changing dynamics within the south african … · south african forum of civil engineering...

SOUTH AFRICAN FORUM OF CIVIL ENGINEERING CONTRACTORS | LR 2/6/3/138

CHANGING DYNAMICS WITHIN THE SOUTH AFRICAN CONSTRUCTION INDUSTRY

DAVID METELERKAMP

SENIOR ECONOMIST INDUSTRY INSIGHT

South African Forum of Civil Engineering Contractors | LR 2/6/3/138

PRESENTATION OUTLINE

ECONOMIC OUTLOOKGLOBAL PICKUP,

DOMESTIC OUTLOOK,

CONSTRUCTION SECTOR OUTLOOKCHANGING DYNAMICS AND OVERALL TRENDS,

CIVIL CONSTRUCTION,

BUILDING,

FORECASTS/SUMMARY

2


PICK UP IN THE GLOBAL ECONOMY

“THE GLOBAL GROWTH RECOVERY IS CONTINUING AND AT A FASTER PACE” – INTERNATIONAL MONETARY FUND

REVISED GLOBAL GROWTH PROJECTIONS UPWARDS

THIS WILL BENEFIT SOUTH AFRICA

3


DOMESTIC OUTLOOK

4

BOUNCE BACK FROM TECHNICAL RECESSION

GROWTH OF 2,5% IN Q2 –TURNING POINT?

SEVERE LACK OF CONFIDENCE IN THE ECONOMY


CONSTRUCTION SECTOR ONLY MAJOR SECTOR TO DECLINE IN Q2

5

2009 Annual

2010 Annual

2011 Annual

2012 Annual

2013 Annual

2014 Annual

2015 Annual

2016 Annual

2017Q1 2017 Q2

Agriculture, forestry and fishing -3,0% 0,9% -0,4% 2,3% 1,5% 5,6% -6,1% -7,8% 22,2% 33,6%

Mining and quarrying -4,2% 5,8% 0,2% -4,0% 4,0% -1,6% 3,9% -4,7% 12,8% 3,9%

Manufacturing -10,4% 5,0% 2,4% 2,4% 0,7% 0,0% -0,2% 0,7% -3,7% 1,5%

Electricity and water -1,6% 2,0% 1,3% -1,2% -0,6% -0,9% -1,5% -3,5% -4,8% 8,8%

Construction 7,4% 1,5% 0,8% 2,5% 2,7% 2,9% 1,7% 0,7% -1,3% -0,5%

Wholesale and retail trade; hotels and restaurants -2,5% 2,2% 4,4% 3,6% 1,9% 1,3% 1,4% 1,2% -5,9% 0,6%

Transport and communication 0,6% 2,9% 3,3% 2,3% 2,0% 2,3% 1,1% 0,4% -1,6% 2,2%

Finance, real estate and business services 0,9% 1,9% 3,5% 3,3% 3,0% 2,2% 2,8% 1,9% -1,2% 2,5%

GDP at market prices -1,7% 2,8% 3,1% 2,5% 2,2% 1,5% 1,3% 0,3% -0,7% 2,5%


CRISIS OF CONFIDENCE: 29 IN Q1 – WORST SINCE FINANCIAL CRISIS

6

0

10

20

30

40

50

60

70

80

90

01-M

ar-2

007

01-Ju

l-200

701

-Nov

-200

701

-Mar

-200

801

-Jul-2

008

01-N

ov-2

008

01-M

ar-2

009

01-Ju

l-200

901

-Nov

-200

901

-Mar

-201

001

-Jul-2

010

01-N

ov-2

010

01-M

ar-2

011

01-Ju

l-201

101

-Nov

-201

101

-Mar

-201

201

-Jul-2

012

01-N

ov-2

012

01-M

ar-2

013

01-Ju

l-201

301

-Nov

-201

301

-Mar

-201

401

-Jul-2

014

01-N

ov-2

014

01-M

ar-2

015

01-Ju

l-201

501

-Nov

-201

501

-Mar

-201

601

-Jul-2

016

01-N

ov-2

016

01-M

ar-2

017

01-Ju

l-201

7

BER consumer confidence index


CRISIS OF CONFIDENCE: ANECDOTAL EVIDENCE

7

• NEW STUDY FROM THE CENTRE FOR COMPETITION, REGULATION AND ECONOMIC DEVELOPMENT (CCRED)

• TOP 50 FIRMS ON JSE HOARDING CASH – NOT INVESTING

• HIGH LEVELS OF CAUTION AMIDST UNCERTAINTY

• RESERVES OF R1.4 TRILLION

South African Forum of Civil Engineering Contractors | LR 2/6/3/138 8

• UPTICK IN COMMODITY PRICES – RECOVERY OF PRIMARY SECTOR.

