Weaker activity and profitability dents SA’s building confidence
The construction sector shed 140 000 jobs between the first and second quarters of 2017. WEAKER activity levels and profitability significantly dented general building confidence in the fourth quarter of this year.
The Construction Industry Development Board (CIDB) said yesterday that general business confidence, as measured by its small and medium enterprise business conditions survey, fell to 36 index points on a 100-point scale in the fourth quarter from 40 points in the previous survey.
The survey is conducted quarterly among CIDB registered contractors in Grades 3 to Grades 8 for both general and civil industries.
Ntando Skosana, the project manager for monitoring and evaluation at the CIDB, said the final quarter of this year marked yet another period of low business confidence for both the building and civil engineering sectors.
Skosana said in both sectors the Western Cape emerged relatively stronger, with confidence levels above 50 index points.
However, Skosana said insufficient new demand for building and construction work was a constraint, with this indicator rating remaining elevated. “This bodes ill for future activity momentum … (and) brings the sustainability of these confidence levels within the province into question,” she said.
Skosana added that the latest GDP growth statistics released by Statistics South Africa showed that output in the construction sector contracted for the third consecutive quarter in registering a decline of 1.1 percent quarter-on-quarter.
“Given the outcome of this quarter’s survey results, it is likely that pressure on both building and civil construction activity will persist,” she said.
The CIDB last month reported that the construction industry shed 140 000 jobs between the first and second quarters of 2017, which could amount to about 240 000 this calendar year.
The board’s latest construction monitor highlighted the close correlation between gross fixed capital formation (GFCF) and employment in the contracting and professional services sectors and expressed concern that most economic projections forecast a decline in real terms in GFCF over the short- to medium-term that would result in job losses over this period.
It also stressed that under-spending by the government resulted in lost employment opportunities, with underspend at the end of 2016/17 by provincial departments against “linear phased budget” amounting to about R1.4 billion and by municipalities about R15bn. This amounted to about 36 000 lost job opportunities, it said.
Depressed The CIDB’s fourth quarter SME business conditions survey released yesterday revealed that, although key underlying indicators moved sideways, they remained depressed, while constraints to business operations ticked up.
“Grades 7 and 8 disappointed sorely during the quarter with confidence levels dropping by a dismal 15 index points to 23.
“This loss in confidence was underpinned by significantly weaker building activity and profitability.
“Although sentiment was stable among the other grades, it should be noted that their underlying indicators are well below their long-term averages. This indicates widespread pressure across all grades,” she said.
General builder confidence in the Western Cape ticked up to 57 index points while it declined in the rest of the provinces. Skosana said Western Cape contractors were upbeat because they felt less pressure on profit margins and also enjoyed a less hostile tendering environment.
General builders in KwaZuluNatal were the least confident, with 83 percent of respondents dissatisfied with prevailing business conditions during the fourth quarter and profit pressures among these contractors “discouragingly” at their worst historic levels.
The CIDB said confidence among civil engineering contractors was similar to general builders and dropped to 35 index points in the fourth quarter from 38 in the previous quarter.
Skosana said overall confidence suffered on the back of weaker construction activity, which weighed on profitability.
The civil engineering activity indicator dropped to its worst level since the first quarter of 2011 while the profitability indicator deteriorated to its worst level since the third quarter of 2010.
“Most civil construction work comes from the public sector, so part of the lower activity could be due to constraints in public finances,” Skosana said.