Construction World June 2018

MARKETPLACE

FLAT CONFIDENCE

“It should be noted that, even though one sees positive movements in some of the underlying

General building confidence, as measured by the cidb SME Business Conditions Survey, was flat at 36 index points in 2018Q1. It is encouraging that key underlying indicators ticked up. Nevertheless, they stayed at poor levels. Constraints to business operations moved sideways, but remained elevated.

morose, especially in light of the reversed gain in confidence for the Western Cape co- hort, where confidence plunged to its worst level since 2013Q2. While one saw some improvements in sentiment among the other three provinces, this was overshadowed by the outcome in the Western Cape.” Conclusion The first quarter of 2018 was yet another period where strain in both the building and civil engineering sectors was highlighted. The outcome in confidence levels in both sectors was below 40 index points, which was broadly in line with the poor levels of the underlying indicators. They persisted be- low their long-term averages. Discouragingly, future activity momentum is likely to remain under pressure in both sectors. This is partly reflected in the indicator rating insufficient demand for building and construction work as a constraint, which remains elevated in both cases. The latest GDP growth statistics from Stats SA showed a fourth consecutive decline in output in the construction sector. Output fell by 1,4% q-o-q in 2017Q4. Discour- agingly, this quarter’s survey results suggest that the pressure in both building and civil construction activity could persist. The outlook for activity in both sectors is further clouded by the recent government Budget for 2018, which reiterated the reduction in expenditure away from capital and towards consumption expenditure. Indeed, about 47% (or R39,7-billion) of the R85-billion in spending reductions consists of cuts to con- ditional infrastructure grants to provincial and local government.  indicators across the grades, confidence levels remain at depressed levels – below long-term averages.”

A cross the grades, only Grades 3 and 4 lost confidence in line with weaker un- derlying indicators among general builders in this group. For Grades 5 and 6 as well as Grades 7 and 8, the improvement in the momentum of activity growth helped nudge confidence higher. Ntando Skosana, Project Manager for Monitoring and Evaluation at the cidb ob- served, “It should be noted that, even though one sees positive movements in some of the underlying indicators across the grades, confidence levels remain at depressed levels Among the big four provinces, Western Cape building contractor confidence remained above the 50-point neutral mark. Confidence ticked down by 3 index points to 54 points during the quarter. Although sentiment improved for builders in the Eastern Cape, Gauteng and KwaZulu-Natal, confidence About the survey The cidb SME business conditions survey is conducted quarterly among Grades 3 – 8 cidb-registered contractors (categorised into Grades 3 & 4, Grades 5 & 6 and Grades 7 & 8), both for general building and civil industries. The main indicator used for analysis purposes is business confidence, which indicates whether respondents find the current business conditions satisfactory. A business confidence index can vary be- tween zero (indicating an extreme lack of confidence) and 100 (indicating extreme confidence). The 50 index point mark is interpreted as neutral. – below long-term averages.” Building contractors

levels registered an average of 30 points. “At this level of confidence, a disappointingly high majority of about 70% of respondents were dissatisfied with current business conditions during the quarter,” highlighted Skosana. “However, this should not come as a surprise, especially when one looks at the Civil engineering confidence also came in at 36 index points during the first quarter of 2018, after ticking up by 1 point. Both activity and profitability were lifted off the exceptionally low levels seen in 2017Q4. Skosana pointed out that “It is encouraging that both activity and profitability managed to claw back from their worst respective lev- els since 2011Q1 and 2010Q3”. She added, “These indicators still came in below their long-term averages, however, which explains why confidence remains low.” From a grades perspective, Grades 5 and 6 civil contractor confidence was mostly flat against the backdrop of better activity, while pressure on profitability persisted. The uptick in confidence for Grades 3 and 4 was slight, and was barely supported by underly- ing indicators. The increase in confidence for Grades 7 and 8 was notable, from 24 points to 30. This came on the back of improved activity and profitability. At the regional level, civil contractors across all four provinces registered confi- dence levels of below 40 index points. This implies that, on average, more than 60% of respondents in each of these provinces rated business conditions as unfavourable during the survey quarter. Skosana pointed out that, “The provincial picture for civil contractors was rather underlying indicators”. Civil engineering

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CONSTRUCTION WORLD JUNE 2018