Covid-19 impact on construction sector will be ‘catastrophic’

Industry Insight estimates that up to 140 000 formal jobs could be lost as activity levels nosedive.
The longer-term implications for the industry are more serious, with the civil sector expected to be severely hit by the deteriorating state of the fiscus. Image: Shutterstock

The impact of the coronavirus on the construction sector will be catastrophic, unlike any economic shock the sector has previously had to endure, and result in it shedding an estimated 120 000 to 140 000 formal jobs, according to construction market intelligence firm Industry Insight.

David Metelerkamp, senior economist at Industry Insight, said not only is the Covid-19 pandemic going to be the worst crisis since World War II, it is now widely expected to be the worst economic crisis/recession since the Great Depression of the late 1920s.

“Never has the global economy just simply come to a complete stop,” he said.

“This is unprecedented, and the fallout is expected to be catastrophic in the short run, especially in South Africa which was already in recession.”

Metelerkamp has outlined three scenarios for the industry based on Industry Insight’s belief that the sector will likely return to work on May 14, two weeks after the initial five-week lockdown period, and operate only at 50% capacity for the first few months at a minimum.

These scenarios also assume that the construction sector will operate during the builders’ holiday at the end of the year, that the outbreak peaks in early September as forecast by the Department of Health’s panel of doctors and industry experts, and that there is no major global resurgence of the virus after the economy is slowly reopened.

In terms of these scenarios, activity levels in the construction industry will, at best, decline by 14.5% in 2020 and by 27.7% in the worst case scenario.

Recovery, then annual contractions predicted

Activity is expected to return to positive growth in 2021, but to remain negative for at least two of the following three years.

Metelerkamp said the longer-term implications for the industry are more serious and the civil industry is going to be severely hampered by the deteriorating state of the fiscus.

The downgrade by Moody’s of South Africa to a sub-investment grade rating is going to make it considerably more expensive for the government to borrow money and, with the local economy in recession, will mean a considerable contraction in revenue collection, which funds spending.

“As well as the effect of increases in government spending on Covid-19 related stimulus, this will put severe pressure on government’s finances, which means less spending on infrastructure going forward,” he said.

‘Persistent decline’ in demand

Metelerkamp said this dampens the longer-term outlook for the civil industry considerably while, for the building industry, the worse longer-term outlook will stem from what economists expect to be a persistent decline in domestic and global demand for housing, as well as commercial and retail buildings from the private sector.

He added that with so many South Africans losing their jobs, per capita income is expected to fall considerably, denting overall aggregate demand and making it difficult for South Africans to afford the basic goods and services to which they were once accustomed.

Metelerkamp’s scenarios for the construction industry over the next few years are based largely on the levels of alert as proposed by government, with construction falling under lockdown Level 2 and therefore being one of the worst-affected industries because work will only resume fully in the second-last of the five phases.

He said road construction and maintenance, on the other hand, falls into Level 3 and will be able to return to work sooner, although this will differ by province.

Moving goalposts

Metelerkamp stressed that forecasting in the time of Covid-19 has become difficult because there are so many factors to take into account that can change on a daily or weekly basis, which can then drastically alter the forecast.

Scenario 1: In terms of Industry Insight’s baseline scenario, which it estimates as a 60% probability, construction sector activity levels are forecast to decline by 22.5% in 2020, with a recovery to 4.8% growth in 2021 but followed by annual declines in activity of 2.1%, 2.9% and 2.4% in the next three years.

Scenario 2: In the more optimistic scenario, which Industry Insight believes has a 30% probability, construction activity levels will decline by 14.5% in 2020 but grow by 3.4% in 2021. However, activity levels will then decline by 1.9% in 2022 and 0.8% in 2023 before growth of 3.7% in 2024.

Scenario 3: The more pessimistic scenario, which it believes has a 55% probability, anticipates construction activity levels declining by 27.7% in 2020, growing by 5% in 2021 but then declining by 2.1%, 2.9% and 4.5% in the next three years.

The SA Forum of Civil Engineering Contractors, SA Institution of Civil Engineering, and the Construction Covid-19 Rapid Response Task Team comprising several industry bodies, all previously called on government to declare the industry an essential service and allow it to return to work.

Economic activity intertwined

Gerhard Papenfus, CEO of the National Employers Association of South Africa, stressed the economy does not operate in sectoral silos and that all economic activity is intertwined.

The construction sector was among the examples he cited to illustrate the impracticality of the Level 4 lockdown restrictions.

Papenfus said the manufacturing of construction material is allowed from May 1 but the construction industry is only partially opened, and mainly in respect of public works projects.

“It is simply counterproductive to open the manufacturing of construction material but not construction itself,” said Papenfus.

“In this regard, and in terms of health considerations, we may perhaps take advice from Italy where construction is one of the first activities that they will declare open as soon as their lockdown ends,” he added.

Why are public and private sector contracts treated differently?

Roy Mnisi, executive director of Master Builders South Africa, said on Monday it does not see the need for the government to differentiate between public and private sector contracts because “the risks are the same and they play similar roles in the sector and in the rebuilding of the economy”.

Mnisi said the task team has made another submission to the government after the release of the various lockdown levels.

