Civil construction goes from bad to worse as confidence hits record low

28-03-2019
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Fin24
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The performance of the civil construction sector in South Africa has gone from bad to worse and the FNB/BER Civil Confidence Index fell to its lowest level on record in the first quarter of this year. This was after it remained largely unchanged in the fourth quarter of 2018.

About 90% of respondents indicated they are not happy with prevailing business conditions.

'Really struggling'

"Overall, these results are consistent with the broader developments in the market, following the demise of another big construction company, Group Five, two weeks ago," Siphamandla Mkhwanazi, property economist at FNB, said in a statement on Tuesday.

"Civil contractors are really struggling."

Earlier in March, Group Five entered business rescue and had its stock suspended from trading on the JSE. The stock was suspended at 89 cents per share.

Other South African construction companies forced into business rescue in the past year include Basil Read Holdings and the Liviero Group.

Mkhwanazi cautioned that civil contractors should brace themselves for continued weak demand, as it will be difficult to predict a turnaround from the latest results.

According to FNB, the drop in confidence can be explained by a further slowdown in activity growth, from already depressed levels. This, in turn, impacted profitability.

In the first quarter, the index shed 8 points to register its lowest level ever, namely 10 points.

According to Statistics SA, the real growth in construction works slowed to 1.1% year-on-year in the fourth quarter of 2018 - from 2.3% in the third quarter of 2018.

Weak demand

The survey also points to continued weakness in demand over the short to medium term.

The index measuring the lack of new work as a business constraint - a proxy for the state of company order books - remained high in the first quarter of 2019.

For Mkhwanazi it is not surprising that the prospects for work are downbeat, given the state of the fiscus and the resultant reduction in infrastructure investment by the public sector.

"In addition, the spike in private sector construction work seen in the official numbers of late may not be sustainable," said Mkhwanazi.