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Johannesburg – Conditions in the civil construction industry remain difficult, according to the third quarter 2010 FNB Civil Construction Index released on Tuesday.
During the third quarter the index retraced some of the gains made during the second quarter of this year, according to the bank's chief economist Cees Bruggemans.
The index declined from 33 in the second quarter of 2010 to 28 in the third quarter of the year.
"As such it remained above the level of 25 registered during the first quarter of 2010, which was the lowest point in the last cycle. The current reading indicates that barely one fourth of respondents rated prevailing business conditions as satisfactory."
This was quite low, but still above the lowest level recorded in the survey's 13 year's history - 13 in the second quarter of 2000.
Many civil contractors experienced lower volumes of work in 2010.
"Although construction activity contracted at a somewhat slower pace in the third quarter (-74% net) compared to the second quarter (-80% net), the decline in work remained widespread."
The low volume of work could be attributed to the fact that many projects were completed before Fifa World Cup.
"Since then few new projects were started due to a variety of constraints at local government level, some public corporations and in the private sector."
Some local governments appeared to be delaying new projects, because their income from rates and taxes had declined due to the recession, while capex budgets seemed to have been reduced to cover current expenditure.
Bruggemans said public corporations, such as Eskom and Transnet, had had to defer some projects, partly because international capital markets had become "extremely tight" after the global financial crisis.
"Management constraints may also have played a role," he said.
Work had continued to flow from certain parts of the private sector, but in the case of the residential building sector it had almost dried up completely due to the recession.
Tendering competition had become exceptionally fierce since the middle of last year.
"The respite of the second quarter turned out to be temporary and civil construction companies kept on retrenching staff on a large scale to contain costs and remain financially viable in this difficult environment."
A net majority of 72% of respondents reduced their staff in third quarter of 2010 compared to 69% net in the second quarter of the year.
The divergence between the record widespread decline in the volume of construction work and the low (but not record low) confidence level could to some extent be explained by respondents' expectations that conditions would improve in the year ahead - particularly if more government projects were to be awarded again
"Furthermore, some of the mega-sized companies positioned themselves well at the time of the onset of the global financial crisis and continue to operate at decent capacity levels, though their activity levels are falling."
During the third quarter the index retraced some of the gains made during the second quarter of this year, according to the bank's chief economist Cees Bruggemans.
The index declined from 33 in the second quarter of 2010 to 28 in the third quarter of the year.
"As such it remained above the level of 25 registered during the first quarter of 2010, which was the lowest point in the last cycle. The current reading indicates that barely one fourth of respondents rated prevailing business conditions as satisfactory."
This was quite low, but still above the lowest level recorded in the survey's 13 year's history - 13 in the second quarter of 2000.
Many civil contractors experienced lower volumes of work in 2010.
"Although construction activity contracted at a somewhat slower pace in the third quarter (-74% net) compared to the second quarter (-80% net), the decline in work remained widespread."
The low volume of work could be attributed to the fact that many projects were completed before Fifa World Cup.
"Since then few new projects were started due to a variety of constraints at local government level, some public corporations and in the private sector."
Some local governments appeared to be delaying new projects, because their income from rates and taxes had declined due to the recession, while capex budgets seemed to have been reduced to cover current expenditure.
Bruggemans said public corporations, such as Eskom and Transnet, had had to defer some projects, partly because international capital markets had become "extremely tight" after the global financial crisis.
"Management constraints may also have played a role," he said.
Work had continued to flow from certain parts of the private sector, but in the case of the residential building sector it had almost dried up completely due to the recession.
Tendering competition had become exceptionally fierce since the middle of last year.
"The respite of the second quarter turned out to be temporary and civil construction companies kept on retrenching staff on a large scale to contain costs and remain financially viable in this difficult environment."
A net majority of 72% of respondents reduced their staff in third quarter of 2010 compared to 69% net in the second quarter of the year.
The divergence between the record widespread decline in the volume of construction work and the low (but not record low) confidence level could to some extent be explained by respondents' expectations that conditions would improve in the year ahead - particularly if more government projects were to be awarded again
"Furthermore, some of the mega-sized companies positioned themselves well at the time of the onset of the global financial crisis and continue to operate at decent capacity levels, though their activity levels are falling."
