– The FNB/BER Civil Confidence Index edged marginally higher to 17 in 3Q2018.
– Construction activity growth was poor, as has been the case for the past few quarters.
– Overall, conditions in the civil construction sector remain depressed with little sign of improving over the short term.
The FNB/BER Civil Confidence Index increased to 17, from 15 in 2Q2018.
The current index level means that more than eighty per cent of respondents are dissatisfied with prevailing business conditions.
“Civil contractors remained severely pessimistic and with good reason. The current business environment of low activity growth and weak order books have persisted for some time,” said Jason Muscat, Senior Economic Analyst at FNB. Official data from Statistics South Africa (Stats SA) showed a rise in the real value of construction work of 5.2% year-on-year (y-o-y) in 2Q2018, from a 6.3% contraction in 1Q2018. Muscat noted that, “the growth in the value of construction work in the second quarter was surprising. However, our survey suggests that it was unlikely to have been sustained in 3Q2018”.
Order books also came under further pressure in 3Q2018. “While the promise of investment in the renewable energy sector should be a source of activity going forward, for the rest, most notably public sector infrastructure and mining projects, the outlook is bleak,” remarked Muscat.
Despite persistently weak activity growth, tendering price competition eased noticeably. Muscat said “less keen tendering competition has little to do with the state of activity in the industry and more to do with the fact that there are less contractors. This is reflected in the number of major contractors that have gone into business rescue or liquidation since the start of the year”.
In conclusion: Civil contractors remain pessimistic as reflected by the FNB/BER Civil Confidence Index which, at 17, has been below 20 for more than a year. Construction activity growth remains poor and order books suggest that it is unlikely to improve over the short term.
“The current decline in public sector infrastructure spending is really hitting civil contractors hard. However, this may turn around over the medium term if the recently announced fiscal stimulus package, which is pro-infrastructure, is implemented expeditiously,” said Muscat.
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About the survey:
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 those satisfied and dissatisfied.
The fieldwork for the first quarter survey was conducted between 15 August and 3 September 2018.
FNB/BER Civil Confidence Index
Source: BER Stellenbosch University