Civil contractors more confident as activity grows

Increased construction activity, resulting in higher tender prices and improved profitability in the second quarter of this year, pushed confidence in the civil construction sector to its highest level since the end of 2009. The increase in the FNB/Bureau for Economic Research (BER) construction confidence index in the second quarter was the third consecutive quarterly improvement in the index level. FNB and the BER said the results suggested the recovery was gaining momentum. However, they believed the recovery remained fragile and a number of constraints could thwart the pace of the overall recovery in the future.

The index rose to 38 points on a 100 point scale in the second quarter from 34 in the first quarter. There was a modest increase in construction sector employment levels while profitability improved. However, FNB chief economist Cees Bruggemans said the increase in profitability was lower than the higher prices and increased activity would have suggested. “This is indicative of the type of rising cost pressures civil contractors are faced with,” he said. Bruggemans said part of the cost increases could be explained by the improved employment levels.

FNB and the BER said that in addition to rising costs, respondents remained dissatisfied with the volume of new work available and still rated it as a significant constraint. The lack of skilled labour was becoming more of a concern and had increasingly been mentioned by the industry. PPS, a provider of financial and health-care products aimed at graduate professionals, reported yesterday that its latest quarterly survey of almost 800 engineers revealed that engineering professionals were confident about the future of their profession but the skills shortage was a concerns. Only 40 percent of respondents were confident that the skills shortage would be adequately addressed.

Gerhard Joubert, PPS’s head of group marketing and stakeholder relations, said the results were alarming because the skills shortage had been widely discussed and initiatives put in place. Nevertheless, 84 percent of respondents were confident about the future of the engineering profession. FNB and the BER said the consistent rise in construction activity was an important feature of the recovery, adding that construction activity accelerated in the second quarter. The uptick in activity meant firms had been able to further raise tendering prices, providing additional relief to their balance sheets.

They said the increased activity stemmed from robust capital expenditure by provincial governments and new civil construction activity by public corporations, particularly projects by the Trans-Caledon Tunnel Authority and Airports Company South Africa. However, municipalities continued to struggle with only 41 percent of the total municipal capital expenditure budget spent during the first nine months of the financial year, while it was likely construction activity from the private sector contributed less because mining production slowed.