Categories: Business NewsNews
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2023-12-07 7:49 AM

South Africa’s Civil Construction Sees Surge Despite Confidence Dip

  • Confidence Dip: The FNB/BER Civil Confidence Index dropped by two points in the fourth quarter of 2023, indicating dissatisfaction among 60% of those in South Africa's civil engineering industry with prevailing business conditions.
  • Positive Growth Indicators: Despite the overall decline in confidence, sub-indices show positive signs, including a rise in activity leading to better profitability. Anticipated improvements in order books and decreased tendering price competition hint at sustained growth momentum.
  • Concerns and External Factors: The construction sector faces challenges like criminal activity, uncertainty due to tender cancellations and delays, impacting overall sentiment. Confidence appears affected by broader economic issues like load-shedding, logistical constraints, and fiscal uncertainties, despite favorable underlying growth data.
By Miriam Matoma

The latest FNB/BER Civil Confidence Index reveals a nuanced scenario for the construction industry in South Africa. The index, showcasing a modest decline of two points from 43 in the third quarter of 2023 to 41 in the fourth quarter, signifies that approximately 60% of participants in the civil engineering sector express discontent with the existing business environment.

However, amid this overall downturn, the sub-indices paint a more optimistic picture. Notably, there’s a notable surge in activity, steadily gaining momentum and consequently leading to a better-than-average overall profitability.

Siphamandla Mkhwanazi, Senior Economist at FNB, highlighted, “Activity in the civil construction sector has shown an upward trajectory over recent quarters. Nonetheless, Statistics SA reported a slight contraction in the third quarter of 2023, declining by 0.9% year-on-year in real terms. Nevertheless, the survey outcomes suggest a probable rebound in construction activity during the fourth quarter of 2023.”

Anticipating the Future: FNB/BER Civil Confidence Index Survey respondents expressed expectations for an upturn in order books in the upcoming quarter. This positive sentiment aligns with the index’s decline in measuring the intensity of tendering price competition, marking its lowest level since 2013. This suggests a probable continuation of growth momentum, albeit potentially short-term.

Mkhwanazi noted, “The survey depicts a sector currently witnessing relatively high demand and a robust pipeline of work. However, concerns persist among respondents regarding prevalent criminal activity within the sector. Additionally, uncertainties stemming from tender cancellations and adjudication delays may have influenced the overall business sentiment.”

He further added, “Despite the prevailing sentiment, the underlying data related to activity, profitability, and tender competition portray a more positive scenario. It indicates a phase of sustained growth in the sector.”

Factors Impacting Confidence Confidence levels seem to be adversely affected by factors not directly linked to existing demand. Broader economic pessimism stemming from issues such as load-shedding, logistical constraints, and fiscal concerns appears to play a role.

Mkhwanazi concluded, “Confidence appears to be influenced by factors beyond current demand, along with a wider pessimism from other economic facets. These encompass challenges related to load-shedding, logistical bottlenecks, and fiscal uncertainties.”

In summary, South Africa’s civil construction sector exhibits a mix of positive growth indicators tempered by concerns about peripheral challenges. Despite the dip in confidence, the industry appears poised for sustained growth, buoyed by escalating activity and promising order book projections. Addressing prevailing issues like criminal activity and uncertainties in tender processes remains pivotal for fostering enduring confidence and stability in the sector.

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Miriam Matoma

Miriam is a freelance writer, she covers economics and government news for Rateweb. You can contact her on: Email: Twitter: @MatomaMiriam