Provincial Review of construction expenditure
Tuesday, 8th December 2009With the country firmly in the grip of the current economic recession, some of the provincial data is starting to indicate a possible turning point. While this does not mean that conditions have started to improve, it at least provides a glimmer of hope that conditions will at some point start to improve.
Provincial governments allocated large amounts to the development of infrastructure and housing, which provides many opportunities for the construction industry. In their focus on housing a total allocation of R44,6 billion over the next three years was made. There has also been significant growth in the provincial budgets for road infrastructure. Between 2005/06 and 2008/09 spending had increased by an annual average growth of 21,2%, but is expected to slow over the medium term (2009/10 and 2011/12) to 6,3%.
There are marked differences in the construction conditions in the high capacity provinces (Gauteng, Western Cape, Kwazulu Natal and Eastern Cape) as each provinces' economy is exposed to different aspects of the current economic environment.
The outlook in the Eastern Cape for building construction, remains dim, although not expected to worsen significantly. Since the completion of the Coega Port, civil projects awarded seems to be smaller in value and the outlook for cement sales in the Eastern Cape is largely dependent on civil infrastructure projects as well as new industrial developments surrounding the new port.
In Gauteng and KwaZulu Natal the building market outlook continued to deteriorate while civil construction in these provinces are boosted mainly by large road infrastructure projects.
Although the outlook for private sector construction in the Western Cape remains dim, it may have reached the lower turning point, as the ratio of plans approved vs completed has shown signs of stabilizing.
There is broad consensus that the domestic economy will start to improve during 2010. Hopes of a recovery were further sparked by the better than expected GDP figures released for the 3rd quarter of 2009. Supply side GDP rose 0,9% (Compound, Seasonally adjusted), compared with an expected 0,2%. Re-stocking depleted inventory levels, supported manufacturing production growth in the 3rd quarter, so whether or not the current recovery will be sustained, remains to be seen, given the poor performance in the demand side of the economy.
The construction industry generally lags economic growth by anything from 12 to 24 months, due to lengthy planning cycles, and is therefore expected to only show real improvement by late 2011 or possibly only 2012.
The full report is available on the website to Investment Map Subscribing clients. For a copy of the report please contact our offices (alicia@industryinsight.co.za)
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