Construction sector becoming less relevant

PHILLEPUS UUSIKU

For the past five years, the construction sector has been performing weak due to the reduction in capital expenditure.

Last year, the government only spent N$3.2 billion compared to N$8.1 billion in 2016, a decrease of N$4.9 billion, according to Namibia Statistic Agency (NSA).

Hence, construction expenditure between 2016 and 2020 averaged N$3.9 billion, with 2016 recording the highest figure of N$4.9 billion and 2020 recording the lowest figure of N$3.2 billion.

In nominal terms, as a percentage of Gross Domestic Product (GDP), the construction sector only contributed 1.8% in 2020 compared to 5.5% in 2016, a decrease of 3.7% percentage points.

In real terms, as a percentage of GDP, the sector registered a negative growth of -11.8% in 2020 compared to a negative growth of -41.1% in 2016, the statistics indicated.

According to Simonis Storm (SS), the sector’s value addition in 2020 was just 40% of that in 2015. Due to the already existing low base, its decrease in 2020 was rather modest -11.8%.

No stimulus can be expected from government since capital expenditure will decline from N$6.5 billion to N$5.6 billion in the FY 2021/22. There are no major private sector investments announced either and because of the suppressed disposable income despite favourable interest rates no major increase in demand for residential property is expected, SS added.

Projects

According to Cirrus Capital (CC), after several difficult years, 2020 offered little respite for the struggling construction industry. Government spending was redirected, resulting in paused or cancelled construction projects. Similarly, plans by the private sector were delayed as funds were needed to ensure sufficient reserves to weather the storm, while the demand shock would have caused many to either delay plans for expansion or cancel these altogether. This comes at a time when there is an excess of office and industrial space in Windhoek, and residential property prices in the middle and upper-income segments continue to decline.

The expectation for 2021 is more of the same, as government will run another large deficit and must prioritise its operationally heavy expenditure. Similarly, there are reports of many contractors facing delayed payments by the state for various construction projects, including ongoing road projects. These delayed payments have a much wider detrimental impact, as the delay in payments mean contractors are unable to pay their workers and suppliers, who in turn cannot pay their workers and suppliers, CC said.