The construction sector contracted by 11.8% during 2020 as activity in this sector declined severely owing to the Covid-19 pandemic.
The decline was mainly reflected in reduced expenditure by the government on civil engineering works.
According to FirstRand Namibia economist Ruusa Nandago, this was a result of the redirection of funds from the development budget towards Covid-19 related expenditure.
Several private sector projects were also delayed during this period owing to uncertainty regarding the pandemic and raw material shortages caused by supply chain disruptions.
“The severe contraction in the construction sector is unsurprising, as the sector entered the Covid-19 pandemic on a weak footing. Prior to the Covid-19 pandemic, the sector’s three-year growth average stood at 11.5% y/y as the weak economy resulted in a slowdown in demand and dampened investor confidence in the sector”, noted Nandago.
The economist explained that this was further exacerbated by the fiscal consolidation drive by the government, which led to a slowdown in the completion of infrastructure projects and delayed payments to contractors.
Furthermore, bottlenecks in public procurement have led to delays in several capital projects, which could benefit the industry. The approval of building plans, a leading indicator of future construction activity, has also been under pressure, averaging -41% in the last quarter of 2020.
Looking ahead, she said the sector is expected to remain under pressure as the government has once again reduced expenditure on the development budget as it faces pressures from a SACU revenue shock and the need to continue redirecting expenditure towards fighting the Covid-19 pandemic.
Similarly, weak private sector investment will likely persist until the economy shows prospects of recovery through much-needed business reforms.