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CONSTRUCTION INDUSTRY

MONTHLY MONITOR MONTHLY NEWSLETTER FOR THE SOUTH AFRICAN CONSTRUCTION EXECUTIVE

PUBLISHED BY INDUSTRY INSIGHT CC |

MICROSOFT

www.industryinsight.co.za | T 021 554 0886 CT 011 431 4328 JHB | [email protected]

SEPTEMBER 30, 2014

Monthly Newsletter

For the Construction Executive

September 2014

1

Postnet suite 422, Private Bag X1, Melkbosstrand, 7437

T 021 554 0886 CT | 011 475 3324 JHB |F +27 21 554 0887 | www.industryinsight.co.za | [email protected]

The purpose of the construction monitor is to highlight various issues, trends and indicators affecting the

construction industry. It is designed to be flexible high lighting key aspects in a short concise manner. For more in-

depth analysis of specific trends clients are welcome to contact our office or send a request to

[email protected].

Quick economic update ...................................................................................................................................................... 1 FNB/BER Building and Civil confidence Index .................................................................................................................... 3 Value of construction projects awarded escalate by 15 percent y-y in first eight months of 2014 ................................... 4 Project postponements highlight industry constraints ...................................................................................................... 4 Key building market trends ................................................................................................................................................ 5

The total number of square metres approved for private sector buildings ........................................................ 5 Residential Sector ................................................................................................................................................ 6 Non-residential Sector ......................................................................................................................................... 6

Other construction related indicators making headlines in September 2014 ................................................................... 8

Quick economic update One of the most pressing issues during the month

of September are reports of SA’s trade deficit, that

has widened between June and July 2014, as

imports rose at a faster pace compared to export

growth. The cummulative deficit for 2014 has

increased to R55,5 bn compared with R41,1 bn

during the same period in 2013. However, should

global conditions continue to improve and the

exchange rate remain favourable, this could

support stronge levels of export during the rest of

the year, according to Nedbank economists.

A surprise this month was the announcement by

Gill Marcus, Reserve Bank governor that she would

not be available for reappointment and that she

will be stepping down in November. From the two

most likely candidates, Lesetja Kganyago was

appointed as the 10th governor after some delay.

Marcus’s resignation however shouldn’t have come

as such a surprise. Her five year term expires in

November 2014 and at 65, it would have been

unusual for her to want to stay on.

1 Including employed and self-employed

Indicator

(Y-Y Per Chg. – moving annual total, unless otherwise specified

GDP 0.6%

(2014Q2)

Tender Index 0.0%

(Jul-14)

GFCF (Res, Non-Res,

Civil Works)

6.7% y/y

(2014Q1)

Award Index

(Rm)

-10.5%

(Jul-14)

CPI 6,3%

(Jul-14)

Postponement

rate

5.6%

(Jul-14)*

PPI (manufactured

goods)

8,0%

(Jul-14)

SQM approved 4.1%

(Jun-14)

Lending Rate 9.25 SQM

completed

-7.3%

(Jun-14)

Repo Rate 5.75 House price

growth

9.8%

(Jul-14)

R/US Dollar R10.66

(Jul-14)

Liquidations,

MAT

-18.9%y/y

(Jul-14)

Brent Crude Oil $ $108.64/

barrel

(Jul-14)

Employment

(Total)1

1 182 000

(2014Q2)

Business confidence

(BER)

41.0

(2014Q2)

Building

Contractor

confidence

Index

(FNB/BER)

41.0

(2014Q2)

Input costs

Domestic Buildings

WG 180 CPAP (Stats

SA)

6.4%

(Jul-14)

Civil Contractor

confidence

Index

(FNB/BER)

44.0

(2014Q2)

Wholesale

Construction Building

Materials, Current

prices (Stats SA) - 13

month mov. avg

11.1%

(Jun-14)

Figure 1: Letsetja Kganyago

Monthly Newsletter


September 2014

2



On the demand side of the economy, retail sales improved moderatly by 2,4 percent y-y in July, while vehicle sales

fell by 1,4 percent in July, ending flat in the month of August. Growth in the value of private sector plans approved

continued, albeit at a slower pace in July (5,9 percent) compared with the 23 percent increase reported during

