Johannesburg - A recovery in the construction sector gained
momentum during the third quarter, First National Bank (FNB) and the Bureau for
Economic Research (BER) said on Tuesday.
The FNB/BER construction confidence index rose to its
highest level in three years during the third quarter, gaining four index
points to reach 42.
"The rise in confidence was underpinned by improved
activity levels. However, profitability came under renewed pressure," the
organisations said in a statement.
There were definite signs that the construction recovery was
Although construction activity had consistently improved
over the past two years, the growth in activity ratcheted up more significantly
over the last six months.
This higher growth came from a number of sources.
Provincial spending on capital projects - dominated by road
and water infrastructure projects - remained on track.
Capital expenditure (capex) in KwaZulu-Natal, Gauteng and
the Free State was growing robustly. But the Eastern Cape, Limpopo and the
North West had struggled to complete projects.
According to the National Treasury, capex by provinces rose
by 14.6% during the first quarter of the 2012/13 financial year, which ended in
Continued capital outlays by Eskom on the Medupi, Kusile and
Ingula power stations as well as ongoing capex by Transnet also supported
In contrast, municipalities continue to underspend on their
According to the National Treasury, municipalities spent
R33.2bn on capex for the full 2011/2012 financial year which ended in June.
However, this represented only 72.5% of the total capital
budget for the full year. There was therefore an underspend of R12.8bn.
The improvement in activity levels has led to some
constraints within the construction sector, including a shortage of skilled
In contrast, the shortage of building materials was less
inhibiting to business operations during the third quarter compared to the
Thanks to the sustained rise in activity, construction firms
had some additional room to increase tendering prices.
Competition for work also eased slightly during the period.
But despite the increase in activity and the more relaxed
competitive environment, profitability came under renewed pressure.
"Input prices are rising faster than tendering prices
and this has continued to squeeze profit margins during the third
quarter," said FNB economist Cees Bruggemans.
The number of people employed by construction firms also
rose in response to the rising activity levels.
The current reading of 42 indicated that 42% of respondents
were satisfied with prevailing business conditions.
This compared with 38% in the previous quarter and a
cyclical low of 21 during the first and third quarters of last year.
Conditions in the civil construction sector have improved significantly
over the past few quarters. This was likely to continue as construction work
But the pace of the recovery depended on the public sector's
ability to realise spending on their capex budgets, both institutions warned.