Civil construction confidence index drops

A WEEK after reports that confidence in South Africa's building industry had plunged in the second quarter, the First National Bank Bureau for Economic Research civil construction confidence index for the period has fallen by the same number of points.

This means that close to 60% of surveyed index respondents are dissatisfied with prevailing business conditions‚ despite a marked increase in construction activity.

This mirrors the nearly 60% of companies surveyed in the building sector that were dissatisfied with business conditions in the quarter.

The index‚ released on Wednesday‚ said weaker private-sector construction demand as a result of the prolonged strike in the platinum sector was a likely factor in the fall in confidence. Mining is one of the key drivers of private-sector construction work.

After falling 11 index points to 55 out of a possible 100 points in the first quarter, the civil construction confidence index shed a further 11 points to 44. This matched the earlier 11-point fall reported in the building index from 52 to 41 index points.

But the civil construction survey also indicated that construction work and profitability had improved in the quarter‚ suggesting that other factors besides company performance had weighed on confidence.

"This mismatch between activity and confidence is likely due to the spread of construction work‚ which seems concentrated among a few firms and provinces‚" FNB chief economist Sizwe Nxedlana said.

The index said construction work in the second quarter was likely to be positively influenced by higher capital expenditure by public companies‚ led by the South African National Roads Agency and Eskom. There had also been increased infrastructure spending by government in the run-up to the national elections‚ with municipal capex rising by nearly 19% year on year in the first quarter of the year.

The index said this had probably continued into the second quarter‚ as municipalities ramped up spending towards the end of their financial year in June.

Overall profitability and employment in the sector also increased during the quarter. "This is a direct result of the rise in construction work‚" Nxedlana said. – BDpro