Widespread pessimism in construction sector – CIDB
IMPROVED profitability resulted in improved confidence among civil engineering contractors in the second quarter of this year, but pessimism has become more entrenched among general builders.
This was the major conclusion of the latest Construction Industry Development Board (CIDB) small and medium enterprise business conditions survey.
The survey report said that on average headline confidence indicators in both sectors registered pessimistic levels at below 50 index points, which suggested the building and construction industry remained under pressure.
“Unfortunately for building contractors, sentiment remained downbeat across all three grades and the four provinces surveyed. This is also mostly true for civil contractors, with the exception of the Western Cape where confidence registered above the 50-point mark,” it said.
Ntando Skosana, the project manager of construction industry performance at the CIDB, said overall the pressure on business conditions in the second quarter of this year was ameliorated as profitability found support from a combination of improved momentum in building activity and a less hostile tendering environment.
From a grades perspective, the survey report revealed that Grades 3 and 4 civil contractors were the only groups where sentiment improved, with confidence improving by 11 index points to 44 points in the second quarter in line with key performance indicators. Skosana said the smaller grades were responsible for much of the overall improvement in the civil sector during the quarter.
“These contractors primarily participate in regional or municipal projects. With June representing the end of the municipal government financial year, it is likely that Grades 3 and 4 civil contractors benefitted from the ‘rush’ to spend on capex,” he said.
However, sentiment among Grades 5 and 6 and Grades 7 and 8 civil contractors deteriorated, dropping by 8 index points each as activity and profitability remained under pressure.
For Grades 7 and 8, an overwhelming majority (83 percent) of respondents rated prevailing business conditions as unsatisfactory. “At this level, confidence is at its lowest since the start of the series in the third quarter of 2008,” the report said.
At a regional level, civil contractor confidence improved in all the surveyed provinces except for the Eastern Cape, where 73 percent of respondents were dissatisfied with prevailing business conditions. The improved confidence of civil contractors in the Western Cape was driven by improved business conditions and more construction work being available.
Skosana said the outcome in the Western Cape civil sector was encouraging, with the majority of respondents being satisfied with prevailing business conditions.
“Unfortunately for the remaining provinces, the picture remained broadly pessimistic with the confidence indices coming in below the 50-point mark,” he said.
Confidence among general building contractors dropped to 42 index points in the second quarter from 46 points in the previous quarter.
The report said the renewed pessimism among general builders resulted from a broadbased deterioration in underlying indicators.
“Profit margins endured a greater squeeze in line with weaker building activity growth,” it said.
The report added that confidence levels in all three general builder grades were below 50 index points in the second quarter, which was indicative of the widespread pessimism.
It said 56 percent of general builders surveyed reported lower profitability in the second quarter, the worst level since the first quarter of 2012, compared to 45 percent in the previous quarter.
In Gauteng, 64 percent of general builders surveyed reported lower activity levels, the worst level since the fourth quarter of 2009, compared with 33 percent in the previous quarter.
The improved confidence of civil contractors in the Western Cape was driven by improved business conditions.
Construction in progress in Newtown, Johannesburg.