Confidence in South Africa’s construction sector plummeted to its lowest level since the third quarter of 2000 according to the latest FNB/BER Civil Confidence Index.

The index shed 13 points to register a level of 15 in the third quarter of 2017 with confidence losing a cumulative 37 index points over the last year.

Underpinning the lower confidence was weaker growth in construction activity.

Statistics South Africa (Stats SA) calculated the real, seasonally adjusted, growth in construction works at 3% year-on-year (y-o-y) in the second quarter of 2017, more or less unchanged from the first quarter of 2017. However, on a quarterly basis the value of spending contracted by 1% Q2 2017, from a 1.2% decline in Q1 2017.

“This quarter’s survey results suggest that the poor growth performance seen in the second quarter of 2017 should continue into the third quarter of 2017, if not worsen further”, stated Jason Muscat, Senior economic analyst at FNB.

Policy uncertainty and keener competition

The pressure on activity is also evident in the marked rise in tendering price competition in the quarter. The combination of lower activity and keener competition weighed on profitability.

Broader policy uncertainty also likely weighed on confidence this quarter, although not explicitly measured by the survey.

“While it is true that activity and profitability growth likely deteriorated during the quarter, the levels are not as bad as was the case in 2000 when confidence was last this low.

“We are of the opinion that broader policy uncertainty, especially surrounding the revised mining charter and key renewable energy programmes, have made civil contractors more pessimistic than what the underlying indices suggest”, noted Muscat.

Looking ahead, it is likely that conditions in the sector, particularly activity, may remain under pressure. “The percentage of respondents which cited insufficient demand as a business constraint rose in the quarter, and this is usually a decent proxy for the state of the industry’s order books”, added Muscat.

“To sum up, the civil construction sector in all likelihood fared poorly in the third quarter of 2017, with no sign of relief over the short term”, said Muscat.