Although prevailing business conditions are still the source of much dissatisfaction in South Africa, things aren’t all bad, according to First National Bank and the Bureau for Economic Research’s latest Civil Confidence Index.
A statement released by the Bureau this morning said that “after moving marginally higher to 10” in the second quarter, the Index “increased further to Q3 2022, a level last reached in 2020 Q1”.
However, “despite the improvement in sentiment, the current index level means that more than seventy-five per cent of respondents were dissatisfied with prevailing business conditions”.
The Bureau adds that “confidence was buoyed by a marked uptick in activity”.
“Statistics South Africa reported a 9.6% annual decrease in the real value of investment in construction works in Q2 (this year).
“This quarter’s survey results point to a moderation in the rate of decline.”
FNB Senior Economist Siphamandla Mkhwanazi said: “While there is some activity in the sector, it is not enough to lift growth into positive territory. In addition, part of the better activity is most likely related to the post-flood rebuilding efforts in KwaZulu Natal, which is temporary.”
According to the statement, the uncertainty regarding the outlook is further highlighted by the high percentage of respondents who revealed the lack of new demand to be a business constraint. In other words, order books remain weak, capping gains in confidence.
Also weighing on sentiment was a deterioration in overall profitability, despite the higher activity.
“It has become a feature of the survey results since 2020, that construction firms are experiencing severe profitability strain relative to work,” Mkhwanazi remarked.
“During 2020 and part of 2021, the pressure on profitability was largely due to Covid-19 compliance costs and loss of productivity. Now, the high cost of materials and security-related expenses seem to be eroding profit margins.”
