The First National Bank (FNB)/Bureau for Economic Research (BER) Civil Confidence Index fell by 17 index points to 35 in the fourth quarter. Barring the first quarter when the index was at 28, confidence is at its lowest since the beginning of 2012.
The fall in the index means that 65% of respondents are dissatisfied with prevailing business conditions, with the lower confidence resulting from deteriorating growth in construction activity, as well as keener competition.
“This was a perfect storm," FNB senior economic analyst Jason Muscat said, adding that the weaker activity, as well as increased tendering price competition took its toll on overall profitability.
“In fact, the index measuring profitability declined to its lowest level in two years,” he highlighted.
Further, Muscat explained that the survey results confirmed “what we have suspected for a while”, that the civil construction sector remained under pressure.
Statistics South Africa figures showed that yearly growth in the real value of construction works contracted by 1.5% in the third quarter, in addition to the 0.3% decline recorded in the second quarter of the year. A large part of the weaker demand stems from a fall in government capital expenditure (capex) amid mounting fiscal pressures.
“The slowdown in government investment is unlikely to be a short-term phenomenon, despite government’s recent commitment to invest more than R900-billion in infrastructure over the next three years,” Muscat said.
Construction work by the private sector, mainly in the mining industry, was probably also lower during the quarter.
Despite the deterioration in their fortunes, civil contractors expect some improvement in activity next quarter. This is somewhat supported by new demand which, although reasonably high, is below its five-year average.
“While it is important to take note of respondents’ expectations, the underlying economic fundamentals do not suggest a much-improved civil construction sector soon,” said Muscat.