NEWS: Building confidence falls but civil engineering confidence rises

The Construction Industry Development Board's (cidb's) SME Confidence Survey for the fourth quarter of 2020 showed mixed results in the performance of the building and construction sector.

For general builders, conditions, especially activity, worsened compared with the previous survey round, which weighed on confidence.

In contrast, sentiment among civil engineers rose, which was underscored by a broad-based uptick in activity and profitability, the report states.

"After rising to 19 in the third quarter, general building confidence shed six points to 13, which is the lowest level on record. This is a new all-time low and means that close to 90% of respondents are dissatisfied with prevailing business conditions.

"Activity remained as weak as in the third quarter. Confidence was lower in Grades 7 and 8 by seven points, and three points lower in Grades 3 and 4, while sentiment was unchanged at 13 among Grade 5 and 6 contractors. However, the biggest deterioration in activity was recorded among Grade 5 and 6 contractors."

Provincially, only Gauteng registered higher general building confidence of 25, up from 21 in the third quarter of 2020.

"Growth in building activity remained under pressure and, while marginally better than in the third quarter, supports the low confidence. A net 65% of respondents reported lower activity growth in the fourth quarter relative to the same period [the year before]."

Also underpinning the downbeat sentiment was overall profitability, and 85% of respondents stated that profitability was lower compared with the fourth quarter of 2019, which is an increase from 70% of respondents in the third quarter stating that profitability was lower. This is the lowest level since the survey was first conducted in 2008.

The constraints on regular business operations also intensified in the quarter. While the rating of insufficient demand as a business constraint has been elevated (but is gradually ticking up) for much of 2020, the rating of the inadequate supply of building materials rose sharply.

Further, 52% of general builders indicated that the shortage of building materials was inhibiting business operations, up from 36% in the third quarter. This is the highest level of the index on record.

Civil engineering activity, meanwhile, picked up during the quarter and confidence rose by ten points to 29. All the grades surveyed registered higher confidence led by Grades 3 and 4, rising by 16 points, and Grades 7 and 8 rising by 13 points.

Provincially, much of the optimism came from the Western Cape and Gauteng. Confidence in the Western Cape, at 46, is at its highest level since the final quarter of 2018. The improved confidence was underpinned by better activity and profitability.

Also read: Will the activity in civil construction activate the building construction industry?

Civil engineering confidence rose to 29 in the fourth quarter, up from 19 in the third quarter, and to its best level this year. Both the growth in construction activity and profitability improved noticeably in the quarter, supporting the higher confidence. Along with the rise in activity this quarter, the rating of insufficient demand lowered to its most encouraging level this year - albeit still worryingly high - of 80%.

"The results of the cidb SME Business Conditions Survey point to further weakness in building activity in the fourth quarter. In addition to this, the constraints to business activity remain elevated. Most notable this quarter is the inadequate supply of building materials. These factors weighed on sentiment.

"The picture is more upbeat from the perspective of civil engineers. Overall confidence rose to its best level this year. Higher confidence also prevailed among all the grades. Supporting the uptick in sentiment was improved activity and profitability. However, like general building, the constraints remain a concern, particularly the elevated level of insufficient new demand," the survey report concluded.

The survey is edited by Stellenbosch University Bureau for Economic Research senior economist Craig Lemboe

Source: Engineering News

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