In 2020’s second quarter, the FNB/BER Civil Confidence Index only fell to five. Sentiment improved to eleven in the third quarter of 2020 and by a further five points to sixteen in the fourth quarter.
Although better, the current index level means that the vast majority (more than 80%) of respondents are dissatisfied with prevailing business conditions.
Underpinning the higher confidence was some improvement (off a low base) in construction activity. This resulted in an uptick in profitability.
“Relative to the third quarter, the rise in construction activity was not insignificant this quarter. However, it is likely restricted to specific sectors, most notably renewable energy. Moreover, activity remains below that registered just before the pandemic which is still fresh in the minds of contractors. As such, the higher activity was not sufficient to lift confidence meaningfully,” notes Siphamandla Mkhwanazi, Senior Economist at FNB.
Uncertainty about prospects over the medium term also weighed on confidence. While respondents expect activity to improve further in the first quarter of 2021, the lack of new work remains of deep concern.
“Civil contractors have been lamenting the poor state of order books for the last few years. This is likely due to the shortage of large-scale and long-term projects. So, while some contractors may have work currently, they are unsure about the prospects in the coming quarters,” he says.
“As things stand, the increase in activity this quarter is unlikely to be sustained over the medium term, and this is what the low confidence reflects. At this stage, a meaningful rise in civil construction work depends on follow-through on plans for infrastructure development and faster implementation of bid window five of the renewable energy procurement programme.”