Civil confidence index edges higher, but lack of work remains a concern

Civil confidence index edges higher, but lack of work remains a concern





The civil confidence index ticked up slightly to 17 points in the third quarter, but despite the improvement, underlying indicators worsened in the quarter and industry respondents remained dissatisfied with prevailing business conditions.

The civil confidence index, compiled by First National Bank (FNB) and the Bureau for Economic Research, improved from 13 points in the second quarter.

A lack of new work is a concern in the sector, with underlying indicators relating to activity and profitability explaining the continued pessimism in the sector.

“The civil construction sector relies very heavily on a struggling public sector. Therefore, the recent gazetting of the amendments to schedule 2 of the Energy Regulation Act, further progress toward developing renewable energy projects through the IPP programme and the draft version of the National Infrastructure Plan are welcome. However, this is only of value to contractors when the work materialises. Until then, activity will remain subdued,” said FNB senior economist Siphamandla Mkhwanazi.

The index has been around the 20-point mark since the middle of 2017. A level of 50 indicates that respondents are equally divided between those satisfied and dissatisfied.

The current index level means that the vast majority (more than 80%) of respondents are dissatisfied with prevailing business conditions.

Underpinning the sustained low confidence was a slowdown in construction activity.

Mkhwanazi said that there “wasn’t as pronounced a jump in investment in construction works as seen in other major asset classes” in the second quarter, and that it was only 6.5% year-on-year.

He explained that this was partly because the decline the year before was less steep than experienced in some of the other fixed investment categories. Nonetheless, the survey results point to a slowdown in the growth momentum this quarter.

While tendering competition eased somewhat, Mkhwanazi said that this was not enough to offset the adverse effect of the lower activity on profitability, which deteriorated. This also likely kept a lid on confidence.

Also of concern is the outlook for construction activity.

A very high percentage of respondents continue to bemoan the lack of new construction demand.

“While the annual results of some larger firms revealed an improvement in domestic order books, this quarter’s survey results suggest that this is not the experience of the broader sector,” noted Mkhwanazi.

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