The FNB Civil Construction Index, out on Tuesday, revealed a modest increase from an index value of 25 in 1Q 2010 to 33 in 2Q 2010.

However, it compared with an index of 48 recorded in the corresponding quarter a year ago.

FNB noted that although the confidence level improved marginally due to an apparent easing in tendering competition that was reported during the survey quarter, a confidence index of 33 nevertheless implied that 67% of the respondents still regarded current business conditions as unsatisfactory.

Cees Bruggemans, chief economist of First National Bank (FNB), said the survey results clearly painted a picture of an industry under siege experiencing rather unfavourable business conditions at present.

The economist pointed out that the civil industry obtains 88% of its work from the government sector. "With projects related to the Soccer World Cup drawing to a close and the rescoping of work available from some public corporations (e.g. Eskom, which has fallen behind with its capital expenditure programme due to funding problems), construction activity is declining. Moreover, management skills deficiency and other constraints at the provincial and local government level are leading to underspending on budgeted projects," FNB said.

Bruggemans stated that the growth in construction activity in 2Q 2010 deteriorated compared to 1Q 2009. Whereas a nett 69% of respondents in the previous survey indicated that the growth in construction activity was below that of the same quarter a year ago, the corresponding figure in 2Q 2010 was a nett 80%.

Moreover, a nett 82% of the survey participants indicated that the lack of demand for construction work was a constraint on their business operations.

Bruggemans said that due to the scarcity of new construction work, margins came under pressure, which adversely affected the growth in the overall profitability of businesses that participated in the survey. "In this regard, a nett 69% of respondents reported lower profitability growth compared with the same quarter a year ago. Respondents had very little choice in view of market developments but to resort to the retrenchment of labour. Compared to a nett 40% in 1Q 2010, a nett 69% of respondents in 2Q 2010 indicated that growth in employment was below that of the same quarter a year ago," FNB said.

Bruggemans concluded that the business outlook for 3Q 2010 remained unfavourable and that it was conceivable that business confidence in the sector could drop further going forward.

He said that unless government projects take off soon, more retrenchments were likely to follow in the civil construction industry. – I-Net Bridge

Readers' Comments Have a comment about this article? Email us now.