The water crunch facing South Africa's economic hub of Gauteng and the proliferation of construction mafia activities, which have stopped projects valued at R63bn over the past five years, are weighing on business sentiment.
The fourth-quarter RMB/BER business confidence index (BCI), published on Wednesday, shows while overall business sentiment is on an upward trajectory, companies are still concerned about logistical bottlenecks and water challenges facing Gauteng.
“A common saying is that confidence is the cheapest stimulus for an economy, which makes the current uptick supportive for improved activity and investment down the line. However, we are not out of the woods yet. Respondents expressed concerns about red tape, high administrative costs and crime and corruption, especially flagging the construction mafia in the building sector,” said Isaah Mhlanga, chief economist at RMB.
“Like in the previous quarters, the logistical constraint remains severe, with a particular growing concern about the water crisis in Gauteng. As such, swift, committed and continued efforts to implement the structural reforms, particularly in the logistics and water sectors, among others, are required to lift the constraints on the growth of the South African economy that will go a long way in supporting a continued recovery in confidence, investment, economic growth and much-needed job creation in due course.”
On Tuesday, the Treasury said construction mafias, which demanded stakes in projects, had disrupted nearly 200 projects valued at R63bn since 2019, with the government looking to crack down on the practice.
Corporate law firm Cliffe Dekker Hofmeyr (CDH) warned last month that the lawlessness posed a risk to the industry and had put a serious dent in South Africa's real-estate sector, driving up costs, delaying projects and deterring investment.
Despite property investors being worried about construction mafias, the BCI shows that sentiment among building contractors rose by a hefty 10 points to 51 in the fourth quarter, the best level in 10 years.
With South Africa's energy woes having subsided, the water crunch facing Gauteng has increasingly been making the headlines.
Commercial property owner Redefine warned in July that disruptions to water supply in Gauteng far outweighed the effects of load-shedding. Water outages posed a greater threat to business operations and could lead to commercial buildings becoming uninsurable, the company told Business Day.
Redefine has set aside more than R200m for the installation of new water tanks to guarantee water supply for up to five days at its Gauteng properties.
Property investment company Attacq has also started a project to manage being without water for up to five days as shortages become a feature in Gauteng, where its assets are concentrated.
Johannesburg Water’s business plan for 2023/2024 reveals an infrastructure backlog of R24bn, underscoring the infrastructure challenges in the province.
The BCI shows sentiment in the manufacturing sector is at a three-year high, supported by higher domestic and export demand.
However, confidence among new vehicle dealers is waning, reflecting a plunge in sales of new vehicles this year — as consumers flock to purchase used cars.
Manufacturing data from Stats SA shows production fell an annualised 0.8% in September, with the motor vehicles, parts and accessories, and other transport equipment sectors being the main culprits, falling 18.7% and accounting for 1.7 percentage points of the overall decline.
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