previous year; while not as bad as 2016, it is nonetheless not positive.

Outlook Data releases in December/January suggest reason to be mildly optimistic in 2018. Confidence is picking up to some degree, but we would warn consumers and investors alike that any policy changes will take time to affect the real economy, such as the construction sector. Data indicates that 2017 was largely negative for the construction sector, without any good growth opportunities on the national horizon. Growth forecasts for the South African economy by some economists and institutions remain at under 1 percent for 2018, which is still extremely low.

Sources:

Statistics South Africa

South African Reserve Bank Databuild Industry Insight This information is confidential and you may not publish, reproduce, transmit or otherwise distribute information in this document or email. www.databuild.co.za I insight@databuild.co.za I 086 088 9999


In partnership, Databuild and Industry Insight have created this monthly dashboard for clients in order to provide insight and monitor trends in the construction industry.

Demand/supply Indicators


South African Construction Industry Data temporarily unavailable

Data temporarily unavailable

Prices


Value of contracts awarded, RM current prices


Number of construction projects out to tender

Building plans approved by local authorities for private sector construction (source Stats SA)


Residential Buildings plans approved: SQM I MAT Percentage change

Non - Residential Buildings plans approved: SQM I MAT Percentage change

End of report


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Databuild insight Jan 2018  
Databuild insight Jan 2018  
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