The FNB/BER construction confidence index edged lower from 23 in 2Q11 to 21 in 3Q11, representing the same level as in 1Q11 and much lower compared to the average level of 84 in 2006.
According to banking group First National Bank (FNB), and the Bureau for Economic Research (BER), the short-term prospects for the civil construction were brighter given indications of recovery in activity, although a number of head winds could see the recovery not continue in a straight line.
The confidence index could vary between a maximum of 100 (which indicated that all respondents were satisfied with prevailing business conditions) and a minimum of zero (indicating that all respondents were unsatisfied).
"The current reading of 21, therefore, indicates that the bulk of respondents remained dissatisfied with prevailing business conditions. Although confidence remained low, other indicators show that the construction sector continued to improve," said Cees Bruggemans, chief economist at FNB.
Although construction activity levels were still far from satisfactory in 3Q11, they were the best since 2Q09.
FNB said that construction work at some public corporations (such as Eskom, Transnet, SANRAL and TCTA) continued on and off. Construction work at some public corporations (such as Eskom, Transnet, SANRAL and TCTA) continued on and off. "For instance, work at the Medupi and Kuseli power stations have resumed since labour problems brought it to a halt in May."
"The mining sector increased spending on construction works. This is more done to sustain than to expand existing capacity.
"Little work continued to flow from the government. Some provinces awarded more tenders, but in others they were postponed due to investigations into their awarding," the bank said.
Tendering competition also eased relative to the first half of the year, the bank added. Although it was still fierce relative to 2006 and 2007, it was slightly easier relative to 2009 and 2010.
"Insufficient demand for work became somewhat less of a constraining factor compared to the end of 2010," the group noted.
And although an inadequate supply of construction materials did not hamper activity by much, it had become more of a factor than previously. The noticeably higher level in 3Q11 compared to 2010 could largely be attributed to supply problems of bitumen and certain types of steel, Bruggemans said.
FNB said that respondents expected the recovery to gain further momentum in 4Q11. More work was likely to flow from local governments, because it was easier to make decisions now that the local election was completed. National Treasury's monitoring of local governments' budgeted capital spending could also advance construction activity.
"However, a number of developments may cause respondents' optimistic expectations not to be fully realised and that the recovery does not continue in a straight line in the next six months or so," Bruggemans warned.
He said that the spending by mines could be spread over a longer time period than initially planned should the present overseas financial turmoil usher in a period of even weaker global demand and lower commodity prices.
Financing was likely to continue hampering some investment spending by public corporations. SANRAL was a new case in point, FNB said.
"Construction work comes to an end as certain big projects, such as the power stations, progress and spending on machinery and equipment takes over.
In all, the short-term prospects for civil construction are brighter given indications of recovery in activity, although a number of head winds may see the recovery not continue in a straight line," Bruggemans said.
