Confidence in civil construction industry rises to 6-year high in third quarter

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28-09-2023
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The Citizen
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The results suggest conditions in civil construction, especially the availability of work, noticeably improved over the last few quarters.

A continued rise in construction activity and consequently lower tendering competition has led to confidence in the civil construction industry increasing to a six-year high in the third quarter of the year.

The FNB/BER Civil Confidence Index increased by two index points to register a level of 43 in the third quarter from 41 in the second quarter and although from a low base, confidence is now 19 points higher than a year ago.

The Bureau for Economic Research (BER) says although the majority of respondents are still dissatisfied with prevailing business conditions, the current reading is above the long-term average. The index has now been around 40 points for three consecutive quarters.

Siphamandla Mkhwanazi, senior economist at FNB, says underpinning the relative optimism is the continued rise in construction activity. According to Statistics South Africa, growth in the real value of construction works accelerated to 6.6% year-on-year in the second quarter, from 6% in the first quarter.

The survey results for the third quarter indicates continued growth although the pace may be somewhat lower than that recorded in the first half of the year. It is also important to appreciate that although the recent growth in construction works fixed investment is most welcome, real outlays remained more than 9% below the pre-Covid level of the fourth quarter of 2019.

Better activity supported profitability in construction

Better activity also supported overall profitability and with more work to go around, competition among contractors was also less keen, with the index measuring tendering price competition at its lowest since 2014.

Adding to the optimism is the upbeat outlook for work in the fourth quarter, Mkhwanazi says. “This is reflected in respondents’ own expectations and the decline in rating of the lack of new demand as a business constraint (a proxy for order books).”

He says civil construction activity increased noticeably over the last few months on the back of investments in renewable energy, but also more tendering activity related to roads and water infrastructure in general.

“This boosted profitability and resulted in a meaningful reduction in tendering price competition. Encouragingly, there are signs that the level of activity will be maintained, at least over the short term.

“However, given the sector’s reliance on public infrastructure spending, the recently recommended Treasury spending cuts could dampen some of the recent optimism. This is in addition to possible further generalised economic weakness,” Mkhwanazi says.

The FNB/BER civil confidence index can vary between a maximum of 100, which indicates that all respondents were satisfied with prevailing business conditions and a minimum of zero, indicating that all respondents were dissatisfied. A level of 50 indicates that the respondents are equally divided between being satisfied and dissatisfied.

The fieldwork for the third quarter survey was conducted between 16 and 31 August 2023.