Small and medium general building confidence at highest level in three years

Political parties are using ‘infrastructure development’ in their campaigning for next month’s local government elections. Image: Waldo Swiegers/Bloomberg
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Activity is being driven partly by the rebuilding of infrastructure damaged in the July unrest.

Confidence in the general building sector of the construction industry has improved to its highest level in three years.

It is being driven by the easing of Covid-19 lockdown restrictions, the government’s infrastructure programme and the rebuilding of property and infrastructure damaged in the unrest and protests in KwaZulu-Natal and Gauteng in July this year, according to the Construction Industry Development Board (CIDB).

However, the CIDB small and medium enterprise (SME) business conditions survey for the third quarter of 2021 revealed that the vast majority of general building respondents are still dissatisfied with prevailing business conditions.

The CIDB said general building and civil engineering confidence was at around 30 in the third quarter of 2021, which means 70% of respondents are dissatisfied with current business conditions.

The CIDB said general business confidence improved to 28 index points on a 100-point scale in the third quarter from 18 in the previous quarter but confidence in the civil engineering sector declined by eight index points to 30 in the same period.

By comparison, the latest FNB-Bureau for Economic Research (BER) building confidence index released last month revealed that confidence declined in the third quarter to 35 index points from 39 in the second quarter of 2021.

This meant that 65% of respondents are dissatisfied with prevailing business conditions across the building sector pipeline and FNB-BER said confidence among major contractors declined to record low levels.

The FNB-BER civil confidence index showed that more than 80% of respondents are dissatisfied with prevailing business conditions, with the slowdown in activity and profitability and persistently weak order books of particular concern.

Province perspectives

Ntando Skosana, project manager for monitoring and evaluation at the CIDB, said the CIDB survey results show that provincially in terms of activity, KwaZulu-Natal and Gauteng are faring substantially better than the rest of the country although activity improved in all regions.

“There seems to be a marked uptick in activity in KwaZulu-Natal and Gauteng which, in part, reflects efforts to rebuild some of the infrastructure that was damaged during the July unrest,” she said.

The better general building sentiment was due to the improved mood of Grades 7 and 8 contractors, whose confidence levels improved to 36 in the third quarter of 2021 after falling to only nine in the previous quarter.

Skosana said activity among Grade 7 and 8 general building contractors rose noticeably in the second quarter of 2021.

However, general building confidence in the Western Cape was severely affected by a tougher tendering environment, which resulted in profitability tumbling, despite activity itself remaining about on par with its long term average.

Civil engineering

The decline in confidence in the civil engineering sector was attributed largely to a deterioration in sentiment among Grades 5 & 6 to 19 in the third quarter from 45 in the previous quarter.

By contrast, the confidence of civil engineering contractors in Grades 3 and 4 improved by 15 index points and that of Grade 7 and 8 contractors by 13 index points.

Skosana said optimism among civil engineering contractors in Grades 3 and 4 is at its highest level on record.

“It is important to understand the reasons behind the higher confidence of CE [civil engineering] in Grades 3 & 4 and Grades 7 & 8. For grades 3 & 4, respondents saw activity decline, but registered a noteworthy improvement in order books.

“For Grades 7 & 8, order books worsened, but current activity showed a noticeable improvement,” she said.

The Western Cape was the only region to register a fall in civil engineering confidence – to zero – as a result of a sharp worsening in overall profitability.

Skosana said although civil engineering confidence edged lower to 30, the underlying data was reasonably upbeat, with the improvement in activity in KwaZulu-Natal and Gauteng related to post-unrest rebuilding particularly encouraging.

“There are some green shoots in this quarter’s survey results, which have supported confidence.

“A caveat to this optimism, however, is that it is not broadly shared in terms of the grades and regions – Western Cape contractors are particularly pessimistic.

“In addition, it is not guaranteed that this will continue over the short term, especially if the rise in CE [civil engineering] activity is only – or mostly – due to the post-unrest rebuilding, which by its nature is temporary,” she said.

Master Builders South Africa (MBSA) executive director Roy Mnisi said it has received some positive feedback about activity levels from parts of the country, such as KwaZulu-Natal.

Mnisi said there seems to be a very good uptick in activity in various components of the building sector, including housing developments and government projects such as schools.

He confirmed that rebuilding projects damaged in the unrest in July this year significantly assisted in improving construction activity.

Mnisi added that in some areas that were impacted by the unrest, some business owners have decided to expand their businesses.

“We are hoping that we keep the momentum and Level 1 [Covid-19 restrictions] will remain.

“We are worried about the festive season and challenges around the movement of people and infection [rates],” he said.

Infrastructure imperative

Mnisi believes the improved activity levels are likely to be sustainable and highlighted how political parties are focusing on infrastructure development in their campaigning for next month’s local government elections.

“I want to believe that whoever wins the election in any part of the country would particularly want to prioritise municipal infrastructure development, which includes dealing with a lot of aging infrastructure,” he said.

Mnisi added that MBSA is also looking positively at national government’s infrastructure development programme because the government is reaffirming its commitment and ensuring that infrastructure development tops the agenda of economic recovery in the country.

“If that happens, the [activity] momentum will remain and even get much better. We are looking forward to even an improvement in activity levels in 2022,” he said.

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