After improving marginally to 42 at the end of last year, the FNB/BER Civil Confidence Index lost 14 points in the first quarter of 2106. This is the lowest value since the end of 2011, and indicates that more than 70% of respondents are dissatisfied with prevailing business conditions.
According to the South African Reserve Bank (SARB), growth in the real value of construction works accelerated to 4.0% year-on-year in the fourth quarter of 2015, from 3.7% in the previous quarter. Construction activity was largely supported by capital outlays by provinces and municipalities while capital expenditure (capex) by private enterprises, particularly in the mining sector, remained weak.
“The current survey results suggest that, following the mild uptick in the fourth quarter of 2015, growth in construction works likely eased in at the beginning of 2016,” ,” says Jason Muscat, Senior industry analyst at FNB. “As a consequence of the lower growth in construction activity, tendering competition intensified for those projects that are available.”
The percentage of respondents that indicated tendering competition as keener rose noticeably in Q1 2016, to a five-year high. Survey respondents expect an improvement in construction activity next quarter. However, other data suggests that the remainder of 2016 may see construction work slow further, particularly given soft demand, FNB said in a statement. The percentage of respondents that rated insufficient demand for new construction work as a business constraint jumped to 85, a four-year high.
“Although the national budget speech was tabled towards the end of the survey period, the high rating of the lack of new demand as a constraint could already be reflecting the downbeat near-term outlook for public sector (including government and state owned enterprises) capex. This is especially relevant given that the public sector remains the construction industry’s single biggest client,” says Muscat.
Despite the lower activity and higher competition, overall profitability remained relatively stable, according to the research.