The FNB/BER Civil Confidence Index increased to a six-year high in the first quarter of 2023, suggesting that sentiment in the civil construction industry is improving – albeit from an incredibly low base.
The index reflects the state of business conditions in the civil engineering industry. A score of 100 means that businesses are satisfied with business conditions, while a score of zero means that respondents are unsatisfied. A score of 50 means that respondents are equally satisfied and unsatisfied.
The Civil Confidence Index increased to 42 in Q1 2023 from 31 in Q4 2022.
In Q1 2023, fewer than 60% of respondents were dissatisfied with business conditions. Although this may seem negative, it means that confidence increased due to better activity.
The improved sentiment of the quarter is due to gains in the business environment, with the indices measuring construction activity, employment and profitability at multiple-year highs.
The BER said there were already signs at the end of 2022 that the environment was less constrained.
StatsSA said construction works in Q4 2022 saw a 1.2% annual decline in the real value, a decrease from the yearly contraction of 3.1% in Q3 2022.
“The survey results point to a further improvement, possibly an annual expansion in construction works during Q1 2023. Importantly, however, is that this comes off an extremely low base,” said Siphamandla Mkhwanazi, Senior Economist at FNB.
Overall profits have also been boosted by the higher activity.
“Civil contractors have experienced significant profit margin pressure over the past few years. This seems to have eased somewhat this quarter, adding to the more upbeat mood,” said Mkhwanazi.
The BER said that the amount of available work will likely continue to trend higher, with respondents having an upbeat expectation for activity in Q2 2023.
Moreover, the rating of insufficient demand for new work as a business constraint dropped to its lowest lew since 2014.
According to Mkhwanazi, “anecdotally, there does seem to be an increase in tendering activity in the three public sectors related to water and road infrastructure in particular. Assuming these tenders are awarded, it will greatly boost construction work over the next few quarters. In the private sector, investment in alternate energy sources is buoyant.”
“The results strongly suggest that construction work is likely to gather further momentum over the short term. However, it is uncertain if this will materialise to the extent expected given broader economic weakness and the public sector’s poor track record of delivering on infrastructure projects.”