Grim outlook for construction firms

Pretoria - The South African civil construction industry is under pressure and its future seems gloomy, according to FNB’s latest construction index.

FNB chief economist Cees Bruggemans said the civil construction industry depends on government clients for about 88% of its work.

With big projects for the 2010 FIFA World Cup behind it and other projects delayed because of funding problems, activity levels are on the decline.

What is more, a lack of management expertise and other problems within provincial and local governments is resulting in underspending on projects that have been budgeted for.

Sake24 recently reported that construction data service Industry Insight’s database shows that 161 government projects have been held up since the beginning of last year.

The rate at which projects were delayed, according to Industry Insight, doubled last year and the number of projects for which tenders were invited fell by a third in the first quarter of this year, compared with the same period last year.

According to Bruggemans, growth in the construction industry tapered off in the second quarter, compared with 2009. A total of 82% of respondents indicated that a lack of demand for their services was constraining business.

The scarcity of work is putting profit margins under pressure and 69% of the respondents say their profit growth is down on a year ago.

Market conditions are forcing businesses to reduce their workforces, said Bruggemans.

Although confidence levels in the second quarter improved slightly to 33, compared with 25 in the first quarter, this still means that 67% of respondents experienced current market conditions as negative.

Bruggemans said prospects still look poor and confidence levels could slide even further.

- Sake24.com

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