• LOW INFLATION –FURTHER INTEREST RATE DECREASES.

• STABLE EXCHANGE RATE.• GLOBAL UPTICK.• STABLE LABOUR RELATIONS AND CONSTANT ELECTRICITY SUPPLY

DOWNSIDE RISKSUPSIDE RISKS

• POLITICAL AND POLICY UNCERTAINTY – MANY EXAMPLES OVER THE LAST FEW MONTHS: MINING CHARTER, PP COMMENTS, STATE CAPTURE ETC.

• CRISIS OF CONFIDENCE• RATING AGENCIES?


OUR FORECASTS


WHERE ARE WE NOW?


CHANGE IN DYNAMICS FROM 2011/2012


SMALL CONTRACTORS TAKING A BIGGER SHARE OF THE OVERALL PIE

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

70,0%

Jun-

12

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

Jun-

16

Dec

-16

Contribution by Construction Enterprises% of Industry Turnover

Large Small Medium


HIGHER END OF THE SECTOR IN DIRE STRAIGHTS

0

50

100

150

200

250

2007

/08

2007

/12

2008

/04

2008

/08

2008

/12

2009

/04

2009

/08

2009

/12

2010

/04

2010

/08

2010

/12

2011

/04

2011

/08

2011

/12

2012

/04

2012

/08

2012

/12

2013

/04

2013

/08

2013

/12

2014

/04

2014

/08

2014

/12

2015

/04

2015

/08

2015

/12

2016

/04

2016

/08

2016

/12

2017

/04

= JSE versus contractors index (08/2007 = 100)

JSE Contractors


FLAT GROWTH IN THE AWARDING OF GRADE 8 AND 9 PROJECTS


27,0% INCREASE IN THE VALUE OF PROJECTS AWARDED (NOMINAL)13,3% LESS PROJECTS OUT TO TENDER OVER THE LAST YEAR

-30,0%

-20,0%

-10,0%

0,0%

10,0%

20,0%

30,0%

2015

06

2015

07

2015

08

2015

09

2015

10

2015

11

2015

12

2016

01

2016

02

2016

03

2016

04

2016

05

2016

06

2016

07

2016

08

2016

09

2016

10

2016

11

2016

12

2017

01

2017

02

2017

03

2017

04

2017

05

2017

06

2017

07

2017

08

Value of civil projects awarded and out to tender (y-y, MAT)

Awarded Tender


CONSTRUCTION OF ROADS DRIVING UP CIVIL ACTIVITY


WORRYING NO. OF PROJECTS POSTPONED AND CANCELLEDPOSTPONED (281,4%) CANCELLED (87%) UP OVER THE LAST YEAR

-150,0%-100,0%

-50,0%0,0%

50,0%100,0%150,0%200,0%250,0%300,0%350,0%400,0%

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul-1

6

Aug-

16

Sep-

16

Oct

-16

Nov

-16

Dec-

16

Jan-

17

Feb-

17

Mar

-17

Apr-

17

May

-17

Jun-

17

Jul-1

7

Aug-

17

Growth in the number of civil projects cancelled and postponed (MAT)

Cancelled Postponed


RESIDENTIAL MARKET SLIGHTLY MORE BUOYANT THAN NON-RES

19

-25,0%

-20,0%

-15,0%

-10,0%

-5,0%

0,0%

5,0%

10,0%

15,0%

20,0%

45000

50000

55000

60000

65000

70000

Dec

/200

7A

pr/2

008

Aug

/200

8D

ec/2

008

Apr

/200

9A

ug/2

009

Dec

/200

9A

pr/2

010

Aug

/201

0D

ec/2

010

Apr

/201

1A

ug/2

011

Dec

/201

1A

pr/2

012

Aug

/201

2D

ec/2

012

Apr

/201

3A

ug/2

013

Dec

/201

3A

pr/2

014

Aug

/201

4D

ec/2

014

Apr

/201

5A

ug/2

015

Dec

/201

5A

pr/2

016

Aug

/201

6D

ec/2

016

Apr

/201

7

Residential investment (quarterly growth and levels)

Gross fixed capital formation Percentage change


PRIVATE RESIDENTIAL

20

8,3%

39,2%24,2%

28,3%

Distribution of SQM of private residential building plans over the

last 12 months

Low cost

Luxury homes

Flats andtownhousesRenovations

-40,0%

-30,0%

-20,0%

-10,0%

0,0%

10,0%

20,0%

30,0%

40,0%

01-D

ec-2

014

01-F

eb-2

015

01-A

pr-2

015

01-Ju

n-20

15

01-A

ug-2

015

01-O

ct-2

015

01-D

ec-2

015

01-F

eb-2

016

01-A

pr-2

016

01-Ju

n-20

16

01-A

ug-2

016

01-O

ct-2

016

01-D

ec-2

016

01-F

eb-2

017

01-A

pr-2

017

01-Ju

n-20

17

Growth in SQM approved over the last 12 months non-residential segments

(percentage change MAT)

