The order books of South Africa's seven largest construction companies recorded a 26% contraction in the first quarter of this year.

JOHANNESBURG - The order books of South Africa's seven largest construction companies recorded a 26percent contraction in the first quarter of this year.

The decline translated to an average contraction of about 3.8percent a company, according to an analysis done by business risk specialist Bryte Insurance based on the recent financial results of the seven companies.

Bryte said this came at a time when the contribution of the construction sector to national GDP eased 0.32percent in the first quarter of this year and was forecast to continue to decline for the remainder of this year.

Statistics South Africa reported a 12.9percent or R5.8billion decrease in the value of approved building plans between January and May this year compared to last. Xolile Kahla, a product technical specialist at Bryte Insurance, said yesterday that the first two quarters of the year had proven to be challenging for the construction sector, because of depressed macro factors and low business and investor confidence.

The Bryte construction activity monitor showed a 15percent year-on-year contraction in activity in the insured construction activity in the second quarter of this year. This downward pressure was also reflected in the stock performance on the JSE as recorded by the heavy construction index, which includes all listed companies in this category, Bryte said.

Share prices fell by 12.88percent month-on-month in the second quarter of this year compared to the 2.39percent decline in the same quarter of last year.

Similar trends were evident in the Construction Industry Development Board (CIDB) SME Business Conditions Survey report released this week, with general building confidence declining to 40 index points in the third quarter from 42 in the previous quarter.

The report said civil contractor confidence dropped to 38 index points from 43 in the previous quarter as construction activity slowed and weighed on profitability.

Ntando Skosana, the project manager for monitoring and evaluation at the CIDB, said business confidence declined in the SME segment in both the building and civil engineering sectors and marked the second consecutive year that confidence had been below the neutral 50-point mark.

The report said its profitability indicator for the building industry sank to “an all-time low” with an overwhelming net majority of 68percent of respondents reporting reduced profits compared to 56percent in the second quarter.

It said contractors were also less keen to hire workers and its employment indicator deteriorated to its worst level since the third quarter of 2011, with a net majority of 51percent of respondents reporting fewer employees during the survey quarter compared to 41percent in the previous quarter.

- BUSINESS REPORT