Associations
SMALL UPTICK IN CONFIDENCE DESPITE SLOWDOWN IN CONSTRUCTION ACTIVITY
By the cidb
Confidence in the future of the construction sector has reached its highest levels in five years , despite a marked decline in business activity in recent months .
This is a primary finding of the quarterly SME Business Conditions Survey conducted by the Bureau for Economic Research on behalf of the Construction Industry Development Board – cidb .
“ The construction sector has been hard hit by the economic downturn which was aggravated by Covid-19 ,” says Bongani Dladla , chief executive of the cidb . “ However , there are still positive sentiments that the industry might be on the road to recovery . There was a huge improvement in sentiments , the index was at its best level since 2017 .”
The confidence level during the second quarter of 2022 was at 42 on the index , compared to 35 during the first three months of the year . A slow but steady rise for the past seven quarters since the early days of the pandemic has been observed .
The Bureau for Economic Research has been conducting the quarterly business tendency survey on behalf of the cidb since 2008 . It polls the opinions of senior executives in the building and civil construction sector within grades 3 to 8 . The recent survey was done prior to the start of the current cycle of load shedding .
“ The availability of work will remain under pressure for the foreseeable future ,” says Dladla . “ The vast majority of respondents across the board indicated that the lack of demand is a constraint on normal business operations .”
Among general building contractors , who have been struggling for months , sentiments improved from 33 to 44 on the index . Confidence in the civil engineering sector was supported by better activity and rose marginally from 38 to 40 .
According to the survey , “ confidence trended higher even though activity deteriorated .” A total of 46 % of respondents stated that activity was lower than a year ago and that their overall profitability remained weak .
From a grades perspective , contractors in Grades 3 & 4 and Grades 5 & 6 registered an uptick in confidence to 50 and 38 index points respectively . In contrast , contractors in Grades 7 & 8 registered a slight decline in sentiment . “ According to contractors in Grades 7 & 8 , activity worsened significantly in 2022Q2 . This is a turnaround from the trend in recent quarters and likely kept a lid on sentiment ,” remarked Dladla .
In terms of the regional comparison , the results for confidence were mixed . While sentiment almost doubled in KwaZulu-Natal ( from 26 in 2022Q1 to 49 ), it fell in the Eastern Cape , to 41 , from 62 in 2022Q1 . Confidence in Gauteng and the Western Cape was unchanged at 32 and 29 index points respectively . A divergent performance in activity was also observed . While activity in the Western Cape improved nicely , and to a lesser extent in KwaZulu-Natal , contractors in Gauteng saw activity fall noticeably .
“ Even though confidence is still relatively low in the Western Cape , the developments recently with respect to activity are very encouraging . At the same time , the sudden drop in activity in Gauteng , which is the economic hub of the country , is cause for concern ,” added Dladla .
Boosting confidence was a decline in tendering price competition as well as respondents ’ own expectations for activity next quarter . Only 18 % of respondents stated that tendering competition was keener than a year ago . This is the best level on record , but not enough to offset the effect of lower activity on overall profitability .
Order books remained under pressure with 79 % of respondents indicating that the lack of new building demand places constraints on the business . More than half – 51 % - of those surveyed , cited a lack of access to credit as a major constraint . This is the highest level on record .
Marginally higher levels in civil engineering activities were reflected in the survey .
Respondents were also more optimistic with only 15 % of participants predicting lower levels of construction activity in the third quarter of the year .
Interestingly , the rating of inadequate access to credit as a constraint jumped to an all-time high in 2022Q2 . “ Contractors seem to be faced with a number of headwinds , not only those posed by declining activity . This quarter we also observed that firms are struggling with access to credit ,” said Dladla .
Dladla says the survey is a snapshot of sentiments among contractors in the building and civil engineering sectors at a time when the economy was under severe pressure . “ The report is important for the entire country given the fact that the construction sector is a harbinger of broader economic activity ,” he concluded . RACA
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