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NEWS: Civil project awards increase to highest level in four years

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Even though there has been a strong rebound in the civil construction sector , construction market intelligence firm Industry Insight reports that the private sector continues to disinvest in buildings and project postponements are accelerating.

Civil construction awards were supported by three significant road projects in KwaZulu-Natal, awarded by the SA National Roads Agency (Sanral) to JSE-listed construction company Raubex.

These were the R1.48 billion contract for the upgrading of the N3 from Dardanelles to Lynnfield Park, the R1.43 billion contract for the upgrading of National Route 2 from Kwamashu Interchange to Umdloti River Bridge and the R1.44 billion contract for the upgrading of the National Route 3 from Cato Ridge to Dardanelles.

Raubex was last month also awarded a $172.2 million lump sum turnkey engineering, procurement and construction contract for the modernisation, expansion, upgrading and improvement of the Beitbridge border post in Zimbabwe.

Industry Insight CEO Elsie Snyman said Sanral has also awarded several other higher-value road projects, valued at about R500 million each, to Triamic Construction in KwaZulu-Natal, and Roadmac Surfacing, Tau Pele and WBHO in the Eastern Cape.

Snyman said the nominal value of civil awards increased by 19.8% year on year in the last 12 months, from an increase of 7.5% in 2019.

Tender activity

She said tender activity also improved in October, increasing by 15.8% year on year and was supported again by an increase in water-related projects, which included several higher-value projects, and a moderate increase in road projects out to tender.

However, Snyman said tender activity was 18% lower year on year for the first 10 months of the year.

PPC South Africa & Botswana MD Njombo Lekula confirmed this week there has been an increase in the number of infrastructure projects awarded and a lot of water treatment projects have come through.

“We have one in Suikerbos that we are busy supplying; we have quite a few road projects that Sanral is busy with and rolling out; and we have some wind farms in the coastal region. All these projects will have an impact on our industrial sector,” he said.

Lekula added that there are quite a lot of residential projects that are being spoken about; quite a few projects by Balwin Properties in the Gauteng area; and quite a few RDP and low-cost housing projects “on the go” in Mpumalanga

“This is what gives us confidence,” he said. “The infrastructure projects are starting to kick in.”
FNB and the Bureau for Economic Research (BER) reported this week that confidence in the civil construction industry improved in the fourth quarter (Q4) of 2020 to 16 on a 100-point scale, from 11 in Q3 and only five in Q2.

FNB property economist Siphamandla Mkhwanazi attributed the improved confidence to high activity levels and an uptick in overall profitability.

However, Mkhwanazi said activity levels remain below that registered just before the Covid-19 pandemic and are most likely restricted to specific sectors, such as renewable energy.

“The increase in activity this quarter is unlikely to be sustained over the medium term, and this is what the low confidence reflects.

“At this stage, a meaningful rise in civil construction work depends on follow-through on plans for infrastructure development and faster implementation of bid window five of the renewable energy procurement programme,” he said.
Snyman said postponements of civil projects remain a concern.

Although postponements were not as high in October as the previous month, they remain above the average for 2019, she said.

Snyman said overall the number of civil projects postponed increased by 26% year on year during the first 10 months of the year and the postponement rate remained above 10%, which is high for the civil sector.

Approvals

Industry Insight said approvals for private sector construction fell 10.7% year on year in September 2020, the slowest rate of decline since March 2020.

Although there was a marginal increase of 1.7% year on year in residential approvals, approvals for ‘other’ buildings fell sharply by 36% year on year.

Snyman said approvals over the last 12 months slumped to 9.6 million square metres, which is another record low and down 34.7% year on year.

“The loss of over 4 million square metres approved in the first nine months of the year translates to over R30 billion and this will have quite a dramatic impact on investment in buildings in the next 12 to 18 months.
“All eyes are therefore on the public sector to implement its infrastructure drive, particularly in view of the proposed developments of several large mega housing cities in and around Gauteng.
“Without it, the building industry may be in for an extremely difficult period,” she said.

Industry Insight said overall the estimated nominal value of building projects awarded during October 2020 was about 26% lower than the same month in 2019 and was down 14% year on year in the first nine months of the year.

It said tender activity fell by 37% in the same period, largely due to fewer education tenders being issued this year. Snyman said this has increased the rate of decline over the last 12 months to -24.9%.

She added that tender activity for commercial buildings remained depressed at -40% year on year for the month and 26% lower in the last 12 months.

Residential tenders are also on a stronger decline, down 26.8% year on year in terms of private sector housing projects out to tender.

Snyman said postponements of building projects are accelerating, as conditions continue to worsen and become increasingly unviable for investment.

She said the number of building projects postponed in the first 10 months of the year increased by 43%.

Confidence

However, FNB/BER reported last week that confidence in the building industry increased in Q4 of 2020 to 29 on a 100-point scale, from 24 in Q3 and four in Q2.
FNB/BER said this is the joint best building confidence level since the end of 2018, adding that four out of the six sub-sectors surveyed reported higher confidence, with sentiment among hardware retailers at a more than five-year high.
However, Mkhwanazi stressed that despite the improvement in confidence, more than 70% of respondents are dissatisfied with prevailing business conditions and there is a clear diversion between confidence and activity among residential builders compared with the experience of non-residential builders.

Source: Moneyweb


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