Housing in Southern Africa February 2016

Housing

The state of civil construction The FNB/BER Civil Confidence Index increased by 3 index points to 42 in the fourth quarter of 2015, showing that construction confidence was marginally higher.

C onfidence was boosted by an improvement in overall profitability amid continued restrained growth in construction activity. FNB Economics Senior In- dustry Analyst, Jason Muscat says that the current level of confidence still suggests that close to 60% of civil contractors are dissatisfied with prevailing business conditions. The FNB/BER Civil Confidence Index edged higher to 42 points in the fourth quarter of 2015, from 39 in third quarter of 2015. Despite the rise in confidence, the current level of the index indicates that close to 60% of respondents are dissatisfied with prevailing business conditions. “Civil contractors were relatively downbeat for much of 2015. After averaging 51 index points in 2014 and 53 in 2013, confidence averaged only 41 in 2015,” says Muscat. The change in the fortunes of civil contractors is largely due to a slowdown in construction activity. According to revised figures from the South African Reserve Bank (SARB), the growth in the real value of con- struction works rose by an annual rate of 5,2% in the third quarter 2015, a far cry from the average of 15,1% in 2014. The current survey results suggest that the growth in construc- tion works likely slowed in the fourth quarter of 2015. “Althoughwork from provinces andmunicipalities has held up well, weak spending on construc- tion by state-owned enterprises and the private sector continues to weigh on growth,” added Muscat. Overall profitability saw a notice- able improvement during the quarter as tendering competition eased, lifting confidence. Confidence was further boosted by respondents’ expectations that construction work and profitability will be noticeably and the private sector continues to weigh on growth. Although work from provinces and municipalities has held up well, weak spending on construction by state-owned enterprises

better in first quarter of 2016. “Re- spondents’ predictions have been in- accurate in the past, andwhile it con- tributed to the uptick in confidence in fourth quarter of 2015, it is probably too optimistic,” says Muscat. The percentage of respondents citing new demand as a constraint to business operations was some- what lower in fourth quarter of 2015, although still relatively high. He concludes: “Although confidence edged higher in fourth quarter of 2015 on the back of a marked improve- ment in profitability, the majority of civil contractors remain dissatisfied with pre- vailing business conditions. Growth in construction work likely slowed during the quarter and is set to remain fairly subdued over the short- to medium term. This is

Jason Muscat

largely due to the demand for new work which, albeit slightly higher in fourth quarter of 2015, continues to be relatively scarce.” ■

February 2016