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Survey indicates that SA civil construction sector is struggling

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The survey by FNB/BER Civil Confidence Index indicates that the majority of respondents in the South African Construction sector are dissatisfied with prevailing business conditions.

Sentiment in South Africa civil construction sector, as measured by the First National Bank (FNB), increased to a still-low level of 11 in 3Q2020, from 5 in 2Q2020, a new survey has shown.

Siphamandla Mkhwanazi, Property Economist at FNB said that things had started to look up in the first quarter of 2020 when Covid-19 hit the country bringing the economy to a halt.

“From a depressed level of 10 in 1Q2019, confidence rose steadily to 24 in 1Q2020. Then, because of measures to curb the spread of Covid-19, activity came to a standstill in Q2 and understandably confidence fell sharply,” observed Mkhwanazi.

He expressed disappointment that while the restrictions on construction sector have been lifted, confidence remained low in the third quarter.

“Essentially, all the confidence gains of the 12 months prior to 2Q2020 have been wiped out,” remarked Siphamandla Mkhwanazi.

Underpinning the low confidence was continued pressure on activity, which, while improved compared to 2Q2020, is likely well below the level recorded in 3Q2019.

According to Statistics South Africa (Stats SA), the real value of construction works declined by 30.9% year-on-year (y-o-y) in 2Q2020, after a more muted contraction of 1.9% y-o-y in 1Q2020.

“While this quarter’s survey results suggest a further fall in activity in 3Q2020, it is unlikely that it is as dire as registered in 2Q2020. That said, a mild decline such as registered in 1Q2020 is again way too optimistic,” cautioned Mkhwanazi.

Downbeat prospects for work over the next few quarters also kept confidence low.

In 3Q2020, a slightly higher percentage of respondents – than the already elevated level in 2Q2020 – stated that the demand for new work, a proxy for company order books, was insufficient given normal business requirements.

In addition, tendering competition intensified. “Given current demand conditions, what we are seeing in the survey results is that the lack of work has resulted in a more aggressive competition by contractors for the little work which is available,” noted Mkhwanazi.

South Africa has given infrastructure construction top priority to help recover the economy that has been negatively affected by Covid-19. But if the survey is anything to go by, the plan is yet to materialize.

“One can only hope that this will change and that work will pick up over the next few months or quarters otherwise the South Africa civil construction sector will remain on the back foot,” remarked Mkhwanazi

 

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