Civil contractor confidence falls to 17-year low

Political uncertainty, revised mining charter

CONFIDENCE among civil contractors slumped to a 17year low in the third quarter of this year.

Jason Muscat, a senior economic analyst at FNB, said yesterday that it was likely that activity and profitability growth levels deteriorated during the quarter, but the levels were not as bad as in 2000 when confidence was last this low.

Muscat believed broader policy uncertainty, especially surrounding the revised mining charter and key renewable energy programmes, had made civil contractors more pessimistic than what the underlying indices suggested.

Aveng executive chairperson and acting chief executive Eric Diack said at the group’s annual financial results presentation on Tuesday that the civils business within Grinaker-LTA, the group’s South African construction business, had resulted in the poor financial performance of Grinaker-LTA.

“There is no infrastructure spend in South Africa at the moment. Apart from roads, there is nothing of size,” he pointed out.

The FNB/Bureau for Economic Research (BER) civil confidence index released yesterday showed that confidence had dropped by 13 index points on a 100-point scale to 15 in the third quarter – the lowest confidence level since the third quarter of 2000.

It also meant confidence among civil contractors had dropped by a cumulative 37 index points over the past year.

The current level of the index means that 85 percent of respondents were dissatisfied with the prevailing business conditions.

There is currently no infrastructure spend in SA, and conditions are set to remain pessimistic

The FNB/BER index report said weaker growth in construction activity underpinned the lower confidence levels. It said StatisticsSA had calculated the real seasonally adjusted growth in construction works at 3 percent year on year in the second quarter of this year, which was almost unchanged from the first quarter.

However, the value of spending contracted on a quarterly basis by 1 percent in the second quarter following a 1.2 percent decline in the first quarter.

Muscat said the results of the latest survey suggested that the poor growth performance seen in the second quarter should continue into the third quarter “if not worsen further”.

FNB/BER added that the pressure on activity was also evident in the marked rise in tendering price competition in the quarter, with the combination of lower activity and keener competition weighing on profitability.

Muscat said it was likely that conditions in the sector, particularly activity, might remain under pressure. “The percentage of respondents cited insufficient demand as a business constraint rose in the quarter and this is usually a decent proxy for the state of the industry’s order books,” he said. “The civil construction sector in all likelihood fared poorly in the third quarter, with no sign of relief over the short term,” he added.

The deterioration in confidence among civil contractors was in contrast to the confidence levels in the building industry. FNB/BER reported last week that its building confidence index rose from 32 in the second quarter to 35 index points in the third quarter.