After slipping to 15 in 4Q2021, the FNB/BER Civil Confidence Index declined further to 9 in 1Q 2022. This is the lowest level on record, barring 2Q 2020. Although civil contractors are noticeably more upbeat about activity and profitability next quarter, this was not enough to lift sentiment, despite an improvement in some of the underlying indicators, particularly activity.

 “It is discouraging that sentiment in the civil construction sector remains so weak while confidence in the broader economy is improving,” said Siphamandla Mkhwanazi, senior economist at FNB. The current index level means that more than ninety per cent of respondents are dissatisfied with prevailing business conditions.

Unlike confidence, activity fared better this quarter, albeit only marginally. According to Stats SA, the real value of civil construction works contracted by 3.9% year-on-year (y-o-y) in 4Q2021. A similar, if not less severe, decline is likely this quarter. “Although stable, the level of construction activity is still well below previous highs. This prolonged period of weak activity is likely taking its toll on the business mood of civil contractors,” remarked Mkhwanazi.

Also weighing on sentiment is the amount of time it takes after tender submission for projects to be adjudicated and awarded. “While the survey doesn’t explicitly ask this, a rising number of respondents commented that the delays in project awards are inhibiting growth in the sector,” remarked Mkhwanazi.

Despite the negative outcome for confidence, respondents are very upbeat about prospects for next quarter. Expectations for activity and profitability point to a marked improvement. Historically, however, respondents’ expectations have been an inaccurate measure of actual future performance.

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Conclusion

A stabilisation in activity growth and an expectation that activity will improve further next quarter was unable to offset concerns about the slow pace at which project tenders are adjudicated and awarded.

“Further to the survey results, the announcement end-February by the National Treasury to suspend all tenders advertised by the public sector on or after 16 February 2022, with no new tenders after 16 February 2022, until they’ve reviewed and amended the procurement framework could have a detrimental effect on the sector depending on how long it persists. Civil construction activity is much more dependent than other sectors on public sector spending. In all, even after years of decline, the odds remain stacked against a meaningful recovery in the civil construction sector during 2022,” noted Mkhwanazi.

FNB/BER Civil Confidence Index

Percentage satisfied

Source: BER Stellenbosch University

Civil construction

Growth in construction activity

Source: BER Stellenbosch University

About the survey

The FNB/BER civil confidence 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 indicates that the respondents are equally divided between those satisfied and dissatisfied.

The fieldwork for the fourth quarter survey was conducted between 9 and 28 February 2022

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