June. House prices are performing well, and increased by 10,2 percent y-y in August. Manufacturing remains

depressed, down 7,9 percent in July 2014, but we can expect a somewhat improved performance during August,

as the economy slowly awakens after the negative impact caused by the 7-month industrial strike. Mining

production, as expected was still in the red in July, down 7,7 percent. Kagiso’s Purchasing Mangers Index (PMI)

improved to a level of 48 in August, from 41,9 in July, but the year on year change in business activity was still lower

by 18 percent. The rate of decline did however slow from the 24,4 percent contraction reported in July. The rate

of decline also improved in terms of inventory purchases, down 10,2 percent y-y vs -12,7 percent in the previous

month. New sales orders fell by 12,4 percent y-y in August, compared with a 17,4 percent contraction in the

previous month. Based on the PMI indices it is clear that, 8 months into the 2014, the economy is under severe

strain. Economic growth is forecast at between 1,5 percent and 1,7 percent for 2014. Government’s view on how

to deal with these and other econmic challenges will be presented by the newly appointed Minister of Finance,

Nhanhla Nene, on the 22 October 2014, in his medium term budget speech.

Thus as the economy stutters foreward, more and more the question is aksed on how to unblock the South African

economy. Here are a few interesting view points from three prominent economists:

Kevin Lings, chief economist at Stanlib:

• Government should fast track the development of “ready-to-go” infrastructure projects by engaging more

proactively with the private sector. This has worked well in the development of renewable energy

Adrian Saville, chief investment officer Cannon Asset Managers:

• Spending infrastructure pipeline as this will have a broad positive economic spill over

• Do more business with our neighbouring countries

• Improve the ease of doing business

Azar Jammine, chief economist at Econometrix

• South africa must improve its education outcomes

• As people are more employable they become more productive, earn more and this would reverse the

adversarial labour relations

• Improved training and skills development will help people to be more entrepreneurial, setting up their

own businesses.

• Improved cooperation between public and private sectors is desperatly needed. The public sector need

to recognise that the private sector has a higher portion of skills

In summary, government need to fast track infrastructure spending, improve trade relations with neighbouring

countries, remove red tape in doing business, and focus more strongly on education. Clearly this is much easier

said than done and will require clear long term practical growth policies that are transparent and allows for full

cooperation by both the private and public sector. In other words, it calls for more decisive leadership!

Monthly Newsletter


September 2014

3



FNB/BER Building and Civil confidence Index

The FNB/BER released their 3rd quarter building and civil

confidence indices this month. There was a marginal

improvement in the building industry confidence index

which jumped by 4 index points to 45, supported mainly

by improvements in the residential sector. The

confidence index of main contractors however

increased by eight index points to 53, the highest level

since the first quarter of 2008. There was no real change

in non-residential building activity. Overall it remains a

concern that the building industry continues to lack

momentum that will put it on a path of a more

sustainable recovery. And worry some is that this trend

is likely to continue for the immediate to medium term,

as private sector confidence remains weak alongside

poor economic growth, financial constraints and

inflationary pressures. The civil industry confidence

index also picked up somewhat in the 3rd quarter, in

spite of a decline in civil construction activity during the

year. The civil confidenc index rose by four index points

to 48 in the 3rd quarter.

This is how economists, who attended the

Construction Industry Economist Forum (CIEF),

celebrated when an index, which measures

contractor’s confidence, finally increased to above

the 50 basis point. This in effect means, and why it

calls for a celebration, is that for the first time

since 2008, the number of contractors feeling

optimistic outweighs those that are pessimistic.

According to the FNB/BER index the level was at

53 in the 3rd quarter of 2014, as indicated by Dr

Johan Snyman below to Erwin Rode, while Craig

Lemboe focusses on opening the champagne,

compliments of Dr Snyman.

The CIEF was attended by Craig Lemboe (BER), Dr Johan Snyman (MFA), Erwin Rode (Rode & Associates), Pierre

Blaauw (Asla Construction) and Elsie Snyman (Industry Insight).

Figure 2: FNB/BER Confidence index

Monthly Newsletter


September 2014

4



Value of construction projects awarded escalate by 15 percent y-y in first eight months of 2014

The nominal value of civil projects awarded in August

2014 increased by a surprising 39 percent y-y

compared with the same month in 2013, following

the 15,8 percent decrease during the month of July.

