Civils pipeline remains thin as profitability deteriorates

Civil Engineering

After rising to 16 in 2020’s fourth quarter, the FNB/BER Civil Confidence Index gained a further five points, registering a level of 21 in the first quarter of 2021, a third consecutive increase.

However, this current index level means that close to 80% of the built environment are not happy with prevailing business conditions.

Sentiment received a boost from higher activity. According to Stats SA, the real value of construction works contracted by 17.6% year-on-year in the last quarter of 2020 after declining by 22.1% in the third quarter. Based on the survey’s results, a slowing in the rate of decline is likely to occur during the current quarter.

For 2020, spending on construction works was down by 18.7% year-on-year.

Before 2020’s second quarter, we noted that there was a latent recovery in civil construction activity” comments Siphamandla Mkhwanazi, Senior Economist at FNB. “Then came the pandemic which negatively affected the civil construction sector, even more so than the rest of the economy. Promisingly, we are now in a similar position as a year ago, with activity, cautiously and off an exceptionally low base, starting to improve”.

Unfortunately, other indicators were less positive which weighed on confidence. Despite the uptick in activity, profitability deteriorated and the pipeline for new work remains thin.

A number of large construction companies have shared that there seems to be more tendering activity, particularly on the road infrastructure front, but also in mining and renewable energy. While these results do not necessarily contradict that, it does suggest that this improvement in tendering activity is not the experience of most contractors,” notes Mkhwanazi.

It is encouraging that activity continued to gather momentum this quarter. The concern, however, is the trajectory for the rest of the year. Despite some anecdotal evidence to the contrary, too many civil contractors are still experiencing a shortage of new work,” he concludes.