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Johannesburg - The civil construction industry is suffering as large companies feel the effects of the recession, and the outlook for 2011 remains bleak, according to the latest FNB/BER civil construction confidence index released on Monday.
The index was 27 for the fourth quarter of 2010. The previous quarter it was 28.
"A reading of 27 indicates that more than three out of four civil contractors surveyed rated prevailing business conditions as unsatisfactory," said Cees Bruggemans, chief economist of First National Bank.
In the fourth quarter, construction work contracted at the same high rate as the third quarter.
"The percentage of respondents indicating that an insufficient demand for work placed a serious constraint on their businesses increased from 84% to 90%.
"Despite a dire need and the availability of funds, the awarding of government contracts to maintain and expand infrastructure has so far not compensated for the dramatic fall in private sector work since 2008," said Bruggemans.
Capacity in the construction industry expanded sharply from 2005 to 2007 to accommodate increased private sector work, including housing projects and capital spending in the mining sector; work for the public corporations, such as roads, airports and the Transnet pipeline; and some large government projects like the Gautrain and World Cup soccer stadiums.
The reduced construction work hit small firms in 2008. It only started to impact larger companies from mid-2010.
"So far, increased work has not been forthcoming from the government despite the dire need for infrastructure maintenance and expansion (such as water supply and treatment plants) and the availability of earmarked funds (such as the regional and municipal infrastructure grants)."
Bruggemans said large firms had reduced workloads since about the middle of 2010 as no new mega projects were started and some existing projects came to an end.
"In this environment of little work, tendering competition is extremely fierce. Many firms put in low tenders to get at least some work. This hurts their profitability.
"To remain financially viable and reduce capacity, firms continue to reduce staff. Employment in this sector is expected to fall further."
Respondents to the survey expected improved business condition for the first quarter of 2011.
"This expectation is logical given the visible need for and repeated pronouncement of increased government spending on infrastructure," Bruggemans said.
"However, if structural reasons are causing the absence of government work and the problem persists, then construction work will only pick up when private sector spending increases in 2012 and beyond."
He said if this were the case, the construction confidence index would most likely continue to move sideways at low levels in 2011.
The index was 27 for the fourth quarter of 2010. The previous quarter it was 28.
"A reading of 27 indicates that more than three out of four civil contractors surveyed rated prevailing business conditions as unsatisfactory," said Cees Bruggemans, chief economist of First National Bank.
In the fourth quarter, construction work contracted at the same high rate as the third quarter.
"The percentage of respondents indicating that an insufficient demand for work placed a serious constraint on their businesses increased from 84% to 90%.
"Despite a dire need and the availability of funds, the awarding of government contracts to maintain and expand infrastructure has so far not compensated for the dramatic fall in private sector work since 2008," said Bruggemans.
Capacity in the construction industry expanded sharply from 2005 to 2007 to accommodate increased private sector work, including housing projects and capital spending in the mining sector; work for the public corporations, such as roads, airports and the Transnet pipeline; and some large government projects like the Gautrain and World Cup soccer stadiums.
The reduced construction work hit small firms in 2008. It only started to impact larger companies from mid-2010.
"So far, increased work has not been forthcoming from the government despite the dire need for infrastructure maintenance and expansion (such as water supply and treatment plants) and the availability of earmarked funds (such as the regional and municipal infrastructure grants)."
Bruggemans said large firms had reduced workloads since about the middle of 2010 as no new mega projects were started and some existing projects came to an end.
"In this environment of little work, tendering competition is extremely fierce. Many firms put in low tenders to get at least some work. This hurts their profitability.
"To remain financially viable and reduce capacity, firms continue to reduce staff. Employment in this sector is expected to fall further."
Respondents to the survey expected improved business condition for the first quarter of 2011.
"This expectation is logical given the visible need for and repeated pronouncement of increased government spending on infrastructure," Bruggemans said.
"However, if structural reasons are causing the absence of government work and the problem persists, then construction work will only pick up when private sector spending increases in 2012 and beyond."
He said if this were the case, the construction confidence index would most likely continue to move sideways at low levels in 2011.