The annual rate of change, in the real value of civil

awards in the first 8 months of 2014 moderated to -

18,0 percent y-y, from -24,0 percent in the previous

month.

The value of building projects awarded in August

increased by 78,6 percent compared with the same

month in 2013, signalling the eight months of

consecutive robust growth in the value of building

contracts awarded. In real terms (allowing for

building cost inflation) the value of building awards

have increased by 57 percent y-y in the first eight

months of the year compared to the same period in

2013. Market segments that have supported the

increase, include the commercial sector, education,

housing, and government housing (which would also

include the development of student and hostel

accommodation). We maintain our view that this

does not necessarily mean that the building industry

is on the path of a meaningful recovery. The growth

rates are coming from a much lower statistical base,

is characterised by the awards of fewer but larger

projects that span over many years of development,

while there has been a growing tendency for projects

to be placed on hold.

The number of projects postponed has increased by 52 percent y-y in the eight month period, with over 170 non-

residential contracts already cancelled during the course of 2014. The more positive trend in building awards this

year follows an improvement in the rate by which local authorities have approved building plans for private sector

construction, but this growth path has already started a downward trajectory.

Project postponements highlight industry constraints: Uncertain economic conditions, weak economic growth,

tightening of monetary policy, and sustained pressure on affordability continue to put pressure on project

postponements. The postponement rate2 accelerated to an average of 4,0 percent by end of August 2014, from

3,5 percent in December 2013. While there has been some improvement in the postponement rate of civil projects,

from 2,5 percent (December 2013) to 2,3 percent (August 2014), the postponement rate in respect of building

contracts accelerated from 3,9 percent (December 2013) to 6,3 percent (August 2014), mainly due to an increase

in the postponement of non-residential projects.

For a brief description of projects awarded or out to tender please visit our website.

2 The number of projects postponed expressed as a percentage of the number of tenders received during the same

period.

Monthly Newsletter


September 2014

5



Key building market trends

Current

month

Same month

last year

Monthly %

Change

Monthly

Market Share MAT

Mat %

Change

Mat Market

Share

Offices 223,290 182,299 22.5% 15.0% 966,732 9.8% 6.3%

Shops 48,465 48,557 -0.2% 3.3% 936,360 -8.1% 6.1%

Industrial 105,397 139,000 -24.2% 7.1% 1,793,194 13.3% 11.6%

Other 48,991 31,139 57.3% 3.3% 433,307 3.9% 2.8%

Housing 682,553 652,671 4.6% 45.9% 7,098,215 2.2% 46.1%

Renovations

Housing 287,121 316,025 -9.1% 19.3% 3,096,714 -1.0% 20.1%

Renovations

Other 92,160 123,700 -25.5% 6.2% 1,074,734 -6.2% 7.0%

Total 1,487,977 1,493,391 -0.4% 100.0% 15,399,256 1.8% 100.0%

The total number of square metres approved for

private sector buildings fell by 0,4 percent y-y

during the month of July 2014, following the 15,2

percent increase reported in June 2014. A total of

1,487,977 sqm were approved during July,

relatively on par with approvals in July 2013.

However, approvals for new office space increased

by 22,5 percent, while “other” buildings increased

by 57,3 percent. Other generally includes hospital

and schools, funded by the private sector.

Approvals for housing increased by 4,6 percent,

contributing 46 percent to the total number of

sqm approved during the month. No real change

was reported in approvals for new shopping space,

while industrial space fell by 24,2 percent. The

number of sqm approved for renovations also

contracted during the month of July when

compared to the same month in 2013.

The total number of sqm approved increased by

278,821 sqm (to 15,399,256 sqm) in the 12 months

to July 2014 with an estimated construction value

at an average building rate of R7000/m2 of R2bn.

The total number of square metres completed

during the month of July 2014 was 10,5 percent

lower compared to July 2013, and this resulted in

the annual growth rate accelerating to -10,3

percent year on year over the last 12 months. Thus

in the 12 months to July 2014 over 1 million fewer

sqm were completed compared to the 12 months

up to July 2013. In rand terms, this could be as high

as R7bn less investment.

Completions in the residential sector fell by 11,7

percent year on year (Jul-14, MAT) vs a 7,1

percent contraction the number of non-

residential sqm completed.

