Collapse of one of South Africa’s largest employers

South Africa’s construction sector remains a shell of its former self, with its employment and output continuing to decline year-on-year.

The sector’s contribution to the South African economy has declined by 33.7% over the past eight years and is struggling to return to its pre-pandemic levels. 

This has been driven by a myriad of factors, including elevated interest rates and insufficient government expenditure on infrastructure and other economic projects.

Economist Dr Roelof Botha explained that these factors have stymied the industry’s recovery along with the hangover from South Africa’s state capture era. 

Botha presented the latest Afrimat Construction Index (ACI) for the first quarter of 2025, which showed a 2.6% year-on-year decline for the industry. 

This is despite the optimism created by the formation of the Government of National Unity (GNU) and a significant reduction in load-shedding.

Botha said the index’s reading is a clear reflection of the government’s lack of willingness to spend on economic assets to grow the economy, preferring to spend tax money on consumption. 

The reading shows a continued decline in the output of the construction sector, despite seasonal bumps at different points. 

“Following a sharp drop during the pandemic, the ACI recovered swiftly to within a whisker of its pre-COVID level, but the recovery was then stymied by a combination of inadequate fiscal support for infrastructure expansion,” Botha said. 

This was combined with the hangover from the state capture era, during which the effectiveness of several key state-owned enterprises and other public sector agencies was eroded. 

These companies and institutions are vital sources of demand for the construction industry, with infrastructure expenditure being particularly important. 

“Over the past two years, these problems have been exacerbated by the South African Reserve Bank’s restrictive monetary policy, leading to the highest lending rates in 15 years,” Botha said. 

Property development is one of the most sensitive sectors of the economy to interest rates, with elevated borrowing costs resulting in the decline in the real value of building plans passed by large metros and municipalities. 

The graph below shows the ACI since the first quarter of 2019, reflecting the sector’s difficulty in returning to its pre-pandemic levels. 

Impact on employment

Construction is the most labour-intensive sector in the economy and is particularly important for its role in absorbing semi-skilled workers. 

However, its continued output has impacted employment in the sector, with it entering a deep recession according to Botha. 

Yearly construction sector wages and salaries have declined from R33 billion in 2019 to less than R24 billion in the first quarter of 2025. 

Employment has seen a similar decline, with the sector shedding around 100,000 jobs in this time period. 

Stanlib chief economist Kevin Lings said that the performance of South Africa’s labour-intensive sectors is dismal, considering the need for economic growth and employment. 

The South African construction sector has declined in each of the past eight years, contracting by a total of 33.7% in that period.

This is likely to have translated into thousands of South Africans losing out on employment opportunities in this sector, exacerbating the country’s unemployment crisis.

The largest drag on the construction sector has been the emergence of the so-called ‘construction mafia,’ which costs the country billions of rands annually and hobbles vital infrastructure development. 

This mafia first emerged in 2015 and operated at a relatively small scale, disrupting a handful of construction projects in Gauteng. 

It has now evolved into a nationwide network that has held the country’s construction sector ransom, with JSE-listed WBHO and Stefanutti Stocks warning of its impact. 

WBHO and Stefanutti have repeatedly said in their annual reports over the past two years that they have been negatively impacted by disruptive and unlawful activities by informal business forums in South Africa.

Roelof Viljoen, national project manager at Business Against Crime South Africa (BACSA), warned that construction firms need to plan for the worst, as construction mafias have become ingrained in South Africa with no signs of reversing.

“Extortion in the construction sector has reached worryingly high levels, derailing and delaying projects worth billions of rands,” he said. 

The graphs below show the declining employment in the construction sector along with a sharp reduction in the value of wages and salaries.