Business satisfaction improves slightly

Cape Town - Satisfaction with current business conditions improved somewhat in the third quarter of 2016, according to the FNB/BER Civil Confidence Index. 

After increasing by 13 points in the second quarter of 2016, the index rose by a further 11 points to 52 in the third quarter, indicating a slight uptick in satisfaction. 

The index, which is a collaboration between FNB and the Bureau for Economic Research (BER) from the Stellenbosch University civil, measures satisfaction with prevailing business conditions. A level of 50 indicates that respondents are equally divided between satisfied and dissatisfied. 

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Confidence was lifted by a notable improvement in overall profitability due to less keen tender price competition and continued, although subdued, growth in construction activity.

Looking ahead, construction activity is set to remain under pressure although order books have improved. The registered level of 52 points o the index in the third quarter of 2016 means that confidence has gained 24 points in total since the first quarter of this year, FNB said.

The current level of the index indicates that slightly more than half of respondents are satisfied with prevailing business conditions.”

“The less keen tendering competition lifted profitability somewhat,” said Jason Muscat, senior industry analyst at FNB. “However, it is important to note that tendering competition can ease due to an increase in the number of tenders or a fall in the number of firms tendering or a combination of the two.”

Confidence was higher despite soft growth in construction activity. According to Statistics South Africa (Stats SA), growth in the real value of construction works slowed to 0.2% year-on-year in the second quarter of 2016 down from 4.6% in the first quarter. 

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On a quarterly basis, construction work was up 8%. “The annual result was somewhat weaker than what last quarter’s survey results suggested. Nonetheless, growth may continue in the third quarter of this year although a robust quarterly recovery as seen in the second quarter is unlikely,’ said Muscat. 

Pressure on public sector capital expenditure due to fiscal concerns as well as mining companies’ reluctance to embark on costly capacity expansion projects will have a dampening effect on construction activity over the medium term.

Although growth in construction activity remained under pressure, respondents indicated that the lack of demand for new work is becoming less of a business constraint. “This possibly reflects some work coming through, likely from the renewable energy sector. However, this may not be enough to support the entire industry”, Muscat said.

Despite the slight rise in confidence the subdued growth in construction activity remains a concern, FNB said. The marked slowdown in construction works in the second quarter of this year suggests that a similar low growth can be expected for the third quarter.