SA Construction industry outlook improves - index

Cape Town – Business confidence in the construction industry has increased marginally for the fourth quarter of 2015, according to the FNB/BER Civil Confidence Index.

The index went up from 39 index points in the third quarter to 42 index points in quarter four.

Despite the rise in confidence, the current level of the index indicates that close to 60% of respondents are dissatisfied with prevailing business conditions.

"Civil contractors were relatively downbeat for much of 2015. After averaging 51 index points in 2014 and 53 index points in 2013, confidence averaged only 41 index points in 2015," said Jason Muscat, senior industry analyst at FNB.

According to FNB the change in the fortunes of civil contractors was largely due to a slowdown in construction activity.

"According to revised figures from the South African Reserve Bank, the growth in the real value of construction works rose by an annual rate of 5.2% in the third quarter of 2015, a far cry from the average of 15.1% in 2014. The current survey results suggest that the growth in construction works likely slowed in the fourth quarter of 2015," FNB said.

Muscat said that, although work from provinces and municipalities held up well, weak spending on construction by state-owned enterprises and the private sector continued to weigh on growth.

Overall profitability saw a noticeable improvement during the quarter as tendering competition eased, lifting confidence.

FNB said confidence was further boosted by respondents' expectations that construction work and profitability would be noticeably better in the first quarter of 2016.

"Respondents' predictions have been very inaccurate in the past, and while it contributed to the uptick in confidence in the fourth quarter of 2015, it is probably too optimistic," said Muscat.

The percentage of respondents citing new demand as a constraint to business operations was somewhat lower in the fourth quarter of 2015, although still relatively high.