Civil construction confidence index increases marginally

© Alexey Klementiev – za.fotolia.com

Despite the rise in confidence, the current level of the index indicates that close to 60% of respondents are dissatisfied with prevailing business conditions.

"Civil contractors were relatively downbeat for much of 2015. After averaging 51 index points in 2014 and 53 in 2013, confidence averaged only 41 in 2015," said Jason Muscat, senior industry analyst at FNB.

The change in the fortunes of civil contractors is largely due to a slowdown in construction activity. According to revised figures from the South African Reserve Bank (SARB), the growth in the real value of construction works rose by an annual rate of 5.2% in 3Q2015, a far cry from the average of 15.1% in 2014.

State-owned enterprises

The current survey results suggest that the growth in construction works likely slowed in 4Q2015. "Although work from provinces and municipalities has held up well, weak spending on construction by state-owned enterprises and the private sector continues to weigh on growth," added Muscat.

Overall profitability saw a noticeable improvement during the quarter as tendering competition eased, lifting confidence. Confidence was further boosted by respondents' expectations that construction work and profitability will be noticeably better in 1Q2016. "Respondents' predictions have been very inaccurate in the past, and while it contributed to the uptick in confidence in 4Q2015, it is probably too optimistic," said Muscat.

The percentage of respondents citing new demand as a constraint to business operations was somewhat lower in 4Q2015, although still relatively high.

Although confidence edged higher in 4Q2015 on the back of a marked improvement in profitability, the majority of civil contractors remain dissatisfied with prevailing business conditions. Growth in construction work likely slowed during the quarter and is set to remain fairly subdued over the short- to medium-term. This is largely due to the demand for new work which, albeit slightly higher in 4Q2015, continues to be relatively scarce.