Low cost housing Luxury homes Flats and townhouses


DEMAND FOR FLATS AND TOWNHOUSES

21

IN THE CURRENT DEPRESSED ENVIRONMENT:CHEAPER TO BUILD/BUYCHEAPER TO MAINTAINBETTER RETURNS IN CURRENT ENVIRONMENTPROVINCE SPECIFIC

ANOTHER HOTSPOT: LOW COST AND AFFORDABLE HOUSING

CATALYTIC HUMAN SETTLEMENT PROJECTS


NON-RESIDENTIAL MARKET MORE DEPRESSED

22

-17,0%

-12,0%

-7,0%

-2,0%

3,0%

8,0%

13,0%

18,0%

23,0%

28,0%

45000

50000

55000

60000

65000

70000

Dec

/200

7M

ay/

2008

Oct

/200

8M

ar/

2009

Aug

/200

9Ja

n/20

10Ju

n/20

10N

ov/2

010

Ap

r/20

11Se

p/2

011

Feb

/201

2Ju

l/201

2D

ec/2

012

Ma

y/20

13O

ct/2

013

Ma

r/20

14A

ug/2

014

Jan/

2015

Jun/

2015

Nov

/201

5A

pr/

2016

Sep

/201

6Fe

b/2

017

Non-residential investment (quarterly growth and levels)

Gross fixed capital formation Percentage change


17,9% DECREASE IN THE VALUE OF PROJECTS AWARDED (NOMINAL)3,5% LESS PROJECTS OUT TO TENDER OVER THE LAST YEAR

-50,0%

-40,0%

-30,0%

-20,0%

-10,0%

0,0%

10,0%

20,0%

30,0%

2015

06

2015

07

2015

08

2015

09

2015

10

2015

11

2015

12

2016

01

2016

02

2016

03

2016

04

2016

05

2016

06

2016

07

2016

08

2016

09

2016

10

2016

11

2016

12

2017

01

2017

02

2017

03

2017

04

2017

05

2017

06

2017

07

2017

08

Number of non-residential projects awarded and out to tender (y-y, MAT)

Awarded Tender


NON-RESIDENTIAL PRIVATE

-80,0%-60,0%-40,0%-20,0%

0,0%20,0%40,0%60,0%80,0%

100,0%120,0%

01-D

ec-2

014

01-Ja

n-20

1501

-Feb

-201

501

-Mar

-201

501

-Apr

-201

501

-May

-201

501

-Jun-

2015

01-Ju

l-201

501

-Aug

-201

501

-Sep

-201

501

-Oct

-201

501

-Nov

-201

501

-Dec

-201

501

-Jan-

2016

01-F

eb-2

016

01-M

ar-2

016

01-A

pr-2

016

01-M

ay-2

016

01-Ju

n-20

1601

-Jul-2

016

01-A

ug-2

016

01-S

ep-2

016

01-O

ct-2

016

01-N

ov-2

016

01-D

ec-2

016

01-Ja

n-20

1701

-Feb

-201

701

-Mar

-201

701

-Apr

-201

701

-May

-201

701

-Jun-

2017

01-Ju

l-201

7

Growth in SQM approved over the last 12 months non-residential segments (percentage change MAT)

Commercial Retail Industrial and warehousing

• 31% GROWTH IN INDUSTRIAL AND WAREHOUSING

• -47% IN RETAIL. SHOPPING CENTRE BOOM ENDED.

• 5,3% COMMERCIAL


SOME KEY ISSUES IN THE SECTOR

• DISCONNECT BETWEEN AWARDS AND TENDERS. GOVERNMENT, NOT PRIVATE

• SLOW PACE PROJECTS ROLLED OUT BY SOE’S – MASSIVE INEFFICIENCIES (LACK OF SECURITY RELATED TO FINANCE –CONSUMER DRIVEN TARIFFS ETC.)

• BUSINESS CONFIDENCE (GENERAL ECONOMIC FACTORS)

• TRANSFORMATION

25


OVERALL

• OVERALL, THE OUTLOOK IS RELATIVELY DEPRESSED• BUT THERE ARE NODES OF GROWTH IF ONE LOOKS MORE PROVINCIALLY….

• CIVIL OUTLOOK FLAT (MARGINAL NEGATIVE REAL GROWTH)

• BUILDING MORE OR LESS THE SAME, FLAT GROWTH IN NOMINAL TERMS OVER THE NEXT 28-24 MONTHS

• CHANGING LANDSCAPE

26


OUR FORECASTS


THANK YOU

28

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