In 2023, sales in the construction materials sector in South Africa totaled approximately 135 million USD. The industry employs over 50,000 individuals and maintains significant linkages with downstream mining and manufacturing sectors (Industry ARC, 2024 & Mordor Intelligence, 2024). However, companies in this market are encountering heightened competition and a challenging trading environment due to persistent low levels of economic growth and a downturn in the construction sector (IndustryARC, 2024 & Mordor Intelligence, 2024).
Key Construction Regions
Construction and building activities are predominantly concentrated in Gauteng (26%), the Western Cape (21%), and KwaZulu-Natal (15%). Gauteng is home to two-thirds of South Africa’s major civil engineering and construction firms, with an additional 13% based in the Western Cape. Gauteng also boasts the highest number of registered building contractors in the nation and serves as a significant hub for steel production, particularly around the Vaal Triangle. Although cement manufacturing plants are distributed based on the locations of South Africa’s limestone deposits, the headquarters of the largest cement manufacturers and wholesalers are situated in Gauteng and the Western Cape. Building materials distributors, aligning with their supplier and customer bases, are primarily located in Gauteng, conducting the bulk of their sales in these three key construction provinces (Mordo Intelligence, 2024).
Growth Projections
It is anticipated that South Africa’s construction sector will grow at an average annual rate of 1.3% throughout our forecast period. It is estimated that South Africa’s construction industry expanded by 0.9% year-on-year in 2023, impacted by low activity in the residential and non-residential building sectors and high policy uncertainty ahead of the 2024 elections, discouraging private infrastructure investment. In early December 2023, it was announced that the government would provide USD 2.5 billion in support to Transnet, offering some boost to logistics infrastructure investment and underscoring severe logistics risks in South Africa.
SWOT Analysis of South Africa’s Infrastructure and Construction Sector
Strengths:
- South Africa has the most developed construction market in Sub-Saharan Africa (SSA), second only to Nigeria in nominal value.
- The country boasts a mature banking and financial services sector, comparable to those in developed markets, enabling firms to secure financing for projects domestically.
- The market’s favourable risk profile reduces participation risks.
- South Africa serves as a gateway to its landlocked neighbours and the broader SSA region.
Weaknesses:
- The government’s focus on social spending and weak revenue growth causes delays in state-driven projects.
- Financial troubles and potential closures of major domestic construction companies will exacerbate market stagnation in the short term, as these firms’ expertise and resources are lost, and projects stall.
Opportunities:
- Demand for South Africa’s resources is driving investments in the mining sub-sector and supporting infrastructure, particularly for coal extraction.
- The government is implementing a low-cost social housing program to improve the quality of the housing stock and living conditions.
- As the largest firms lose market share, opportunities will arise for remaining larger firms, smaller domestic players, and international construction companies.
Threats:
- Labour disputes are prevalent in South Africa, causing project delays.
- The increasing debt load of state-owned enterprises, especially Eskom, hampers economic growth and complicates project completion.
- Proposed legislation aiming to extend state control over investment and land matters is eroding investor confidence in the construction sector.
General Overview of Africa’s Construction Sector
With an estimated annual growth rate of 5.4% in the construction industry from 2024 to 2033, Sub-Saharan Africa is expected to experience the highest growth rate of all global regions, despite underperforming compared to its growth during the 2010-2019 period. This growth will be mainly concentrated in East and West Africa, with markets such as Côte d’Ivoire, Tanzania, and Rwanda set to outperform globally. Conversely, Southern Africa is projected to see relatively low construction industry growth over the next decade, due to the subdued performance of South Africa, the largest market in the sub-region (Business Monitor International, 2024).
Opportunities for SMEs
The Construction Industry Development Board (Cidb), in partnership with the Department of Public Works and Infrastructure, offers a national contractor development program that includes training, support, and job opportunities for emerging contractors. Retailers such as Cashbuild and Massbuild collaborate with banks to assist small and emerging contractors (Cidb, 2024 & Department of Public Works, 2024). For instance, Massbuild’s partnership with Standard Bank allows qualifying contractors to purchase up to 65% of their building materials on credit (Retailnews, 2024).
Conclusion
South Africa’s construction market, while currently facing challenges, presents numerous opportunities for growth and investment. With strategic government support, robust infrastructure, and initiatives to assist SMEs, the sector is poised for potential expansion. Investors and businesses looking to enter this market should stay informed on trends and leverage opportunities as they arise.
