Rise in civil contractor confidence remains weak

FNB economist, Siphamandla Mkhwanazi.
Senior Economist at FNB, Siphamandla Mkhwanazi.

The FNB/BER Civil Confidence Index rose to ‘11’ in 2020’s third quarter from an all-time low of ‘5’ in the second quarter.

Despite lockdown restrictions eased with construction firms resuming operations, activity levels remained ultra-depressed with only a marginal improvement from the second quarter.

The current index means that the majority (almost ninety percent) of respondents are dissatisfied with prevailing business conditions.

From a depressed level of ‘10’ in 2019’s first quarter, confidence rose steadily to ‘24’ in 2020’s first quarter. Because of measures to curb the spread of Covid-19, activity came to a standstill in the second quarter and understandably confidence fell sharply. It is disappointing now with the restrictions on construction sector activity lifted that confidence remained this low in the third quarter. Essentially, all the confidence gains of the twelve months prior to 2020’s second quarter have been wiped out,” comments Siphamandla Mkhwanazi, Senior Economist at FNB.

Underpinning the low confidence was continued pressure on activity, which while improved compared to the second quarter of 2020, is likely well below the level recorded in 2019’s third quarter. According to Statistics South Africa (Stats SA), the real value of construction works declined by 30.9% year-on-year in the second quarter of 2020 after a muted contraction of 1.9% year-on-year in the first quarter.

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,” he cautions.

Downbeat prospects for work over the next few quarters also kept confidence low. In 2020’s third quarter, a slightly higher percentage of respondents – than the already evaluated level in the second quarter – 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 more aggressive competition by contractors for the little work which is available,” he says.

The FNB/BER Civil Confidence Index increased by ‘6’ points to ‘11’ in 2020’s third quarter. Confidence remained low due to continued weak demand which is expected to persist over the short term.

There has been an increased focus (and talk) about infrastructure development as a mechanism to boost economic growth post the pandemic. These results suggest that this has not yet translated into tangible opportunities for civil contractors. One can only hope that this will change, and that work will pick up over the next few months or quarters because without it this sector will remain on the back foot,” concludes Mkhwanazi.

About the survey:

The FNB/BER civil confidence index can vary between a maximum of ‘100’ (which indicates that all respondents were satisfied with prevailing business conditions) and a minimum of ‘0’ (indicating that all respondents were dissatisfied). A level of ‘50’ indicates that the respondents are equally divided between those satisfied and dissatisfied. The fieldwork for the third quarter survey was conducted between the 12th and the 31st of August 2020.