One South African industry has been shrinking for nine years straight

The South African construction industry is on track for its ninth consecutive year of declining output, with the sector plagued by lacklustre demand and low business confidence. 

This is despite the rest of the economy appearing to perform well in 2025, growing by 2.1% year-on-year in the third quarter. 

Furthermore, the sector’s decline comes amid several government initiatives to boost infrastructure investment and the buildout of private energy generation projects. 

The industry is now a shell of its former self, with iconic construction companies, such as Murray and Roberts, coming under immense financial pressure and entering business rescue. 

More importantly, the industry’s decline is increasingly being felt in the collapse of South Africa’s infrastructure, as the government has failed to adequately invest in maintaining and upgrading infrastructure. 

As the country’s population continues to grow, infrastructure designed and built 25 years ago is no longer able to handle the demands placed on it, resulting in regular breakdowns and interruptions to service delivery. 

Apart from the government, private businesses have also been hesitant to invest in fixed assets in South Africa amid elevated uncertainty and a stagnant economy. 

This has resulted in little work for construction companies, particularly in relation to major projects that were seen in the 2000s. 

As a result of the combination of lacklustre state spending and uncertainty from businesses, the construction industry has steadily shrunk.

Stanlib chief economist Kevin Lings revealed in a recent research note that the sector is on track for its ninth consecutive annual decline. 

This means that the sector’s output has declined year-on-year for nearly the past decade, with little sign of a turnaround on the horizon. 

Lings explained that this is quite surprising, considering the strong performance from most sectors of the South African economy throughout 2025. 

In the third quarter of 2025, SA’s GDP grew by 0.5% quarter-on-quarter. This compares with a revised increase of 0.9% in Q2 2025 and only 0.1% in Q1 2025. 

Over the past year, the economy expanded by a very welcome 2.1%, helped by the upward revision to the prior quarter as well as the fact that almost all economic sectors recorded growth in the quarter. 

Despite this, sectors such as the construction industry remain in decline. South Africa’s mining and manufacturing industries also remain under pressure. 

These industries are particularly important for South Africa in its efforts to reduce unemployment, as they are able to relatively quickly absorb low-skilled workers. 

The weak link

Despite the construction sector’s current declining fortunes, there are glimmers of hope coming from the steady implementation of the government’s reform agenda. 

This agenda should see the private sector play a much larger role in the South African economy, particularly in the key sectors of energy and logistics. 

Economists expect this to result in significantly more fixed investment from the private sector in South Africa’s economy, boosting the construction sector. 

This is crucial in driving faster economic growth in South Africa that can be sustained, with the country’s fixed investment declining sharply since the 2010 FIFA World Cup. 

South Africa’s fixed investment rate as a share of GDP has remained flat at around 14% to 15% over the past 15 years.

This is well below historical highs and far lower than South Africa’s emerging market peers, which typically have fixed investment rates of 20% to 40% of GDP. 

Because of this difference, South Africa’s economic growth has been poor compared to its peers over the past 15 years. 

Emerging market economies such as India, Indonesia, and China have enjoyed economic growth rates averaging 4.5% on an annual basis. 

In comparison, South Africa has been stuck below 1% annual growth as companies are unwilling to invest in the local economy, and the state’s balance sheet is too weak to drive meaningful investment. 

The government has effectively run out of options due to this financial mismanagement and the need for trillions of rands in investment. 

It has to turn to the private sector, which has the capital and expertise to rescue South Africa’s infrastructure and upgrade it to facilitate faster economic growth. Private companies are sitting on around R1.8 trillion in cash in the bank.

South Africa’s GFCF-to-GDP ratio has declined from around 30% in 1976 to 15% in 2024, reflecting subdued investment from private companies, utilities, and the government. 

To arrest this decline, the government has implemented extensive reforms across key sectors to try to increase private participation and investment. 

Coupled with government-led investment packages, this is set to result in around R1 trillion in infrastructure investment over the next three years.