Tue, 27 Oct 2020

Despite the easing of lockdown restrictions in the third quarter, activity and confidence levels in the construction industry are still very low, according to the FNB/BER Civil Confidence Index released on Tuesday.

The survey, a partnership between FNB and the Bureau for Economic Research which measures sentiment in the civil construction industry, rose to 11 in the third quarter, up from a record low of 5 in the previous quarter amid the height of lockdown restrictions. The low confidence levels reflect weak demand, which is expected to persist over the short term, the report indicated.

"Even though lockdown restrictions eased such that construction firms could operate more normally, activity levels remained ultra-depressed with only a marginal improvement from 2Q2020," the report read.

The current index level shows that the majority of respondents - almost 90% - are disappointed in the prevailing business conditions.

The index increased from a depressed level of 10 in the first quarter of 2019 to 24 in the first quarter of 2020, but these gains were reversed when the Covid-19 lockdown was implemented as activity came to a "standstill", explained FNB property economist Siphamandla Mkhwanazi. "Understandably confidence fell sharply," he added.

"It is disappointing now with the restrictions on construction sector activity lifted that confidence still remained this low in the third quarter," said Mkhwanazi. "Essentially, all the confidence gains of the 12 months prior to 2Q2020 have been wiped out," he said.

Activity in the industry may have improved from the second quarter, but it is still below levels recorded in the third quarter, he explained.

According to Statistics South Africa (Stats SA), the real value of construction works declined by 30.9% year-on-year (y-o-y) in the second quarter, this in comparison to a -1.9% contraction y-o-y for quarter one.

The latest survey suggests a further fall in activity in the third quarter, but it is unlikely as dire as that registered in the second quarter. A mild decline such as that recorded in the first quarter is also too optimistic," said Mkhwanazi.

Low demand

Respondents also stated that demand for new work was insufficient given normal business requirements. Tendering competition also 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," said Mkhwanazi.

"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," said Mkhwanazi.

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