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Johannesburg - There are clear signs that conditions in the construction sector are indeed getting better, according to Sizwe Nxedlana, chief economist at FNB.
After increasing by 6 index points in the third quarter of 2013, the latest FNB/BER construction confidence index rose a further 15 points to 66 in in the fourth quarter 2013.
This marks the highest level of the index since September 2008.
The current level of the index means that close to 7 out of 10 respondents were satisfied with prevailing business conditions during the fourth quarter of 2013.
“All of the underlying indicators improved during the quarter. Most encouraging, however, was the rise in construction activity," said Nxedlana.
Construction work likely came from capital expenditure (capex) by the government.
Provincial capex likely continued to increase, although at a modest pace. According to the National Treasury, provincial infrastructure during the first half of the financial year (until end September 2013) was 2.7% higher year-on-year (y-o-y).
In contrast, capex by municipalities accelerated noticeably in the first quarter of the financial year (July to September), rising by 18.9% y-o-y.
Public corporation capex could also have accelerated as a result of fewer disruptions at key construction sites and projects.
Private sector
Construction spending by the private sector probably continued. However, the private sector accounts for only a small share of total construction work, said Nxedlana.
Respondents also reported a significant moderation in the level of tendering competition.
“This could be as a result of the increase in construction activity. With more work available, firms can now be more selective with the projects for which they tender,” said Nxedlana.
At the current level, tendering price competition is at its lowest level since mid-2007.
However, despite the rise in construction work and less keen tendering competition, profitability remained largely unchanged.
“Input costs have slowly risen over the past few months, this could be weighing on profitability despite the improvement in activity and competition,” said Nxedlana.
The outlook for the first quarter of 2014 is also relatively optimistic, further supporting the rise in confidence.
Growth in construction activity in the first quarter of 2014 is expected to continue at more or less the same pace as in the fourth quarter of 2013.
However, gains in confidence may be limited if input cost pressures continue to weigh on profitability, said Nxedlana.
After increasing by 6 index points in the third quarter of 2013, the latest FNB/BER construction confidence index rose a further 15 points to 66 in in the fourth quarter 2013.
This marks the highest level of the index since September 2008.
The current level of the index means that close to 7 out of 10 respondents were satisfied with prevailing business conditions during the fourth quarter of 2013.
“All of the underlying indicators improved during the quarter. Most encouraging, however, was the rise in construction activity," said Nxedlana.
Construction work likely came from capital expenditure (capex) by the government.
Provincial capex likely continued to increase, although at a modest pace. According to the National Treasury, provincial infrastructure during the first half of the financial year (until end September 2013) was 2.7% higher year-on-year (y-o-y).
In contrast, capex by municipalities accelerated noticeably in the first quarter of the financial year (July to September), rising by 18.9% y-o-y.
Public corporation capex could also have accelerated as a result of fewer disruptions at key construction sites and projects.
Private sector
Construction spending by the private sector probably continued. However, the private sector accounts for only a small share of total construction work, said Nxedlana.
Respondents also reported a significant moderation in the level of tendering competition.
“This could be as a result of the increase in construction activity. With more work available, firms can now be more selective with the projects for which they tender,” said Nxedlana.
At the current level, tendering price competition is at its lowest level since mid-2007.
However, despite the rise in construction work and less keen tendering competition, profitability remained largely unchanged.
“Input costs have slowly risen over the past few months, this could be weighing on profitability despite the improvement in activity and competition,” said Nxedlana.
The outlook for the first quarter of 2014 is also relatively optimistic, further supporting the rise in confidence.
Growth in construction activity in the first quarter of 2014 is expected to continue at more or less the same pace as in the fourth quarter of 2013.
However, gains in confidence may be limited if input cost pressures continue to weigh on profitability, said Nxedlana.
