Civil engineering confidence index rises to 43 in Q2

After a largely flat 2016 and a disappointing start to this year, civil engineering confidence has picked up six index points to 43 in the second quarter, the Construction Industry Development Board’s (CIDB’s) small- and medium-enterprise business conditions survey has revealed.

The organisation explained that pressure on business conditions had eased, as profitability found support from a combination of improved momentum in building activity and a less hostile tendering environment.

However, from a grades perspective, Grades 3 and 4 civil contractors were the only groups to report improved sentiment, with the confidence indicator for this group having risen by 11 index points to 44, in line with key performance indicators.

CIDB construction industry performance project manager Ntando Skosana noted that the smaller grades were responsible for much of the overall improvement in the civil sector during the quarter.

“These contractors primarily participate in regional or municipal projects. With June representing the end of the municipal government financial year, it is likely that Grades 3 and 4 civil contractors benefited from the ‘rush’ to [invest] capital expenditure.”

Conversely, for Grades 5 and 6, as well as Grades 7 and 8 civil contractors, sentiment deteriorated as activity and profitability remained under pressure.

At the regional level, civil contractor confidence picked up in all the surveyed provinces except for the Eastern Cape, where 73% of respondents were dissatisfied with prevailing business conditions. On the other hand, in the Western Cape, confidence rose from 50 index points to 57 during the quarter.

Civil contractors in the province were optimistic on the back of improved business conditions and more construction work being available.

“The outcome in the Western Cape civil sector is encouraging, with most respondents being satisfied with prevailing business conditions. Unfortunately, for the remaining provinces, the picture remained broadly pessimistic with the confidence indices coming in below the 50-point mark,” said Skosana.

Unlike the civil sector, general building confidence dropped to 42 index points in the second quarter, from 46 previously. Discouragingly, the theme of pessimism was further entrenched during the quarter, against the backdrop of weaker construction activity.

“Contrary to last quarter, the somewhat more benign tendering environment for public sector building projects failed to support profitability this time round,” Skosana commented.

For all three grade segments, confidence was below 50 index points. Whereas Grades 3 and 4 building contractors lost the most confidence to 41 index points, the level of confidence for Grades 7 and 8 contractors remained at its lowest level of 39 index points. Sentiment for Grades 5 and 6 contractors was barely changed at 43 index points.

Building confidence across all the four surveyed provinces was also downbeat and below 50 index points. “Whereas general builders in the Western Cape had held the fort of optimism over the past few quarters, this changed during the quarter. Nevertheless, building contractors in this province remain the least pessimistic,” Skosana explained.

Western Cape building contractor confidence dropped significantly to 47 points from 64 previously. Gauteng builders also lost confidence in line with poorer activity and profitability.

Although sentiment improved in the Eastern Cape and KwaZulu-Natal, confidence levels remained depressed.

The second quarter of the year marked the eighth consecutive quarter where business confidence for the SME segment for both the building and civil engineering sectors read below the neutral 50-point mark.

Looking ahead, the renewed weakness in the broader macroeconomic outlook bodes ill for both the civil and building sectors. Insufficient demand for work was also flagged as an impediment to business operations.

This suggests that, going forward, the pressure on construction and building work will persist.