Market confidence in the construction sector is at a four-year high on the back of restored profitability, despite decreased growth in overall construction activity and a prolonged period of intense margin pressure, reports the civil confidence index compiled by the Bureau for Economic Research (BER) and sponsored by First National Bank (FNB).

The rise in profitability was the result of a fall in tendering competition, the FNB/BER civil confidence index indicated.

“However, this improvement could be constrained if construction activity growth continues at the slow pace seen in the first quarter of 2013,” said FNB chief economist Sizwe Nxedlana.

The index jumped to 51 points in the first quarter from 36 in the fourth quarter of last year, registering the highest reading since early 2009, when it was 60, and the single biggest increase since 2004.

“The reading of 51 is relatively positive, especially compared with 2011 and 2012 when the average was 22 and 38 index points respectively,” Nxedlana said.

The FNB/BER civil confidence index could vary between a maximum of 100, which would indicate that all respondents were satisfied with prevailing business conditions, and a minimum of zero, which would indicate that all respondents were unsatisfied.

A level of 50 would indicate that half of the respondents were satisfied, while the other half were dissatisfied with prevailing market trends.

Despite subdued growth in construction activity, this was expected to rebound in the second half of the year, with the report noting that growth in construction activity tended to be volatile.

“The slower growth in the last six months could, therefore, be due to the completion of a number of large projects before new ones were started,” FNB noted.

Moreover, the labour unrest at Eskom’s Medupi power station – which resulted in a ten-week delay in construction work – likely put a damper on construction activity by public corporations during the first quarter.

However, this could have been partially offset by ongoing investment into road infrastructure by the South African National Roads Agency, which most likely drove government spending.

Provincial capital expenditure (capex), in particular, may have increased as departments attempted to complete or initiate projects before the end of the financial year in March.

“It is also possible that municipal spending on capex continued, as government spending often picks up towards the end of the financial year,” the report indicated.

Meanwhile, continued uncertainty in the mining sector may have further inhibited
construction work in the private sector.