Conditions for civils remain constrained

Confidence in the civil construction industry rose slightly in the first quarter of this year to partially recover from the sharp deterioration in the fourth quarter, but six in 10 civil contractors were still dissatisfied with the prevailing business conditions. The latest FNB/Bureau for Economic Research (BER) civil construction index released on Tuesday revealed that the index rose by five index points to 40 on a 100-point scale in the first quarter of this year from 35 in the fourth quarter. This represents a partial recovery from the 17 index point slump in confidence between the third and fourth quarters last year.

This follows a report last week that confidence in the building industry rose three index points on a 100-point scale to 43 in the first quarter from 40 in the fourth quarter of last year. This was the third consecutive quarterly improvement in the FNB/BER building confidence index. The survey attributed the improvement in civil contractor confidence to a slight improvement in construction activity. However, it said growth in the sector was likely to be limited by the weak outlook for public sector fixed investment. In addition, the report said overall profitability in the civil construction industry was at its worst level since 2011 and 60 percent of respondents were dissatisfied with the prevailing business conditions. The report referred to Statistics South Africa (Stats SA) calculations that the real growth in construction works improved to 2.3 percent year-on-year in the fourth quarter of last year from 1.3 percent in the previous quarter.

In addition, the report said overall investment in the economy declined by 4.4 percent year-on-year in the fourth quarter. Civil contractors reported a further improvement in construction activity in the first quarter of this year, which likely boosted confidence, it added. Jason Muscat, a senior economic analyst at FNB, said that civil construction activity held up fairly well towards the end of last year, which was mainly due to a recovery in mining investment on the back of higher global commodity prices. Muscat said the survey results for the first quarter suggested a further, albeit marginal, improvement. However, Muscat said that while the renewed investment by the mining sector was positive for construction activity, investment by the public sector remained weak and was expected to be so at least over the short to medium term.

The report said the concern regarding future activity was shared by respondents, with an increasing number of them citing the lack of new construction work as a constraint to their business operations. Muscat said that while construction activity was somewhat higher in the quarter, conditions in the sector were still tough. “Tendering competition remains elevated, which has weighed on profitability,” he pointed out.