FNB Civil Construction Confidence Index

The FNB Civil Construction Confidence Index, compiled by the BER, dropped from an index value of 60 in 1Q2009 to 48 in 2Q2009. General business conditions turned out worse than expected at the time of the 1Q2009 survey.

The growth in construction activity executed during 2Q2009 disappointed. The moderation in workloads must be seen against the sharp deterioration in private sector fixed investment, notably those experienced in sectors such as the mining, manufacturing and property development industries.  A further contributing factor could be the observed behind budgeted nature of capital expenditure by local authorities.

Respondents to the 2Q2009 survey reported that new construction work was getting more difficult to procure and that they experienced a sharp increase in tendering competition during the survey quarter. For example, whereas a net 64% of respondents in the 1Q2009 survey reported a keener tendering environment compared to the same quarter a year ago, the corresponding figure in 2Q2009 jumped to a net 91%.

Margins and profitability consequently took a knock during 2Q2009 and the participants to the survey were of the opinion that the situation was likely to deteriorate further in 3Q2009. With turnover in businesses under pressure, overhead reduction has become imperative and hence it was not surprising that retrenchments took place during 2Q2009. Expectations were that this trend was likely to accelerate in the quarter ahead.

Regarding the outlook for 3Q2009, he commented that the view was expressed that both business conditions and construction activity were not expected to deteriorate notably over the near term.

By Cees Bruggemans | Chief Economist FNB