Construction companies in South Africa have remained optimistic about conditions for the new year on the back of a continued rise in construction activity and, consequently, lower tendering competition.
The FNB/BER Civil Confidence Index, released yesterday, gained two points to register a level of 43 in the third quarter of 2023, and is now 19 points higher than a year ago.
The index has now been around 40 points for three consecutive quarters.
The fieldwork for the third quarter survey was conducted by the Bureau for Economic Research (BER) on behalf of FNB between August 16 and 31.
FNB said even though the majority of respondents were still dissatisfied with prevailing business conditions, the current reading was above the long-term average.
FNB senior economist Siphamandla Mkhwanazi said underpinning the relative optimism was the continued rise in construction activity.
Mkhwanazi said civil construction activity has risen noticeably over the past few months on the back of investments in renewable energy, but also more tendering activity related to roads and water infrastructure in general.
“This has boosted profitability and resulted in a meaningful reduction in tendering price competition. Encouragingly, there are signs that the level of activity will be maintained, at least over the short term,” Mkhwanazi said.
“However, given the sector’s reliance on public infrastructure spending, the recently recommended Treasury spending cuts could dampen some of the recent optimism. This is in addition to possible further generalised economic weakness.”
Recently, a local Independent Power Producer SOLA Group reached an agreement with local commercial banks and partners to provide finance to start construction on a R2.5 billion, 132MW solar project in the North West province.
The project will sell energy to platinum mining operations operated by African Rainbow Minerals through a long-term power purchase agreement using the national grid to deliver the energy to the mining sites.
According to Statistics South Africa (StatsSA), growth in the real value of construction works accelerated to 6.6% year-on-year in the second quarter, from 6% in the first quarter.
The survey results for the third quarter pointed to continued growth although the pace may be somewhat lower than that recorded in the first half of the year.
FNB said although the recent growth in construction works fixed investment was most welcome, real outlays remained more than 9% below the pre-Covid level in the third quarter.
According to FNB, better activity also supported overall profitability and, with more work, competition among contractors was also less keen.
The index measuring tendering price competition was at its lowest since 2014.
Adding to the optimism was the upbeat outlook for work in the fourth quarter of 2024.
This was reflected in respondents’ own expectations and the decline in rating of the lack of new demand as a business constraint, a proxy for order books.