South Africans are not confident in the country’s civil construction sector at least according to the FirstRand Group Ltd.’s First National Bank and the Stellenbosch-based Bureau for Economic Research.
About 90% of respondents indicated they are not happy with prevailing business conditions.
“Civil contractors should brace themselves for continued weak demand, as it will be difficult to predict a turnaround from the latest results.”warned Siphamandla Mkhwanazi, property economist at FNB.
According to FNB, the drop in confidence can be explained by a further slowdown in activity growth, from already depressed levels. This, in turn, impacted profitability.
“Overall, these results are consistent with the broader developments in the market, following the demise of another big construction company, Group Five, two weeks ago,” said Mr Mkhwanazi.
Recently, construction giant Group Five filed for bankruptcy protection after lenders pulled funding. Basil Read, another construction heavyweight filed for bankruptcy protection last year, and in 2016 another household name, Murray & Roberts, pulled out of construction.
In South Africa, volumes are low, pricing is under pressure and companies are taking on more risk to win contracts, so margins are thin and that hits cash flow. There are no real segments to hide in.
“It’s not surprising that the prospects for work are downbeat given the state of the fiscus and the resultant reduction in infrastructure investment by the public sector,” Mkhwanazi said.
“Civil contractors should brace themselves for a continuation of the current weak demand.”
Experts believe that building industry looked better than civil. This is attributed to increased demand for flats and townhouses, where square metres completed grew considerably in 2018.
“The future held promise for large mixed-use developments, of which over 30 were on the table,” says economist Mr David Metelerkamp.
In the run-up to the 2010 FIFA World Cup, South Africa construction industry recorded an exponential growth that resulted in major job creation.
But an economic downturn that followed resulted in weak exchange rate causing a rise in the import costs of raw material, transportation and project costs.