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2022 Outlook for the South African Construction Industry

In this article, we consider the 2022/2023 outlook for South Africa's construction industry.

The industry has been on rocky ground for a number of years – and was hit hard by the early stages of the pandemic. While things aren’t turning around in a hurry, there is now cause for optimism.

State of the South African construction industry last year

The construction industry has been steadily declining since 2017, and 2020 saw a pandemic induced crash due to hard lockdowns. The value of plans passed for building construction fell by 37% year-on-year in the first 11 months of 2020.

2021 gave us cause for hope with a slow but steady recovery. Afrimat’s construction index increased by 2.8% in the third quarter despite the impact of the unrest in July.

Nonetheless, the industry faced a depressed economy, with constrained growth, weak order book pipelines and decreased foreign investment. Supply chain disruptions associated with the pandemic also continued to impact some companies.

What’s coming for the SA construction industry in 2022/23?

The outlook for South Africa’s economy as a whole includes a good deal of uncertainty.

Economic forecasts

Nonetheless, businesses are experiencing gradual recovery from the impact of the pandemic. The construction industry is expected to rebound over the course of 2022, with forecast expansion of 9.1%.

According to the report Construction in South Africa - Key Trends and Opportunities to 2025, we can expect the industry to stabilize at an annual average growth of 3.1% between 2023 and 2025.

It's hoped that government spending will support recovery. In 2021, the government announced its plan to invest R791.2 billion in public-sector infrastructure spending over the period from 2021 to 2024.

Positive sentiment in the industry

The 2022 Construction Industry Outlook survey suggests that members of the construction industry are largely positive about the year.

68% of respondents said they expected an increase in project revenue. 17% of those respondents predicted that increase at 15% or more.

Just over half of those surveyed said they anticipated project margins to be relatively healthy.

Top strategic initiatives in construction

The top four strategic initiatives that respondents said they would be focusing on in 2022 were:

  • digital transformation

  • implementation of Lean construction principles

  • expansion of business offerings

  • expansion of geographic reach.

2022/23 trends for the construction industry

Worldwide, increasing adoption of automation, modular construction techniques and other new technologies is continuing to shape the future of construction.

With uncertainty surrounding markets (globally and in South Africa), other trends may be less positive.

Chairman of GVK-Siya Zama, Dumisani Madi, outlined particular trends and challenges for 2022. Below, we discuss these and other relevant trends for 2022/2023.

Economic pressures

Global and national economic pressures will continue to affect the construction industry in 2022 and beyond. It's predicted that the industry's output won't return to pre-pandemic levels before 2025.

Low markups

A downward trend in markups may continue, with less work available and increased competition among contractors as a result.

Skills shortages

Senior management and specialised trades will likely continue to experience significant skill shortages.

An added factor is that contractors can’t necesssarily afford to train or upskill their staff in the current economic climate.

Continued impact of COVID-19

Recovery may be underway but the effects of COVID-19 on the construction industry will continue to be felt through 2022 and for some time to come.

Vaccinations and safety protocols

Vaccination requirements may be a contentious issue, with companies considering whether to mandate vaccinations.

However, safety protocols and a general reduction in infections are likely to speed people's return to workplaces (and to motivate increased demand for building work).

Green building

Greater adoption of sustainable building methods is a global trend that's bound to continue. In South Africa, demand for green building methods has been driven largely by environmentally conscious multinational clients and corporates. With climate change and growing awareness, demand may accelerate.

Construction firms that adopt green methods may benefit from a competitive advantage, occupying a niche with (so far) limited competition. Adopting new, eco-friendly approaches also leads to the upskilling of workers.

Off-site and modular construction

More off-site prefabrication methods and lightweight structures, such as those used to construct temporary COVID wards, are being used in South African construction.

Supply chain risks

During the pandemic, massive international supply chain disruptions left many companies scrambling.

Today's businesses are keenly aware of supply chain risks and likely to prioritise steps for mitigating these. However, inconsistency and procurement delays are still major challenges.

Uplifting SMMEs

In light of skills shortages and supply chain issues, partnering with and uplifting SMMEs may help larger firms with project delivery. It can also facilitate job creation and entrepreneurship in the construction industry.

Why we're optimistic about South Africa's construction industry

Recovery will take time, but we're optimistic about the 2022/2023 outlook for South Africa's construction industry. Here are some of the factors to consider.

COVID-19 losses are temporary

The impact of the pandemic and the lockdown on the construction industry will linger, at least for a year or two. However, the pandemic will end.

With gradual national and global recovery will come new investment – and construction projects that generate jobs and boost the industry.

Basic drivers for the industry are strong

Despite the country’s economic standing, the fundamental need for infrastructure remains.

Demand is high for better and more roads and other transport options, housing, power and other utilities and so on.

Government has already committed to using infrastructure projects to drive post-COVID-19 economic recovery.

Urban residential projects continue to be lucrative

Private construction projects will forge ahead post-lockdown.

Urban residential projects remain a lucrative source of income. They’re backed by private or foreign investors. So they aren’t hobbled by a lack of government funding.

Smaller firms keep on “finding a way”

The construction industry news that makes headlines tends to focus on huge construction firms and conglomerates. Over the past few years, a number of massive construction firms have gone belly up or departed South Africa.

However, this ignores the on-going contribution made by smaller construction firms.

Small firms, many of them family-run, must and will find ways to survive.

A mix of temporary belt tightening, greater initiative in finding new work and diversification may all be involved.

With competition from large, multinational firms thinning out, there may even be increased opportunities for mid-sized South African construction businesses.

article by khplant.co.za





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