Construction Industry Development Board survey shows building sector is in distress

THE BUILDING and construction industry is in distress. Business confidence among general building and civil engineering classes of work remained low at 50 percent in the third quarter of this year, according to the latest Construction Industry Development Board (CIDB) small and medium enterprise business conditions survey.

The survey, undertaken by the Bureau for Economic Research for the CIDB, measures business conditions for contractors registered in CIDB Grades 3 to 8.

The CIDB said the downturn in the building and construction industry had resulted in increasingly more contractors facing financial difficulties and even financial distress.

The board added that the business confidence levels indicated by the survey “represented an industry in distress”.

Building activity

The survey revealed that general builder confidence dropped 9 index points on a 100-point scale to a level of 42 in the third quarter. This implies that almost six out of 10 respondents were dissatisfied with the current business conditions.

The survey report said business confidence was lower across all grades in the third quarter, with the sharpest drop registered by Grades 7 and 8.

It attributed this largely to a slowdown in building activity, adding that business confidence among building contractors in Grades 7 and 8 had cumulatively fallen by 40 index points since the beginning of the year.

General builder confidence declined in the major provinces, with confidence deteriorating by 31 index points in Gauteng, Western Cape (-6), Kwazulu-Natal (-5) and Eastern Cape (-4).

However, confidence in the Western Cape remained above the key 50-mark. The CIDB said this indicated that the building sector in the Western Cape continued to grow albeit at a more subdued pace.

The survey report said building activity was likely to remain under pressure because the percentage of respondents who rated insufficient demand for new building work as a constraint increased to 80 percent in the third quarter from 73 percent in the previous quarter.

Job losses

This marked the third consecutive quarterly increase in the percentage of respondents who suffered from a lack of demand, it said.

The lower building activity led to more job losses in the third quarter. According to the report, the percentage of respondents indicating that employment was lower than a year ago increased to 40 percent in the third quarter from 29 percent in the previous quarter.

Business confidence among civil contractors dropped to 45 index points in the third quarter from 53 in the previous quarter.

The CIDB said lower construction activity and tougher tendering price competition weighed on confidence. The percentage of respondents who reported lower activity levels increased to 35 percent in the third quarter from 26 percent in the previous quarter.

Business confidence declined in all the provinces with the exception of KwaZulu-Natal.

The percentage of respondents who indicated that the slowdown in activity had resulted in job losses increased to 24 percent in the third quarter from 4 percent in the previous quarter.

Contractors reported that access to skilled labour was becoming a significant constraint to business growth, with the shortage of skills also driving up the cost of labour.