Construction sector recovery to take a while

26 October 2021 | Economics

Simonis Storm; "We remain largely doubtful of the sector achieving positive growth in the short run."

Windhoek ∙ [email protected]

For the past five years, the construction sector continued with a downward trend. The sector recorded negative growth rates of 41.1%, 23.1%,10.7%, 4.4% and 9.8% in 2016, 2017, 2018, 2019 and 2020, respectively, according to the Namibia Statistics Agency (NSA).

The sector recorded a decline of 16.9% during the second quarter of 2021 and 23.9% during the first quarter of 2021.

This is due to sharp declines in government expenditure on construction projects and the real value of buildings completed, the Bank of Namibia (BoN) pointed out. The central bank projected the sector to contract by 9.8% this year and grow by 2.6% in 2022.

Construction expenditure between 2016 and 2020 averaged N$3.5 billion, with 2016 recording the highest figure of N$4.7 billion and 2020 recording the lowest figure of N$2.8 billion, statistics in the NSA annual national accounts indicated.

According to Simonis Storm (SS) building statistics report for September, many construction businesses closed down over the years and most construction companies currently operate at a loss.

The last official figures show that employment in the sector dropped by 28.5% in 2018, and it is likely that additional jobs were lost between 2018 and 2021.

Debt instruments such as personal loans, loans and overdrafts have largely assisted these companies in keeping their doors open. At least low interest rates have reduced debt servicing costs to an extent.

The repo rate currently stands at its historic low of 3.75%, while the prime lending rates for local commercial banks stand at 7.50%.

“While Bank of Namibia (BoN) expects the industry to record growth of 2.6% in 2022, we remain largely doubtful of the sector achieving positive growth in the short run,” SS said.

Year to date, the City of Windhoek (CoW) has received 2 317 plans and approved 1 951. This leaves a backlog of 366 plans that must still be approved, SS said.

August had a backlog of 100 plans waiting for approval, this has been finalised in September, hence the 100 difference in plans received and approved.

Year to date, 1 112 building projects have been completed. However, this includes plans that were approved in prior years. A total of 284 building projects were completed during September 2021, compared to 166 in August 2021 and 81 in September 2020, up by 250.6% year-on-year.

The 284 projects completed in September 2021 had a value of N$124 147 623, with housing projects valued at N$75 575 308, additions at N$44 727 315 and walls at N$3 845 000, whereas 81 projects were completed in September 2020 with a total value of N$116 940 427.

The value of approved plans in September 2021 was mixed across high-income and middle- to low-income neighbourhoods in Windhoek.

Year to date, the value of plans approved is below the value of building projects completed. On average, about N$85 million of value per month still needs to be unlocked if actual valuations of building projects match the valuations on approved plans. This is dependent on whether the project owners have funding to commence and complete their approved building plans, SS said.

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