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Disconcerting slide in business confidence in civil contracting sector

Business confidence among civil contractors, who typically build government infrastructure and large private capital projects, sunk to its lowest level in the first three months of this year, according to the latest FNB/BER Civil Confidence Index. File Image: IOL

Business confidence among civil contractors, who typically build government infrastructure and large private capital projects, sunk to its lowest level in the first three months of this year, according to the latest FNB/BER Civil Confidence Index. File Image: IOL

Published Apr 5, 2022

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Business confidence among civil contractors, who typically build government infrastructure and large private capital projects, sunk to its lowest level in the first three months of this year, according to the latest FNB/BER Civil Confidence Index.

The index had fallen to a level of 15 in the fourth quarter of last year and then fell further to 9 in the first three months of 2022.

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The current index level means that more than ninety per cent of respondents are dissatisfied with prevailing business conditions, said FNB senior economist Siphamandla Mkhwanazi.

“It is discouraging that sentiment in the civil construction sector remains so weak while confidence in the broader economy is improving,” he said.

Unlike confidence, activity fared better in the first quarter, albeit only marginally.

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According to Stats SA, the real value of civil construction works contracted by 3.9 percent year-on-year (y-o-y) in the fourth quarter of 2021.

A similar, if not less severe, decline was likely in the first quarter, he said.

“Although stable, the level of construction activity is still well below previous highs. This prolonged period of weak activity is likely taking its toll on the business mood of civil contractors,” said Mkhwanazi.

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Also weighing on sentiment was the amount of time it takes after tender submission for projects to be adjudicated and awarded.

Mkhwanazi said that while the survey did not explicitly ask this, many of the respondents commented that delays in government project awards were inhibiting growth in the sector.

Despite the negative outcome for confidence, respondents were more upbeat about prospects for the second quarter.

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Expectations for activity and profitability pointed to a marked improvement, said Mkhwanazi. Historically, however, respondents’ expectations had been an inaccurate measure of actual future performance, he said.

“The announcement end-February by the National Treasury to suspend all tenders advertised by the public sector on or after 16 February 2022, with no new tenders after 16 February 2022, until they’ve reviewed and amended the procurement framework could have a detrimental effect on the sector depending on how long it persists.”

“Civil construction activity is much more dependent than other sectors on public sector spending. In all, even after years of decline, the odds remain stacked against a meaningful recovery in the civil construction sector during 2022,” said Mkhwanazi.

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