The FNB/BER Civil Confidence Index rose steadily between Q3 2020 and Q1 2021. This quarter, however, the index fell to 13, from 21 in Q1 2021.
In other words, the current index level means that the vast majority (close to 90%) of respondents are dissatisfied with prevailing business conditions.
Statistics South Africa (Stats SA) data showed that the real value of investment in construction works declined by almost 18% year-on-year (y-o-y) in Q1 2021. Due to base effects, annual growth will likely rebound noticeably in Q2.
“While in the official data growth in construction works will be higher in Q2 2021, the survey data suggests that this is not the experience of the majority of respondents. Indeed, against expectations of an improvement, the index measuring activity was unchanged between Q1 2021 and Q2 2021. This could have weighed on confidence,” said Siphamandla Mkhwanazi, property economist at FNB.
Also stunting confidence was keener tendering competition. Firms are having to price tenders more aggressively (ie, with narrower profit margins) in order to secure work.
Regarding the outlook, the demand for new construction work remains scarce. This is further complicated by procurement delays, especially in the public sector. According to Mkhwanazi, there was a rise in the number of survey respondents who commented that the amount of time between tender closing date and tender adjudication was increasing, to the detriment of firms.
In conclusion: The FNB/BER Civil Confidence Index declined to 13 in Q2 2021, from 21 in Q1.
“It’s highly unlikely that, on an annual basis, construction activity will contract again in Q2. However, against expectations, it does seem as though the momentum in construction activity seen since Q3 2020 has stalled. Furthermore, the percentage of firms that find new construction demand to be elusive remains elevated,” said Mkhwanazi.