Despite soft growth in the construction industry, the First National Bank (FNB)/Bureau of Economic Research Civil Confidence Index gained 11 points to 52 in the third quarter, 24 points higher than the first quarter of this year.
This indicates that slightly more than half of respondents are satisfied with prevailing business conditions. The higher confidence was well supported by the underlying data, particularly in tendering price competition.
“The less keen tendering competition lifted profitability somewhat. However, it is important to note that tendering competition can ease owing to an increase in the number of tenders or a fall in the number of firms tendering or a combination of the two,” FNB senior industry analyst Jason Muscat said in a statement.
According to Statistics South Africa, growth in the real value of construction works slowed to 0.2% year-on-year in the second quarter, from 4.6% in the first quarter.
On a quarterly basis, construction work was up almost 8%. “The yearly result was somewhat weaker than what last quarter’s survey results suggested. Nonetheless, growth may continue in the third quarter.
“However, a robust quarterly recovery as seen in the second quarter is unlikely," Muscat highlighted.
Further, pressure on public sector capital expenditure as a result of fiscal concerns, paired with mining companies’ reluctance to embark on three costly capacity expansion projects, will weigh on construction activity over the medium term.
While growth in construction activity remained under pressure, respondents noted that the lack of demand for new work had been less of a business constraint.
“This possibly reflects some work coming through, likely from the renewable-energy sector. However, this may not be enough to support the entire industry,” Muscat warned.