Confidence in South Africa’s construction industry improved slightly in the first quarter of 2017 following a mild improvement in construction activity.
The FNB/BER Civil Confidence Index improved by five points to register at a level of 40 during this period. Despite the higher figure, profitability remains under pressure.
The index can vary between a maximum of 100 (which indicates that all respondents were satisfied with prevailing business conditions) and a minimum of zero (indicating that all respondents were dissatisfied). A level of 50 shows respondents are equally divided between those satisfied and dissatisfied.
In a statement issued by FNB, it was noted that Statistics South Africa calculated the real growth in construction works was 2.3% year-on-year (y/y) in the fourth quarter of 2016 – up from 1.3% in the third quarter.
Overall investment in the economy declined by 4.4% y/y in the fourth quarter of 2016.
Civil contractors reported a further improvement in construction activity in the first quarter of this year, which likely boosted confidence.
“Civil construction activity held up fairly well towards the end of last year,” said Jason Muscat, senior economic analyst at FNB. “This was mainly due to a recovery in mining investment on the back of higher global commodity prices. This quarter's survey results suggest a further, albeit marginal, improvement.”
Muscat cautions that although renewed investment by the mining sector is positive for construction activity, investment by the public sector is still weak and expected to remain so at least over the short to medium term.
Respondents who took part in the construction survey were concerned about future construction activity, with an increasing number citing the lack of new construction work as a constraint to their business operations.
Despite the marginally higher construction activity in the first quarter, conditions in the sector are still tough.
“Tendering competition remains elevated, which has weighed on profitability”, said Muscat.
According to the survey, overall profitability is at its worst level since 2011. Future growth in the sector is likely to be limited by the weak outlook for public sector fixed investment.