Consulting Engineers South Africa’s (Cesa’s) biannual economic and capacity survey has indicated positive news for the period January to June, noting that construction sector confidence had seen growth for the first time in six quarters.
However, confidence levels in the consulting sector deteriorated for the current quarter, reaching a record low, with the least confident consulting engineers since the survey started in the mid-1990s.
“We can only assume that the growth in the construction sector was driven predominantly by the private sector, with an improvement in both private building plans passed and completed in the second quarter, while the civil engineering industry is in survival mode,” stated Cesa CEO Chris Campbell.
He added that, on the civil engineering side, there has been a backlog of connection projects to the grid; however, Energy Minister Jeff Radebe vowed to move this process along, which contributes to the uptick in construction sector confidence.
The latest Cesa survey showed that people were worried about the outlook for the economy. Although the lowest ever confidence levels among consulting engineers was reported, respondents were, nonetheless, optimistic about the future.
“We have to start adapting to a low-growth environment as the outlook for infrastructure spending is being hampered by poor economic growth, lower-than-expected revenue by government, international economic instability and price volatility, and low private sector confidence,” Campbell remarked.
Confidence in the consulting engineering sector lags business sentiment, he said, adding that overall business confidence deteriorated to a level of 39 in the second quarter of the year, which is down from 45 in the first quarter, when “Ramaphoria” prevailed.
Business confidence averaged below the 50-point level over the past seven years, owing to an uncertain outlook on interest rates and inflation, slowing economic growth and now further constrained by political instability, policy uncertainty and credit rating downgrades, noted Campbell.
“Market sentiment among the private sector is important to the engineering industry, since the private sector contributes on average nearly 40% to total earnings. It is important for confidence levels to be restored to a level of between 60 and 70 to stimulate investment.”
Further, economic indicators suggest that investment in relation to gross domestic product (GDP) will be slow over the medium term, owing to low government spending, financial constraints experienced by State-owned entities and weak private sector confidence.
Gross fixed capital formation (GFCF) as a percentage of GDP averaged at 9.5% in 2017 overall, and was at 9.4% in the second quarter this year.
The National Development Plan has set the target of 30% contribution of GFCF to GDP by 2030, which Campbell pointed out now looks like a rather optimistic goal.
Meanwhile, Cesa’s survey found many consulting engineering firms were in survival mode.
Regulation issues, including the procurement of consulting engineering services, remained one of the biggest challenges faced by the industry.
“Unrealistic tendering fees remained a concern for members, while the extended time to finalise a proposal was affecting profitability in the industry,” said Campbell.
Fee earnings in the first half of the year decreased by 10% compared with the second half of 2017, which is quite a big drop in such a short span of time.
The number of firms looking for engineers decreased to 20%, from 51.7% in the previous survey, with a notable decrease in demand for technicians to 3%, down from 73.4% reported two surveys ago.
Demand for other technical staff increased in the latest survey to 18%, up from 3.7% in the previous survey.