170113 Construction in Johannesburg Newtown.photo by Simphiwe Mbokazi 453

Roy Cokayne

The recovery in the construction sector slowed in the fourth quarter of last year as low levels of profitability, increased competition and margin pressure resulted in a slight easing in employment.

The latest FNB/Bureau for Economic Research (BER) construction confidence index, released yesterday, deteriorated to 36 on a 100-point scale in the fourth quarter from the four-year high of 42 index points reached in the third quarter.

This means more than six out of 10 respondents were dissatisfied with prevailing business conditions during the fourth quarter.

Group Five, the listed construction and engineering group, reported at the end of last year that it had increased its construction order book to R12.08 billion at the end of October from R11.3bn in June.

Mike Upton, Group Five’s chief executive, said market conditions and order books were improving slowly and the South African market remained constrained.

Upton said the group expected revenue to grow in its 2013 financial year but that margins were under pressure and an improvement was only expected in the second half of the financial year.

The decline in confidence was attributed to moderating activity levels and fiercer tendering price competition combined with weak profitability.

FNB and BER said the outlook for the first quarter of this year was more positive, with activity and profitability projected to rise, but employment prospects were expected to deteriorate further.

“Prospects for 2013 are for continuing expansion, but at a relatively slow pace,” they said.

Cees Bruggemans, a consulting economist at FNB, said demand for new construction work remained fragile, resulting in somewhat more competition for projects that were eventually put out to tender.

FNB/BER said it was likely that construction work in the fourth quarter came from continued government spending, especially in the provinces, and by public corporations, particularly Eskom, Transnet and the SA National Roads Agency.

They said the private sector probably underperformed to an even greater extent due to the unstable conditions in the mining sector.

FNB/BER said that although the slight drop in confidence suggested the recovery in the sector recorded for most of last year moderated somewhat in the fourth quarter, they stressed that the recovery did not come to a complete standstill, but continued at a weaker tempo.