Figure 3: Plans approved vs buildings completed | Unit

SQM | Y-Y percentage change, MAT

Figure 4: Residential market segment: Approved vs

Completed | Y-Y percentage change, MAT

Figure 5: Non-Residential market segment: Approved

vs Completed | Y-Y percentage change, MAT

Monthly Newsletter


September 2014

6



Residential Sector

Slower growth in approvals for new construction

while the rate of completions are falling rapidly

There was no change in the number of sqm

approved for residential construciton during July

2014, as the 4,6 percent increase in new residential

approvals as offset by a 9,1 percent contraction in

approvals for home renovations.

The annual growth rate in residential approvals

(over the last 12 months) slowed from 2,5 percent

y-y in June 2014 to 1,2 percent in July 2014.

The rate of completions are still firmly in the red,

down 15,1 percent in the month of July 2014

compared to last year, and is curently down 11,7

percent y-y measured over the last 12 months to

July 2014. The rate of decline has accelerated from

the 5,9 percent increase reported in 2013.

Approvals for Flats and Townhouses (SQM)

increased by 14 percent during the month of July

2014. The annual growth rate deteriorated since

2013, reaching -4,2 percent y-y in the 12 months to

June 2014 (from a positive growht of 2,4 percent in

2013). However more positive growth in the last 2

months (June and July) resulted in the annual

growth ending flat in the 12 months to July 2014.

The average size per unit approved was

considerably larger in July, averaging 121sqm/unit

vs an average of 95 sqm/unit approved in June.

Approvals for luxury homes (larger than 80 sqm)

increased by 8 percent y-y in July 2014, with 1688

units approved. The average size per unit was

263sqm/unit (July) slightly smaller than the average

size approved in June. Measured over the last 12

months, the annual growth rate moderated slighly

from 3,9 percent y-y in the 12 months to June to 3,6

percent in July.

Please note that this data does not include housing

opportunities presented by government’s rental

and social housing programmes.

Details pertaining to provincial trends are provided

to Investment Map clients

Non-residential Sector

Surprise uptick in approvals for new non-

residential space, but the current growth in

completions has slowed dangerously close to the

red

The number of sqm approved for private sector

non-residential construction fell by 1,2 percent in

July 2014, inspite of a 6,3 percent increase in the

sqm that were approved for the development of

new non-residential buildings. This increase was

counteracted by a 25,5 percent decline in approvals

for renovations to existing non-residential

buildings.

The annual growth rate over the last twelve

months, moderated from 6,9 percent y-y in June

2014 to 3,2 percent in the 12 months to July 2014.

The number of sqm approved for office space

increased by 22,5 percent in August 2014 compared

to the same month in 2013, increasing the year on

year percentage increase in the first seven months

to 48 percent. Western Cape contributed 85

percent to the growth in sqm approved during this

period, followed by Kwazulu Natal.

There was no real change in sqm approved for retail

space during the month of July, and is still down 45

percent year on year in the first seven months of

2014. There are still opportunities for growth in

retail development in the Western Cape, where

approvals have increased by 73% or 40 099sqm to

94 529 in the first seven months.

Industrial space fell by 24 percent y-y during the

month of July 2014, but as approvals are relatively

erratic, there was only a 2 percent increase

recorded in the first seven months compared with

the same period in 2013. However, over the last

twelve months, approvals were up 13 percent, but

this may be on a more downward trajectory. With

over 11 000 sqm approved for industrial

development in the Free State, this province is now

in the lead with the strongest growth reported in

the first seven months, although not the province

with the highest sqm approved. Gauteng still takes

the lead with 348 365 sqm approved in the first

seven months, although this was 11 percent lower

when compared to the same period in 2013.

Monthly Newsletter


September 2014

7



Figure 6: Office space approved / completed

Figure 7: Industrial space approved / completed

Figure 8: Retail space approved / completed

Figure 9: Renovations other buildings approved /

completed

Don’t forget to visit our Facebook page for regular

updates on developments affecting the South African

construction industry

Monthly Newsletter


September 2014

8



Other construction related

indicators making headlines in

September 2014

• There was a 32 percent increase in the

number of projects placed on hold, during

the month of August, with a 31 percent

increase reported in civil projects and a 78

percent increase in building projects. If we

compare the trend for the year (January to

August), there seems to a tendency for

non-residential projects to be placed on

hold, as the number of postponments for

residential projects increased by 156

percent. This could be related to the

weaker than expected start to the

economy in 2014, hampered by violent

industrial strike action, higher inflation

and a tightening of monetary policy.

