The FNB/BER Civil Confidence Index fell to an all-time low of five in the second quarter, as a result of the sharp decline in activity, with many firms having been closed in April and May.
The current index level means that the overwhelming majority (95%) of respondents are dissatisfied with prevailing business conditions.
“It’s not surprising that activity contracted sharply in the second quarter given that the construction industry was in a near total shutdown for much of the quarter, with very few firms able to operate before June 1,” says FNB senior economist Siphamandla Mkhwanazi.
Along with the fall in activity, company order books also waned. “This suggests that the growth in construction works will be under more pressure for the rest of the year relative to our expectations in quarter one 2020,” adds Mkhwanazi.
One counter to the downbeat outlook for the sector is the increased focus on infrastructure development as part of the broader post-Covid-19 economic recovery plan.
Earlier this week, President Cyril Ramaphosa hosted the Sustainable Infrastructure Development Symposium South Africa (Sidssa). The initiative aims to increase engagement between the public and private sectors at every stage of the project life cycle, from planning to financing and implementation. The goal is to “emerge with a fundable infrastructure project pipeline”.
It was announced at Sidssa that 276 projects, with a total investment value of R2.3-trillion, are currently being evaluated. Moreover, 55 of these are considered to be “shovel-ready”.
According to Mkhwanazi, “should these or even just some of these projects materialise, this would provide welcome relief for the civil construction industry. However, this is not the first time that grand plans for infrastructure delivery have been announced only for contractors to be disappointed by a lack of action later on.
"We will only see an increase in confidence once tender activity and tender awards start rising. For now, it is an upside risk to the outlook, especially if private sector funding can fill the gap left by very constrained public finances”.
In addition to the lower activity this quarter, the outlook for new work deteriorated. “For now, the baseline view is that civil construction activity will remain weak for the rest of the year. However, contractors could benefit greatly if current efforts to boost infrastructure delivery through greater public-private sector collaboration succeed,” comments Mkhwanazi.