Silver lining for South Africa’s economy
Despite the negativity surrounding South Africa’s current economic climate, some good news is coming from the building sector.
A recent plethora of surveys from the Bureau for Economic Research (BER) has shown that business confidence across various industries in South Africa has been discouraged.
Industries said that load shedding, interest rates, high inflation levels and a weak rand were responsible for the downcast mood, with less than half of respondents in all of the BER’s surveys saying they were satisfied with the prevailing market conditions.
However, the BER’s new Buiding Cost Index (BCI) shows that there is less pressure on building contractor profit margins as tender prices have outpaced input cost increases in Q1 2023.
According to the BCI, the annual growth in tender prices grew preliminary by 14.1% year-on-year (y-o-y) in the first quarter of 2023.
Moreover, following an upward revision to the Q4 2022 escalation rates, there could be some momentum in tender price growth.
The BER said that the growth was the highest since 2008, but unlike 15 years ago, the new figure comes from a prolonged period of relatively low growth.
“The improvement in tender price growth is in line with a decline in tendering competition and
uptick in building activity. Indeed, the tender price competition index is at its lowest since the
end of 2007”, said Tracey-Lee Solomon, Junior economist at the BER.
For input costs, the increase in building input costs moderated from 9.6% y-o-y in Q4 2022 to 9.2% y-o-y in Q1 2023.
However, the April data revealed a drastic drop to 6.1% y-o-y due to a 1% monthly decline in April and a higher base at the same time last year.
For the rest of 2023, the higher base is expected to drag on input cost growth.
“In Q1 2023, growth in tender prices exceeded input cost growth. But, while the improvement in tender price growth is encouraging, the BCI has lagged input costs since the start of the Covid-19 pandemic. Therefore, what we are seeing now is not necessarily an outperformance by the BCI but rather a process of catching up”, said Solomon.
Considering the strong start to the year, growth in accepted tender prices is expected to accelerate compared to last year, with growth then expected to moderate due to a higher base.
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