• Input costs for domestic buildings

accelerated to an annual increase of 6,7

percent in August 2014 from 6,6 percent in

July. Input costs for commercial buildings

also accelerated from an annual increase

of 6,3 percent in July to 6,5 percent in

August, as the price index for glazing

increased by 6,4 percent during the month

of August. The price indices for metal

roofing and aluminium aslo increased by

2,6 percent and 2,4 percent respectively

during the month while electrical price

indices increased by between 2 and 3

percent. Higher steel price announced by

mills during September will add futher

upward pressure on the cost of

construction.

• South African authorities have started a

new investigation into imports of cement

from Pakistan. This time the inquiry will

examine trade dumping allegations made

by local producers including Afrisam,

Lafarge, NPC Cimpor and PPC. The

difference between the price of cement in

Pakistan and for imports from Pakistan in

2013 was 48 percent.

R1bn acid mine drainage project awarded by TCTA to PG Mvhandla/CMC

joint venture

The value of water projects awarded more than doubled in August 2014 which includes the TCTA project, worth

R1bn, for the development of new infrastructure in Gauteng for the Eastern Basin Acid Mine Drainage (although

this project may have been awarded in May/June according to earlier media reports). This contract, according

to information provided by Databuild, was awarded to PG Mavundla (a contractor who upon investigation is

found to listed only as a grade 6 CE contractor which by definition qualifies for projects up to a value of R13m,

and grade 8GB for building projects up to R130m) and CMC – a company not listed on the CIDB contractors

register except for “CMC building and construction” who has an expired status. According to CMC’s website it

is a South African company originally established in 1980 as a vendor of mining equipment, is now active in the

SA Mining and Metallurgical Industry for many years.

PG Mavundla is owned by the former multi-millionaire Greytown Major Philani Godfrey Mavundla, who is also

part of the CMC Impregilo Mavundla joint venture that is building Eskom’s Ingula pumped storage electricity

project in the Little Drakensberg, near van Reenens pass. Philani has close connections with president Zuma and

his company was also involved in construction of the R8bn King Shaka International Airport, and the R1bn Sibaya

Casino and Entertainment Kingdom. Philani recently tied the knot with his fourth wife.

To read more about this project and the residents’ complaints: http://mg.co.za/article/2014-06-19-hope-

springs-not-eternal-in-spat-over-toxic-sludge

Monthly Newsletter


September 2014

9



Economic Charts | Demand Side indicators

Monthly Newsletter


September 2014

10



Economic Charts | Supply Side indicators

• Manufacturing production fell by 7,9 percent

in July 2014, after having ended flat in June

2014. The purchasing managers index (in the

graph bottom left), recovered to a level of

48.0 in August, from 41.9 in July, as the

economy slowly picks up following the 7

month industrial strike action.

• Retail spending on hardware, paint and glass

increased by 3,1 percent y-y in real terms

during July 2014, from an increase of 5,3

percent y-y in the previous month. The

annual growth rate over the last twelve

months moderated to 4,2 percent y-y, from

5,4 pecent in 2013, compared to an overall

real increase in retail trade of 2 percent y-y

(in the 12 months to July 2014).

Monthly Newsletter


September 2014

11



Economic Charts | Prices

Monthly Newsletter


September 2014

12



Table 1: Key Macro Economic Indicators – Latest available data as 29 September 2014

Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14

US industrial production (y/y%) 3.6 3.9 4.3 4.4 4.8 4.1

UK industrial production (y/y%) 2.5 2.9 2.2 1.2 1.7 #N/A

Japan industrial production (y/y%) 7.3 3.6 2.0 1.6 -0.8 #N/A

US consumer price inflation (y/y%) 1.5 2.0 2.1 2.1 2.0 1.7

Euro-11 consumer price inflation (y/y%) 0.5 0.7 0.5 0.5 0.4 0.4

UK consumer price inflation (y/y%) 2.5 2.5 2.4 2.6 2.5 2.4

US 3-month TB rate (%) 5.2 3.1 3.2 3.6 2.6 3.3

ECB Repo Rate (%) 25.0 25.0 25.0 18.3 15.0 15.0

Brent crude oil ($/bl) 107.9 108.0 109.2 111.8 108.6 103.5

Brent crude oil ($/bl) - y/y% change -1.6 4.0 6.0 8.8 0.9 -6.0

Brent crude oil (Rand/bl) 1159.1 1139.2 1137.3 1193.4 1158.4 1103.6

Brent crude oil (Rand/bl) - y/y% change 15.0 20.5 17.8 15.8 8.6 -0.7

London gold ($/oz) 1336.1 1299.0 1287.2 1278.9 1311.0 1296.0

London gold (Rand/oz) 19846.1 18930.2 18407.0 18548.9 18926.0 18401.3

Exchange Rates

Pound/$ 1.7 1.7 1.7 1.7 1.7 1.7

$/Yen 102.3 102.6 101.8 102.1 101.7 103.0

$/Rand 10.7 10.6 10.4 10.7 10.7 10.7

Euro/Rand 20.5 20.1 19.6 19.7 19.5 18.9

Pound/Rand 17.9 17.7 17.5 18.0 18.2 17.8

Yen/Rand 6.9 7.0 7.1 7.0 7.0 7.3

Monetary Sector

M3 (y/y%) 7.9 7.0 7.6 7.2 6.9 #N/A

Domestic private sector credit (y/y%) 8.7 8.3 8.3 8.7 9.8 #N/A

Prime overdraft rate (% p.a.) 9.0 9.0 9.0 9.0 9.1 9.3

3-Month BA Rate (% p.a.) 5.6 #N/A #N/A #N/A #N/A #N/A

Prices

CPI Headline inflation (y/y%) New basket as

from January 2009 108.7 109.2 109.4 109.7 110.6 111.0

CPI inflation (y/y%) 6.0 6.1 6.6 6.6 6.3 6.4

PPI: Domestic output - All groups 245.8 248.2 248.6 249.3 250.6 250.6

PPI: Domestic output - All groups y/y 8.2 8.8 8.7 8.1 8.0 7.2

Gauteng pump price (c/l) 1411.0 1416.0 1401.0 1379.0 1408.0 1408.0

Petrol price (y/y%) 9.6 9.2 14.5 13.4 8.3 5.7

Real economic indicators

Retail sales (y/y%) 0.5 2.2 2.8 -0.9 2.4 #N/A

Manufacturing production (y/y%) 1.0 -1.9 -3.9 0.2 -7.9 #N/A

Total vehicle sales (y/y%) 1.6 -9.0 -9.2 -2.2 -1.8 0.4

Mining production (incl gold) (y/y%) -3.2 1.8 -6.2 -5.4 -7.7 #N/A

Value of buildings completed (y/y%) -2.0 -15.5 -21.8 -13.8 4.9 #N/A

Value of building plans passed (y/y%) 13.8 2.8 5.6 23.3 5.9 #N/A

SARB leading indicator (90=100) 99.5 99.3 99.5 99.9 100.2 #N/A

Absa House Price Index (y/y%) 8.7 8.9 9.3 9.8 10.1 10.2

PMI Manufacturing Business Activity Index

(SA) 51.0 48.5 42.5 39.5 39.4 47.4

PMI Manufacturing Inventories Index (SA) 53.7 52.5 50.1 58.8 47.3 50.7

PMI Manufacturing New Sales Orders Index

(SA) 46.6 43.5 44.8 43.9 45.4 49.8


(SA) y/y% 7.9 -4.6 -15.3 -24.5 -24.4 -18.2

PMI Manufacturing Inventories Index (SA)

y/y% -0.2 14.6 -5.7 9.7 -12.7 -10.2


(SA) y/y% -7.9 -16.7 -12.0 -18.8 -17.4 -12.4


(SA) m/m% 5.4 -4.9 -12.4 -7.1 -0.3 20.3

PMI Manufacturing Inventories Index (SA)

m/m% -9.9 -2.2 -4.6 17.4 -19.6 7.2


(SA) m/m% -12.7 -6.7 3.0 -2.0 3.4 9.7

#N/A = Data not yet available

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