Johannesburg - The potential for significant retrenchments in the civil construction industry this year has shattered the confidence of contractors in the industry.
First National Bank's civil construction confidence index fell to 25 index points in the first quarter of this year, from 39 in the fourth quarter of 2009.
In the first quarter of last year the index stood at a healthy 60 points.
This index is compiled by the Bureau for Economic Research (BER) at the University of Stellenbosch.
Observers reckon the industry is in danger of retrenching between 10% and 20% of its almost 176 000 labour force this year, largely because of a dearth of work and the deterioration of overall business conditions in the industry. This would entail the loss of about 35 000 jobs.
Despite lower activity levels the industry has so far managed to evade large-scale dismissals and employment declined only 1% in 2009 compared with 2008, says First National Bank chief economist Cees Bruggemans.
The overheads of such huge idle capacity are no longer sustainable.
The seriously pessimistic mood in the industry is also reflected in the confidence index of the South African Federation of Civil Engineering Contractors (Safcec), which was down to 26 points in the fourth quarter of last year.
Safcec economist Henk Langenhoven says confidence declined 45.5% in 2009, to its lowest level since the end of 2003.
Soccer projects nearing completion
Bruggemans ascribes the current business environment mood to a basket of factors. First, the contraction in the economy has resulted in a marked decline in the demand for civil construction work in the private sector.
Another factor is that 2010 Fifa World Cup infrastructure-related projects are approaching finality. Various projects have also been postponed.
Finally, expenditure by local authorities has sharply declined, and there are long delays before tenders are awarded because of inefficiency at provincial and local authorities.
He says a net 69% of the respondents in the survey indicated that their volumes of work in the first quarter of 2010 have been significantly lower than in the corresponding quarter last year.
Langenhoven says the question that needs to be asked is whether this is a sharp cyclical downturn or a structural crack, which will return the industry to the lull it experienced before 2000.
He doubts whether it would be the latter, and says the country's social and economic infrastructure remains under pressure and needs replacement.
Bruggemans believes this means that a roller coaster ride could lie ahead for the civil construction industry.
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