After registering a low of only 9 in 1Q2022, the confidence of civil contractors, as measured by the FNB/BER Civil Construction Index, has gradually risen over the course of the year.At 31 in 4Q2022, the index is at its best level since the beginning of 2017. Despite the improvement, compared to the long-run average of 43, sentiment is still quite downbeat. Indeed, the current index level means that slightly less than seventy percent of respondents were dissatisfied with prevailing business conditions. Confidence ticked up on the back of better activity and, in turn, profitability. “Last quarter the survey results indicated a marked increase in quarter-on-quarter activity growth. Encouragingly, there seems to have been a further improvement in 4Q2022,” said Siphamandla Mkhwanazi, Senior Economist at FNB. Respondents are also upbeat about prospects for 1Q2023, which could also have lifted confidence. “History has taught us that we need to take respondents expectations with a pinch of salt. This is even more so this quarter because many of the comments regarding the outlook relate to an increase in work on renewable energy projects. Realistically, it is uncertain at this stage just how quickly investment in green energy will progress,” remarked Mkhwanazi.
On the other hand, the more optimistic view on the outlook is somewhat supported by the rating of insufficient new demand as a business constraint – a proxy for order books – which eased to 73%, from 83% in 3Q2022.While the results this quarter are encouraging, the disconnect between activity growth (which is well above the survey’s long-term average) and sentiment (which is stuck well below 50 compared to a long-term average of 46) highlights the effect that factors not expressly surveyed have on the mood of contractors. “Once again, concerns around the protracted delays between tender adjudication and award and the cost of business forums, or the construction mafia, were mentioned. These concerns weigh increasingly on sentiment,” said Mkhwanazi. After rising to 24 in 3Q2022, the FNB/BER Civil Confidence Index increased further to 31 in 4Q2022. The higher confidence was supported by better activity and profitability. According to Mkhwanazi, “there is a clear improvement in civil construction activity this quarter which should continue into 2023. However, this should be viewed with caution as respondents pin much of their optimism relating to future activity on renewable energy projects. We have been disappointed by the pace of the rollout of these projects in the recent past”.