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Thursday Jan 23, 2014

Almost seven out of 10 builders satisfied with business climate

A recovery in construction activity and a moderation in tendering competition in the fourth quarter of last year elevated confidence in the construction industry to its best level since September 2008.

The construction confidence index released yesterday by FNB and the Bureau for Economic Research rose to 66 on a 100-point scale in the fourth quarter from 51 in the previous three months.

Sizwe Nxedlana, the chief economist at FNB, said this meant almost seven out of 10 respondents were satisfied with business conditions during the quarter.

'All of the underlying indicators improved during the quarter. This is a clear sign that conditions in the construction sector are indeed getting better,' he said.

The survey was conducted between October 14 and November 11.

Nxedlana said the increase in construction activity was encouraging. The pace of recovery in the sector accelerated during the quarter, especially in terms of construction work, which he said was somewhat disappointing in the third quarter last year.

The outlook for the first quarter of this year was also relatively optimistic.

Nxedlana said construction activity in the current quarter was expected to continue growing at about the same pace as in the last quarter but gains in confidence might be limited if input cost pressures continued to weigh on profitability.

Capital expenditure by the government, public corporations and the private sector were cited as the likely sources of construction work.

The report said capital expenditure by the government continued to support the construction industry and it was likely provincial capital expenditure would continue to increase but at a modest pace.

It cited the National Treasury as stating that provincial infrastructure expenditure was 2.7 percent higher year on year during the first half to September last year. Capital expenditure by municipalities accelerated by 18.9 percent in the first quarter of the financial year.

The survey report added that capital expenditure by public corporations could also have accelerated because of fewer disruptions at key construction projects.

Spending by the private sector probably continued, but the report stressed that the private sector accounted for only a small share of total construction work.

Nxedlana said respondents reported a significant moderation in the level of tendering competition, which could be the result of increased construction activity. 'With more work available, firms can now be more selective with the projects for which they tender.'
Nxedlana added that at the current level, tendering price competition was at its lowest level since mid-2007.

However, profitability remained largely unchanged. Nxedlana said input costs had slowly risen over the past few months, which could be weighing on profitability despite the improvement in activity and competition.

Business Report


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