FNB/BER CIVIL CONFIDENCE INDEX

Subdued rise in civil contractor confidence in Q3

  • The FNB/BER Civil Confidence Index rose to 11 in 3Q2020, from an all-time low of 5 in 2Q2020.
  • Even though lockdown restrictions eased such that construction firms could operate more normally, activity levels remained ultra-depressed with only a marginal improvement from 2Q2020.

Sentiment in the civil construction sector, as measured by the FNB/BER Civil Confidence Index, increased to a still low level of 11 in 3Q2020, from 5 in 2Q2020.

The current index level means that the majority (almost ninety per cent) of respondents are dissatisfied with prevailing business conditions.

From a depressed level of 10 in 1Q2019, confidence rose steadily to 24 in 1Q2020. Then, because of measures to curb the spread of Covid-19, activity came to a standstill in Q2 and understandably confidence fell sharply. It is disappointing now with the restrictions on construction sector activity lifted that confidence still remained this low in the third quarter. Essentially, all the confidence gains of the 12 months prior to 2Q2020 have been wiped out,” remarked Siphamandla Mkhwanazi, Senior Economist at FNB.

Underpinning the low confidence was continued pressure on activity, which, while improved compared to 2Q2020, is likely well below the level recorded in 3Q2019. According to Statistics South Africa (Stats SA), the real value of construction works declined by 30.9% year-on-year (y-o-y) in 2Q2020, after a more muted contraction of 1.9% y-o-y in 1Q2020. “While this quarter’s survey results suggest a further fall in activity in 3Q2020, it is unlikely that it is as dire as registered in 2Q2020. That said, a mild decline such as registered in 1Q2020 is again way too optimistic,” cautioned Mkhwanazi.

Downbeat prospects for work over the next few quarters also kept confidence low. In 3Q2020, a slightly higher percentage of respondents – than the already elevated level in 2Q2020 – stated that the demand for new work, a proxy for company order books, was insufficient given normal business requirements. In addition, tendering competition intensified. “Given current demand conditions, what we are seeing in the survey results is that the lack of work has resulted in more aggressive competition by contractors for the little work which is available,” noted Mkhwanazi.

In conclusion: The FNB/BER Civil Confidence Index increased by 6 points to 11 in 3Q2020. Confidence stayed very low due to continued weak demand which is expected to persist over the short term.

There has been an increased focus (and talk) about infrastructure development as a mechanism to boost economic growth post the pandemic. These results suggest that this has not yet translated into tangible opportunities for civil contractors. One can only hope that this will change and that work will pick up over the next few months or quarters because without it this sector will remain on the back foot,” remarked Mkhwanazi.

About the survey:

The FNB/BER civil confidence index can vary between a maximum of 100 (which indicates that all respondents were satisfied with prevailing business conditions) and a minimum of zero (indicating that all respondents were dissatisfied). A level of 50 indicates that the respondents are equally divided between those satisfied and dissatisfied.

The fieldwork for the third quarter survey was conducted between 12 and 31 August 2020.

FNB/BER Civil Confidence Index

Percentage satisfied

 

Source: BER Stellenbosch University

Civil construction

Growth in construction activity

 

Source: BER Stellenbosch University