News Research

Construction industry concerned over the lack of new building demand

After falling to 13 during 2021’s second quarter, the FNB/BER Civil Confidence Index rose slightly to 17. The index has been around the 20-point mark since mid-2017.

This current index level means that more than 80% of those surveyed are dissatisfied with prevailing conditions. Underpinning the sustained low confidence was the slowdown in construction activity.

There was not as pronounced a jump in investment in construction works as seen in other major asset classes during 2021’s second quarter, only 6.5% year-on-year. This is partly because the decline during 2020 was less steep than experienced in some of the other fixed investment categories. Nonetheless, the survey results point to a slowdown in the growth momentum this quarter,” commented Siphamandla Mkhwanazi, Senior Economist at FNB.

While tendering competition eased, this was not enough to offset the adverse effect of the lower activity on profitability, which deteriorated and has likely kept a lid on confidence.

Of concern is the outlook for construction activity with a high percentage of those surveyed bemoaning the lack of new construction demand. “While the annual results of some larger firms revealed an improvement in domestic order books, this quarter’s survey results suggest that this is not the experience of the broader sector,” noted Mkhwanazi.

The underlying indicators relating to activity and profitability justifies the continued pessimism in the sector. In addition, the lack of new work also remains a concern.

The civil construction sector relies very heavily on a struggling public sector. Therefore, the recent gazetting of the amendments to schedule 2 of the Energy Regulation Act, further progress toward developing renewable energy projects through the IPP programme and the draft version of the National Infrastructure Plan are welcome. However, this is only of value to contractors when the work materialises. Until then, activity will remain subdued,” concluded Mkhwanazi.

Civil construction: growth in construction activity (Source: BER Stellenbosch University)
FNB/BER Civil Confidence Index: Percentage satisfied (Source: BER Stellenbosch University)