After moving marginally higher to ten in the second quarter, the FNB/BER Civil Confidence Index increased further to 24 in the third quarter, which is a level last reached in the first quarter of 2020.

However, even though the index registered a gain of 14 points, the vast majority of respondents are still dissatisfied with prevailing business conditions. The current index level means that more than 75% of respondents were dissatisfied with prevailing business conditions, says FNB senior economist Siphamandla Mkhwanazi.

“Confidence remained relatively low despite a marked increase in near-term construction activity. This is likely because, while construction work is increasing, the level of activity is still below that of previous years. In addition, confidence is also being dampened by other factors, such as weak order books and thin profit margins,” he highlights.

Confidence was buoyed by a marked uptick in activity. Statistics South Africa reported a 9.6% annual decrease in the real value of investment in construction works in the second quarter of the year. The quarter’s survey results point to a moderation in the rate of decline, he notes.

“While there is some activity in the sector, it is not enough to lift growth into positive territory. In addition, part of the better activity is most likely related to the post-flood rebuilding efforts in KwaZulu-Natal, which is temporary,” he explains.

The uncertainty regarding the outlook is further highlighted by the high percentage of respondents that indicated the lack of new demand to be a business constraint. In other words, order books remain weak, capping gains in confidence.

Also weighing on sentiment was a deterioration in overall profitability, despite the higher activity.

“It has become a feature of the survey results since 2020 that construction firms are experiencing severe profitability strain relative to work. During 2020 and part of 2021, the pressure on profitability was largely owing to Covid-19 compliance costs and loss of productivity. Currently, the high cost of materials and security-related expenses seem to be eroding profit margins,” notes Mkhwanazi.