A chance to save the sector

“We are hoping that any time from now we will see the whole of the construction sector go back on site and are expecting that to happen as soon as possible,” he said.

Mnisi said the construction sector was struggling even before Covid-19, with jobs being shed and companies closing down, which means the timing of the pandemic is devastating for the industry.

“But if government were to work with the industry and find ways that we can make sure the infrastructure development programmes are all rolled out, we will be igniting economic participation by the private sector and stand a chance of salvaging, or if you like, saving the construction industry,” he said.

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Is the construction industry not proud of its sacrifice to ensure that some elderly people with co-morbidities are better accommodated in intensive care? Well only maybe, because there’s absolutely no crush on the hospitals at the moment.

Let’s see. 140 000 jobs, that’s about half a million lives ruined. To save, to date, about 200 people in intensive care, who wouldn’t have been turned away anyway.

Who in their right mind could equate these two positions? Oh, and the construction sector is just a small part of the sacrifice. Seems there could be 7m jobs at stake before this is all over.

Well, it’s our government who could. Plus the WHO who think we’re doing a great job.

Destroying our economy in their finest moment.

By this time it seems as if the “predictions” are becoming “hopes”. Everything is counted in desperation to get the numbers up- even if you break your arm and test positive you become a covid statistic. This will be recorded as the most idiotic moment in RSA history, proudly presided over by our president-in-name and new politburo.

…..the real cause for the lockdown …is cigarettes and Nkosazana Dlamini-Zuma’s ego

Should have been opened.

Wearing dust masks, gloves etc. is common in construction and social distancing can easily be maintained with limited changes to safe work procedures.

A few other small adjustments to operations required.

I am sure that the “Command Council” is at present looking for reasons why they CANT open it. What if they used the approach of.

WE ARE GOING TO OPEN CONSTRUCTION. What do we need to put in place to get it open ASAP.

Problem is there is NO ability to even think this way. Because of the “collective” factions, political games, lack of intelligence and lack of strong leadership.

Might be a worst case scenario.

So true… they are completely mired in their own perspective and cannot think creatively about how to solve a problem. It’s just ONE solution to everything and when it is criticised they retreat into the boma and double down. This is the reason this country has been unable to progress for 25 years!

From now on we can blame all RSA’s failures on Covid19. Starting with Apartheid of course.

The health of the construction industry is a proxy for the health of the economy, which is a proxy for the economic policy of the government. When the Central Planners are divided when they have to decide whether they should allow people to smoke, use alcohol, eat hot food, wear a mask, ride in a taxi, walk a dog, stand next to each other or go to school, then they haven’t got time to spend on the unimportant stuff like the economy and job creation. When immature citizens empower politicians to treat them like children, wipe their noses for them, tell them how to behave and what to think, then those citizens cannot expect more than a meagre allowance from life.

The construction industry, like the mining industry, the agricultural industry and the hospitality industry was destroyed by the populist ANC dogma of redistribution. The Tripartite Alliance with the labour unions, the communist party and the communalist masses, represented by the ANC, has turned the economy into a manifestation of their collective mindsets. The dilapidated state of the construction industry is an accurate reflection of how the collective understands economics. Since their understanding of economic won’t improve, it is clear that nothing can save the construction industry. The construction industry is a leading indicator. These Central Planners, these intellectual dwarfs who determine our future, will benefit only the funeral industry. The funeral industry will have a constant supply of raw material, and growing demand, but nobody will connect the dots. The ANC is the mechanism that turns construction workers into grave diggers.

I think you are correct Sensei, as usual. If the ANC CPC was really concerned about employment they would weigh up which jobs cost the least and delivered the most value, then make sure these industries were opened. I suspect construction would be near the top, particularly as most of the work is building or maintaining the permanent infrastructure a country needs to run efficiently, much of it government owned.

Sadly I suspect that the ANC CPC cares only about themselves and their chums, concern about the SA economy and employment has always been well down the list. So most of government spending (and borrowing) is on salaries and grants keeping the voters loyal; screw jobs and the economy.

Absolutely nailed it again Sensei. I do have a caution – you cannot call them intellectual dwarfs !! That would be discriminatory of course.

They are severely incapacitated, mentally deficient individuals that suffer from rapid mouth movements and illogical actions perceiving their behavior as normal and expecting everyone to follow suit !!!!

It doesn’t make sense that taxis can run (full) but this sector can’t operate.

This industry was suffering pre-covid 19, but keeping it closed is stupid.

An indicator of the collective intelligence level is the burning desire to suddenly restart SAA.

Like the tuck shop at Alcoholics Anonymous only selling booze.

This is prevalent at all levels and in all departments.

Livelihoods before lives otherwise lives will become meaningless as is already happening. Corruption and incompetence are deadly diseases far worse than any contagion agent. Normality will never return under this Tripartite regime.

We have a construction sector…?!

We have not a construction sector for some time now………….

It was reported on SABC that SASSA double paid many grant recipients.

In other countries the Minister would get fired for this. Not in SA. Why not?

How do the 3 different scenarios sum to more than 100% probability?

The negative impact on the construction sector, and all other sectors and industries that find themselves in this dire way, is a result (effect) of the lockdown, not of the virus, as is so widely reported.

End of comments.

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