The struggling civil engineering sector is likely to continue to decline for at least 12 to 18 months. Supplied
CAPE TOWN - The struggling civil engineering sector is likely to continue to decline for at least 12 to 18 months as the country hopefully approaches the bottom of an economic cycle, according to an Industry Insight Construction Industry Forecast Report.

“In terms of the official investment figures, we are expecting a contraction of 2percent for both 2019 and 2020, improving slightly to a contraction of 1.2percent in 2021 We still expect contractions, but we don’t think it will be nearly as bad as the last two years, with a small boost to infrastructure spending expected to stabilise the market,” the report said yesterday.

The civil construction industry is in disarray, because of significant government spending cutbacks and the weak economy, among other factors. Activity levels are well down as more and more contractors enter business rescue, while others have liquidated.

With the consolidation of the government’s budget, there is less work to go around in the building of roads, water- and power-related infrastructure. Confidence in the civil engineering sector is also at rock bottom.

Tender-award data also showed the industry at record lows.

According to Industry Insight’s project data, activity levels in the civils industry was lower in 2018 compared with 2017, and had declined year-on-year for five years in real terms.

“In 2018, the nominal value of civil projects awarded were down by 7.3percent year-on-year.

“However, official statistics show that investment in the civils industry had declined by only 0.1percent in 2018 as a whole, compared with 2017,” the report said.

“These statistics are higher than we would have expected, and do not correlate with all the other data sources, but we speculate that the renewable-energy sector has boosted the civil industry in 2018 significantly, with a commitment by Energy Minister Jeff Radebe to connect projects to the grid, and a more stable policy environment thereof, which has encouraged an up-tick in investment.”

The decline in project awards in 2018 followed a 22.8percent nominal decline in 2017, “which was a really torrid year for the civil industry, whereas 2018 was the final nail in the coffin for many”, the report noted.

The environment was depressed throughout the different grades of projects, with small, medium and large contracts few and far between.

There had been much talk in the State of the Nation Address about infrastructure spending becoming a priority, but this was not evident in the figures, with only a modest increase in infrastructure spending in nominal terms projected over three years.

Overall allocations for infrastructure spending increased from R834.1billion to R864.9bn, an increase of only 3.7percent in nominal terms, “which will do little to stimulate the overall environment from current levels”, the report noted.

Overall, because of a boom in flats and townhouses, the residential market was the only segment of the construction industry expected to expand this year.

“We are expecting a modest increase in investment of 1percent in 2019 (in residential building), improving ever so slightly to 1.5percent and 2percent in 2020 and 2021, respectively. All in all, this is really just a sideways movement and should be nothing to get overly excited about, unfortunately,” the report noted.

Further contractions in the non-residential market were expected this year and next year, stabilising somewhat in 2021, the report said.

“We forecast investment into the non-residential sector to contract 3.8percent in 2019 and by 1.8percent in 2020, stabilising to a small expansion of 1percent in 2021.”