FNB senior economist Siphamandla Mkhwanazi
FNB and the Bureau for Economic Research’s Civil Confidence Index (CCI) has increased by two index points to 43 in the third quarter of the year. That is 19 points higher than the third quarter of 2022.
FNB senior economist Siphamandla Mkhwanazi says the improved business mood was supported by a continued rise in construction activity and lower tendering competition.
On a quarterly basis, an increase from 41 in the second quarter to 43 in the third quarter suggests that conditions in the civil construction sector have noticeably improved, especially in respect of availability of work.
The index has now been around 40 points three consecutive quarters.
Mkhwanazi points out that even though the majority of respondents are still dissatisfied with prevailing business conditions, the current reading is above the long-term average.
According to Statistics South Africa, growth in the real value of construction works grew by 6.6% quarter-on-quarter in the third quarter, following another 6% growth rate in the first quarter.
The latest CCI results point to continued growth, albeit at a slower pace than that recorded in the first half of the year.
It is also important to appreciate that although the recent growth in construction works fixed investments is most welcome, real outlays remained more than 9% below the pre-Covid-19 level, or the fourth quarter of 2019, Mkhwanazi notes.
Better activity also supported overall profitability and, with more work, competition among contractors was also less keen. Indeed, the index measuring tendering price competition was at its lowest since 2014.
Adding to the optimism is the upbeat outlook for work in the last quarter of the year. This is reflected in respondents’ own expectations and the decline in rating of the lack of new demand as a business constraint.
Mkhwanazi says civil construction activity has risen on the back of investments in renewable energy, as well as more tendering activity in roads and water infrastructure, which has boosted profitability.
There are signs that the current level of activity will be maintained, at least over the short term.
However, given the sector’s reliance on public infrastructure spending, the recently recommended National Treasury spending cuts could dampen some of the optimism, while further generalised economic weakness remains a concern, Mkhwanazi concludes.