The Consulting Engineers South Africa (CESA) Bi-annual Economic and Capacity Survey for the period July to December 2015, just released indicates that times are tough and getting tougher with industry confidence the lowest in 16 years.

The report indicates that the consulting engineering industry will have to adapt to a low growth environment as the outlook for infrastructure spending is hampered by poor economic growth, lower than expected revenue by government, international economic instability and price volatility, and low private sector confidence.

Three key factors continue to influence the global outlook these are the gradual slowdown and rebalancing of the Chinese economy; lower prices for energy and other commodities; and the gradual tightening of US monetary policy.

GDP growth in South Africa slowed to 0.6 percent q-q, from 0.7 percent q-q in the previous quarter. South African economic growth slowed from 1.5 percent y-y in 2014 to 1.3 percent in 2015.

Growth was largely dragged down by a further contraction in the agriculture sector while construction recorded marginal growth of 1.1 percent in the 4th quarter (from 0.5 percent in the previous quarter).

Chris Campbell, CESA CEO believes, “Government needs a strong focus on the implementation of more of its strategic infrastructure projects as detailed in the National Development Plan in order to mitigate the decline in the economy and improve investor confidence.”

Fears of further credit downgrading

He further reiterated that “Engineers in South Africa stand ready to partner with government in eradicating the leakage from the fiscus, not only through water which does not reach domestic households, but also through poorly spent monies or corrupt practices which have led to payment for poor quality and even non-existent services in the infrastructure space.”

Probably the most critical concern, and most significant downside risk to inflation and economic growth, for the domestic economy is the fear of a further sovereign credit rating downgrade and its effect on the industry.

A lower credit rating means the cost of borrowing for the South African government will escalate, which means more tax payers money will be used to finance debt, with less available to spend on critical economic and social infrastructure.

Currently government expects that 3.6 percent of GDP per annum will be used on interest expenditure, estimated at around R260 billion per year, equal to total public sector infrastructure allocations a year.

For a copy of the CESA Bi-annual Economic and Capacity Survey please visit http://www.cesa.co.za/node/21