Construction World March 2021

MARKETPLACE

The results of the 2020Q4 cidb SME Business Conditions Survey point to a mild improvement in construction activity led by an uptick in work in the civil engineering (CE) sector, while activity growth in the general building sector (GB) was stable at the weak level registered in 2020Q3. CIVIL ENGINEERINGACTIVITY TICKS UP INQ4

“O n the plus side, it’s encouraging that the results aren’t all negative. However, this has to be interpreted with caution as the sector still faces many headwinds”, said Ntando Skosana, Construction Industry Performance. Weighing on overall GB activity was a sharp deterioration in current work among contractors in Grades 5 and 6. Despite this, ztheir confidence was unchanged at a low 13. In contrast, the confidence of Grades 7 and 8 fell by 7 points to 0. While activity improved significantly, it was not enough to prevent overall profitability from deteriorating. “Although activity is better than in 2020Q3, it seems GB in Grade 7 and 8 are sitting with increased cost pressures both by way of higher overheads resulting from the cost of COVID-19 health and safety requirements, but also due to increasingly scarce building materials which could be pushing up the cost of inputs,” noted Skosana. Confidence among GB in Grades 3 and 4 slipped by 3 points to 30. Provincially, Gauteng was the only region to register higher confidence at 25, from 21 in 2020Q3. This was supported by a slight rise in activity. In contrast, GB confidence in the Western Cape and KwaZulu-Natal declined to 8 and 0 respectively. GB confidence in the Eastern Cape was unchanged at 0. After rising by 7 index points in 2020Q3, CE confidence increased by a further 10 points to register a level of 29 in 2020Q4. Activity growth improved to its best level this year, supporting the uptick in confidence. Confidence was higher across all grades led by CE in Grades 3 and 4 at 16 “The results for CE are very encouraging, especially because it is not only sentiment that improved but also activity, and in a broad-based manner. However, it must be considered that activity growth is still under significant strain and this mild improvement comes off an exceptionally low base,” remarked Skosana. Although activity was better in all provinces, the uptick in sentiment is less broad-based when considered from a regional perspective. While CE confidence in the Eastern Cape and KwaZulu-Natal registered a more than 10-index-point decline, in the Western Cape and Gauteng sentiment moved higher. Indeed, CE confidence in the Western Cape, at 46, is at its highest level since 2018Q4. Even better is the index measuring activity growth which is at its best level since

2017Q4. “The performance of civil engineering contractors in the Western Cape definitely stands out this quarter. Not only was activity higher, but tendering price competition eased and overall profitability was better. All the indices improving in tandem is evidence that demand, at least in the Western Cape and to a lesser extent Gauteng, is improving albeit off a low base,” commented Skosana. The outlook remains downbeat for both GB and CE with the index measuring insufficient demand for new work as a constraint remaining elevated at 80% for both sectors. In summary, conditions, especially regarding work, remain tough in the GB sector. In contrast, there seems to be a broad-based uptick in CE work although more noticeable in the Western Cape and Gauteng. Overall, the survey suggests a slight improvement in construction activity in 2020Q4 relative to 2020Q3. “It is heartening to see some signs of improvement in the civil engineering sector but sustainability is difficult to gauge. Hopefully, we could see some of the work related to the much-vaunted infrastructure development programme in the next few months. Also, although the fiscus is under pressure, local government capex, or at least the efficiency thereof, could be boosted in light of the municipal elections set for next year. As for general building contractors, the outlook is bleak over the short term,” said Skosana. ▄ ABOUT THE SURVEY The cidb SME business conditions survey is conducted qu arterly among Grades 3 – 8 cidb-registered contractors (categorised into Grades 3 and 4, Grades 5 and 6 and Grades 7 and 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 between zero (indicating an extreme lack of confidence) and 100 (indicating extreme confidence). The 50 index-point mark is interpreted as neutral. The 2020Q4 survey was conducted during the period 5 October and 16 November 2020.

CONSTRUCTION WORLD MARCH 2021 12