Confidence in civil construction sector rises to 6-year high | Everything Property
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Confidence in civil construction sector rises to 6-year high

Civil construction
Image: SERR.co.za

The FNB/BER Civil Confidence Index increased by two index points to register a level of 43 in the third quarter of this year. The results suggest that conditions in the civil construction sector, especially pertaining to the availability of work, have noticeably improved over the last few quarters.

The FNB/BER Civil Confidence Index increased marginally to 43 in 3Q2023, from 41 in 2Q2023. Even though the majority of respondents remain dissatisfied with prevailing business conditions, the current reading is above the long-term average. The index has maintained a level around 40 points for three consecutive quarters.

According to the Bureau for Economic Research (BER) website, the FNB/BER Civil Confidence Index reflects business conditions in the civil engineering industry. The index ranges from a maximum of 100 (which indicates that all respondents were satisfied with prevailing business conditions) and a minimum of zero (indicating complete dissatisfaction). A level of 50 indicates an equal split between satisfaction and dissatisfaction. The fieldwork for the third-quarter survey was conducted between 16 and 31 August 2023.

More construction activity

Underpinning the relative optimism is the continued rise in construction activity. According to Statistics South Africa (Stats SA), the real value of construction works grew by 6.6% year-on-year in 2Q2023, up from 6% year-on-year in 1Q2023.

“Civil construction activity has risen noticeably over the last few months due to investments in renewable energy, but also more tendering activity related to roads and water infrastructure. This has boosted profitability and has resulted in a meaningful reduction in tendering price competition,” says Siphamandla Mkhwanazi, senior economist at FNB.

While the survey results for 3Q2023 point to continued growth, the pace may be somewhat slower than in the first half of the year. It is also important to appreciate that although the recent growth in construction works fixed investment is most welcome, real outlays remained more than 9% below pre-Covid-19 (4Q2019) levels in Q32023.

“Encouragingly, there are signs that activity levels will be maintained, at least over the short term. However, the sector’s reliance on public infrastructure spending raises concerns, as the recently recommended Treasury spending cuts and possible further generalised economic weakness could dampen some of the recent optimism,” Mkhwanazi says.

Improved activity has also supported overall profitability, and with more work, competition among contractors has lessened. Indeed, the index measuring tendering price competition was at its lowest since 2014.

Adding to the optimism is the upbeat outlook for work in 4Q2024. This reflects respondents’ own expectations and a decline in rating of the lack of new demand as a business constraint.

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