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Sentiment among civil contractors sours

Home Infrastructure Construction & Civils Sentiment among civil contractors sours

THE FNB/BER Civil Confidence Index, after rising steadily between 3Q 2020 and 1Q 2021, plunged to 13 from 21 this quarter, 1Q 2021.

“In other words, the current index level means that the vast majority (close to 90%) of respondents are dissatisfied with prevailing business conditions,” said Siphamandla Mkhwanazi, Property Economist at FNB.

He cited data from Statistics South Africa which showed that the real value of investment in construction works declined by almost 18% year-on-year in 1Q 2021 and that that due to base effects, annual growth would likely rebound noticeably in 2Q 2021.

“While in the official data, growth in construction works will be higher in 2Q 2021, the survey data suggests that this is not the experience of the majority of respondents. Indeed, against expectations of an improvement, the index measuring activity was unchanged between 1Q 2021 and 2Q 2021. This could have weighed on confidence,” Mkhwanazi said.

Also stunting confidence was keener tendering competition. Firms are having to price tenders more aggressively (i.e., with narrower profit margins) in order to secure work.

Regarding the outlook, the demand for new construction work remains scarce. This is further complicated by procurement delays, especially in the public sector, Mkhwanazi said, adding that there was a rise in the number of survey respondents who commented that the amount of time between tender closing date and tender adjudication is increasing, to the detriment of firms.

“It’s highly unlikely that, on an annual basis, construction activity will contract again in 2Q 2021. However, against expectations, it does seem as though the momentum in construction activity seen since 3Q 2020 has stalled.

“Furthermore, the percentage of firms that find new construction demand to be elusive remains elevated. This suggests that activity growth may be restrained beyond the low base induced improvement over the near term,” he said.

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