Boston, MA -- (ReleaseWire) -- 04/11/2014 -- Our forecasts for a recovery in South Africa's construction industry has played out, and actually performed better than we expected, with full year 2013 real growth coming in at 2.8%. For 2014 we are forecasting 3.4% real growth as the industry's post-world cup slump finally reached a bottom in 2012.We maintain the view that we will see a cautiously positive growth story over our forecast period.
We see annual real growth averaging 3.9% between 2014 and 2018 with downside risks remaining prevalent - namely difficulty in raising capital for projects, currency fluctuations, social unrest and poor policy making.
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Despite still lagging behind its regional peers in terms of growth rate, it is important to note South Africa's construction industry has begun its recovery after the collapse following the world cup in 2010. We are now seeing a return to sustainable growth, noting levels are unlikely to ever return to those seen before the world cup, as they were driven by an artificial stimulus and a frontloading of the project pipeline.
We are seeing a gradual improvement across the South African construction sector, although there are still substantial headwinds stemming from the mining sector and government delays, which are delaying growth in the infrastructure sector. The residential and non-residential sector has been performing well, with Group Five, the construction major with most exposure to the housing sector, outperforming its peers. A push to move all people into formal accommodation by the government and the legislation for the promotion of Special Economic Zones (SEZs) should act as additional drivers to growth.
Many of the grand infrastructure programmes proposed by President Jacob Zuma draw upon huge capex schemes by the country's state-owned infrastructure operators, including Eskom, Transnet, Prasa and Sanral. They all have multibillion-dollar plans in the pipeline; but, financing has proved to be a major obstacle and continues be so. Eskom and Transnet have made progress in issuing bonds to raise capital, but Sanral in particular continues to struggle with huge debts, which threatens investment into the road sector.
The rail and port sectors are a key source of growth in our forecasts as Transnet has front loaded its spending plans with huge capacity expansion projects, for examples a new dug-out port in Durban. The government's consideration of an Infrastructure Development Bill, which would see specially selected projects with significant importance fast tracked in an attempt to get the government's large infrastructure backlog moving.
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