Interest rates stifle construction sector

High interest rates and escalating building costs have led to the postponement of approved construction projects and even though plan approvals increased, actual construction activity will continue being subdued in the near term.

The sector only grew by a meagre 0,9% in the first quarter of this year, recording the first expansion since the second quarter of last year, but building plan data from Windhoek show an increase on a monthly basis in plans approved during June, up by 14,8% m/m, from 176 to 202 approvals, while Swakopmund again reported only 45 plans approved, the same as in May.

According to economic researcher Angelique Bock of Simonis Storm Securities, the fact that in the first half of this year (1H2023), a total 1 263 projects were approved compared to 1 615 projects in 1H2022 – a 21,8% decline – further indicates that near-future construction activity is expected to be low.

The researcher further said while pipeline building activity has improved since April 2023, it remains bleak on an annual basis.

“Building plan approvals declined 18,9% year-on-year (y/y) in Windhoek and 50,0% y/y in Swakopmund during June 2023,” Bock said.

“At the same time, actual construction of projects took an upward turn in Swakopmund. Building completions decreased by 33,8% y/y in Windhoek but shot up by 694,4% y/y in Swakopmund in June 2023,” said Bock.

According to the researcher, completions were mainly focused in residential buildings (i.e. houses and flats) – accounting for 57% of projects completed – while additions and alterations accounted for 43% of all completions.

Despite the marginal growth in the construction sector, the real value of building plans approved and completed declined yet again for the fifth consecutive quarter in the first three months of this year, being the only sub-sector that weighed down on construction activity.

“On an annual basis, the real value of building plans approved and completed activity contracted by 13,6% y/y in the first quarter of this year (1Q2023). The real value of government expenditure on construction drove construction gross domestic product upwards, increasing by 13,2% y/y in 1Q2023,” Bock said, adding that increased public spending on construction projects was driven by road and water infrastructure projects in 1Q2023.

However, only three Namibian construction companies (one of them a joint venture with a foreign company) made the short-list of bidders for the road reconstruction project between Karibib and Usakos offered by the Roads Authority of Namibia.

The Construction Industries Federation of Namibia opposed this decision, saying the financial pre-qualification and technical requirements were unreasonable as no Namibian construction company could qualify.

“With local construction firms losing ground to foreign competitors and tenderpreneurs, we remain negative on the outlook of the sector’s profitability and contribution to employment going forward,” said Bock.
– email: matthew@namibian.com.na