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Confidence declines again

Business confidence in South Africa’s construction industry is at its lowest level in 11 years. However, there was some up-tick in actual activity during first quarter 2011, extending a trend that started in second quarter 2010. The up-tick in activity appears to stem mainly from new work commissioned by SA’s provinces, which benefited mainly larger companies, as the projects were too big for smaller firms.

FEW UPBEAT The First National Bank/Bureau for Economic Research civil construction confidence index fell from 27 in fourth quarter 2010 to 21 in first quarter 2011. A reading of 21 indicates around just one out of five civil contractors rated prevailing business conditions as satisfactory. It’s the lowest level in 11 years.

GROWTH NEGATIVE Expected year-on-year growth in construction activity remains negative, despite the up-tick in activity in first quarter 2011 from final quarter 2010. Little new work comes from the private sector (mainly infrastructure for housing projects and capital spending in the mining sector) and the work from public corporations either occurred at the same pace or declined.

COMPETITION FIERCE Conditions remained extremely tough in the civil construction sector in first quarter 2011. Insufficient demand for work remained a huge constraint. Consequently, tendering competition remained extremely fierce, which in turn suppressed profits and left firms with no other option but to continue retrenching staff to curtail costs.

GDP CONTRIBUTION ZERO SA’s construction industry has contributed zero percentage points to gross domestic product growth for five consecutive quarters. That’s a far cry from its heyday, when the construction sector was growing at close to 15%. Even the up-tick in the latest quarter might not be cause for optimism, as it could be a sign of provinces spending temporarily to get rid of budgeted funds.

 
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