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South Africa civil construction sector still struggling-survey

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South Africa civil construction industry status in Brief

  • The FNB/BER Civil Confidence Index rose to 11 in 3Q2020, from an alltime low of 5 in 2Q2020.
  • Even though lockdown restrictions eased such that construction firms could
    operate more normally, activity levels remained ultra-depressed with only a
    marginal improvement from 2Q2020

Sentiment in South Africa civil construction sector, as measured by the FNB/BER Civil Confidence Index, increased to a still low level of 11 in 3Q2020, from 5 in 2Q2020, a new survey has shown.

The survey by the First National Bank (FNB) indicates that majority of respondents are dissatisfied with prevailing business conditions.

Siphamandla Mkhwanazi, Property Economist at FNB  said that things had started to look up in the first quarter of 2020, when Covid-19 hit the country bringing the economy to a halt.

“From a depressed level of 10 in 1Q2019, confidence rose steadily to 24 in 1Q2020. Then, because of measures to curb the spread of Covid-19, activity came to a standstill in Q2 and understandably confidence fell sharply,” observed Mkhwanazi.

He expressed disappointment that while the restrictions on construction sector have  been  lifted, confidence still remained  low in the third quarter.

“Essentially, all the confidence gains of the 12 months prior to 2Q2020 have been wiped out,” remarked Siphamandla Mkhwanazi.

Underpinning the low confidence was continued pressure on activity, which, while improved compared to 2Q2020, is likely well below the level recorded in 3Q2019.

According to Statistics South Africa (Stats SA), the real value of construction works declined by 30.9% year-on-year (y-o-y) in 2Q2020, after a more muted contraction of 1.9% y-o-y in 1Q2020.

“While this quarter’s survey results suggest a further fall in activity in 3Q2020, it is unlikely that it is as dire as registered in 2Q2020. That said, a mild decline such as registered in 1Q2020 is again way too optimistic,” cautioned Mkhwanazi.

Downbeat prospects for work over the next few quarters also kept confidence low.

In 3Q2020, a slightly higher percentage of respondents – than the already elevated level in 2Q2020 – stated that the demand for new work, a proxy for company order books, was insufficient given normal business requirements.

In addition, tendering competition intensified. “Given current demand conditions, what we are seeing in the survey results is that the lack of work has resulted in more aggressive competition by contractors for the little work which is available,” noted Mkhwanazi.

South Africa has given infrastructure construction top priority to help recover the economy that has been negatively affected by Covid-19. But if the survey is anything to go by, the plan is yet to materialize.

“One can only hope that this will change and that work will pick up over the next few months or quarters otherwise the South Africa civil construction sector will remain on the back foot,” remarked Mkhwanazi.

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