[TOP STORY] Afrimat Construction Index surprises on the upside

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SIMON BROWN: I’m chatting now with Dr Roelof Botha; he’s talking about the Afrimat Construction Index. This is for the third quarter of 2022. Roelof, I appreciate the early morning time. We had some GDP data out which showed quarter-on-quarter GDP at 1.6%. That was strong, but construction came in at almost double that, at 3.1%. Is that belying what you’re seeing on the ground – in other words that we are actually seeing an uptick and getting back to pre-pandemic levels?

DR ROELOF BOTHA: Yes, I’d like to believe that. And I think what is very significant, Simon, is the fact that this occurred against the backdrop of rising interest rates – interest rates that should not have risen.

I don’t know whether you’ve seen the latest comments by Joseph Stiglitz on the absurdity of monetary policy globally – [all the] more so in South Africa because we already have almost one of the highest real interest rates in the world.

We have no demand inflation; the manufacturing sector capacity is not remotely near where it was before the pandemic. But it’s just this knee-jerk reaction.

The US raises rates; they justify [it] to some extent because they’ve got virtually full employment. We do not have that, and then the [SA Reserve Bank] just follows suit for no particular reason.

And for the construction sector and the Afrimat Construction Index to have increased 7.2% quarter on quarter, and 2.7% year on year in real terms is actually quite phenomenal.

But there’s a long road ahead because I think every listener realises that we have a huge, huge shortage of decent accommodation – especially for the poorer segments of society.

SIMON BROWN: Yes. A massive housing shortfall there. Also, the last time we chatted – which I imagine was three months back – we spoke around the gross fixed-capital formation. But where is the government spending? The data says quite simply the government isn’t [spending].

Listen:
[TOP STORY] Overview of the Afrimat Construction Index (Sep 2022)
Government still not spending on essential construction (Jun 2022)

DR ROELOF BOTHA: Yes. That’s the worrying sign – if it hadn’t been for the private sector, I’m afraid…. I think you and many of the listeners know me as one of the most optimistic economists in the country, but quite frankly the government is just not pulling its weight, because the capital formation GDP ratio for the public sector’s capex is just going to new record lows, unfortunately. And we had the minister of finance telling us in [the MTBPS in] October that he expects an R80 billion revenue overrun in February next year.

Why do they not use that money to fix the roads in Gauteng and Limpopo and the Free State – and everywhere except in the Western Cape, because in the Western Cape apparently they’ve mastered the technique [laughing] of fixing potholes.

SIMON BROWN: That infrastructure works at two ends. On the one end – and you’ve mentioned it before – the construction, building a road, is localised. It’s local labour. It’s going to be mostly local suppliers and the like, so you get a huge benefit then. And then of course you’ve got a good road or a school or whatever it might be, and that of course massively benefits society.

Government has – I’m going back to budgets that Trevor Manuel gave in the early 2000 –  spoken about the infrastructure, but it just isn’t [happening].

DR ROELOF BOTHA: Yes. I’m afraid when it comes to capital expenditure and infrastructure maintenance, or even only the maintenance aspect of that, it’s all talk…. One of the main reasons for that – and I think we all realise that – [can be seen if you just] glance through some of the Auditor-General reports on what’s happening in the municipalities. It is absolutely pathetic. They utilise the whole budget for appointing new staff members, probably distant relatives of the managers working there, and then there’s no money left for the actual work. Very little gets done about this.

I’ve been pinning my hopes on President Ramaphosa’s second term of office – chances for which we’ll find more about, I hope, after this afternoon’s parliamentary session –  and that he will crack that whip and get rid of some of the dead wood that he inherited from the Zupta era where the rot really kept in.

But it’s just pathetic that they don’t seem to understand that when it comes to the whole issue of infrastructure you need to appoint and pull in people with project management and engineering capabilities, and [then] assist in transferring those skills. But [by] just appointing people through nepotism and cadre deployment into senior positions at municipalities and in provinces, and expect them to fix these things when they don’t remotely have the skills, we’re not getting anywhere.

And the roads are really a big problem. The Romans had an expression: ‘Via vita’ – ‘the road is life’ (sic). If that’s true, then we’re in serious trouble in South Africa.

SIMON BROWN: Yes. A last question. Retail trade sales, hardware – which as I understand is sort of you, I and the listeners going to our local Mica over the weekend – that, quarter on quarter, was up at some 6%. The year-on-year number is  down because of course last year we were all in lockdown and replacing everything. Is that (sort of us spending) suggesting that the consumers are out there spending again and actually visiting the local hardware store?

DR ROELOF BOTHA: Absolutely. If you look at what happened to the wholesale construction material trade – 13.3% quarter on quarter up in real terms – this is magnificent stuff. It’s gone to an all-time record high, and that feeds into the retail sector. So I think the fourth quarter is going to look really good, even better than the third quarter where the Afrimat Index surprised on the upside.

SIMON BROWN: we’ll leave it there. That was Roelof Botha talking about the Afrimat Construction Index. Roelof, I appreciate, as always, the early morning.

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