Small and medium contractors being ravaged

25-07-2019
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Moneyweb
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Likely to lead to even more job losses in the construction sector.

The severe downturn in the construction sector that has destroyed much of the capacity of the listed property sector is starting to ravage small and medium contractors and is likely to lead to further job losses in the construction industry.

The Construction Industry Development Board (CIDB) said its second quarter small and medium enterprise conditions survey revealed that building and construction industry conditions had gone “from bad to worse” and once again confirmed the woeful state of the South African building and construction industry.

Confidence levels down

Building confidence ticked down to 30 on a 100-point scale from 33 as building activity slowed even further, while civil engineering confidence fell from an already depressed 31 index points to an all-time low of 26.

David Metelerkamp, senior economist at construction market intelligence firm Industry Insight, says the big listed contractors were hit by the downturn first, which affected the smaller contractors last.

But Metelerkamp says that for smaller contractors to have a lack of confidence is a lot more significant than the big contractors because the smaller contractors are generally happy if they are currently working on one job.

“The fact their confidence is so bad shows you how bad it is because that means they are literally looking for work whereas the bigger contractors are always busy although they obviously have less and less projects that are ongoing at the same time.”

Metelerkamp says the lack of confidence among small and medium contractors will definitely lead to job losses.

“The majority of the construction sector is the smaller guys. The listed contractors, because of all the retrenchments, have actually become smaller. The jobs that are left have gone to the smaller contractors – and if they are starting to lose work, then times are getting really tough.”

Metelerkamp says a lot of things would have to change for conditions in the construction sector to improve – including political and policy certainty, which is scaring investors and investment away, and the situation at state-owned entities, which is putting government under massive fiscal constraints.

He adds that the economy is at best moving sideways, which is not at all conducive to any improvement in construction activity.

General building affected more slowly

He says it is difficult to forecast when the industry might turn, although general building is unlikely to get much worse – although general building has not yet hit the bottom, the rate of deterioration is happening at a slower rate.

However, Metelerkamp says the civil engineering sector could still deteriorate further despite already being at a record low according to the CIDB survey.

“Sanral [SA National Road Agency] got an increase in their budget, including a bailout, which should also help them. There has been all this talk about big road contracts that are going to go out to tender but it has been extremely slow. Until that happens it definitely can lower.

“We think that will bail the industry out to some degree to stop the bloodbath and to induce a sideways movement environment rather than a continuous fall,” he adds.

Dissatisfaction

Ntando Skosana, project manager for construction industry performance at the CIDB, says the level of confidence is concerning because it implies that almost 75% of respondents are dissatisfied with prevailing business conditions.

She adds that with the exception of a marginal uptick at the end of last year, general builder sentiment had trended downwards since the beginning of 2017.

She says Gauteng is the only province where general builder confidence declined, from 44 to 19 on the index, and that despite upticks in the other provinces, confidence remained below the long-term average.

Skosana says the building activity indicator also suggests that all provinces are experiencing a severe shortage of building work, particularly the Western Cape.

Overall, the results of the survey point to continued and broad-based weakness in construction activity in the second quarter of this year, she says.

“In addition to poor demand currently, there is no sign within the survey data to suggest that activity will improve over the short term.”