Few signs of building and construction sector crisis abating

The crisis in the building and construction industries is showing little sign of abating.

The latest Construction Industry Development Board’s (CIDB’s) small and medium enterprise confidence survey revealed that activity levels in some building and construction sub-sectors were at their weakest levels since the 2008/2009 global financial crisis.

Confidence in the civil engineering sector dropped to a record low of 26 on a 100-point scale in the second quarter (Q2) of this year, while general building confidence declined further from 33 to 30 index points – the worst level since Q2 2011.

CIDB project manager for monitoring and evaluation Ntando Skosana said sentiment remained in the doldrums, as both general building and civil engineering contractors continued to experience a severe shortage of work.

“Low confidence was underpinned by a further and deeper decline in activity,” she added. “Overall, the survey results suggest that the broad-based activity weakness that we saw in the previous quarter continued into Q3.

“In addition to the current lack of demand, there is no sign within the survey data to suggest that activity will pick up in the near term.”

Skosana said that regardless of the movements in confidence, activity growth remained under pressure across all grades – but especially general building Grades 5 and 6, which registered the worst activity reading since the survey was launched in the Q3 2008.

She added that across the civil engineering grades, the deterioration in sentiment was most pronounced in Grades 3 and 4, where business confidence fell to an all-time low of 16 index points.

Construction market intelligence firm Industry Insight echoed these bleak sentiments in its latest monthly newsletter.

The crisis in the construction and building sectors has resulted in a number of JSE-listed construction companies applying to go into business rescue, including Group Five, Basil Read and Esor, while Aveng has experienced severe financial difficulties.

It also resulted in employment in the construction industry, as measured by Statistics South Africa’s quarterly employment statistics, dropping for the fourth consecutive quarter to an estimated 611 000 jobs in Q2 of this year.

This translated into 30 000 job losses in Q2 compared to the previous quarter last year.

Industry Insight economist David Metelerkamp said overall conditions in the local construction industry remain challenging, as job losses continue to increase at an alarming rate, profitability remains under pressure, confidence levels are at near record lows and competition is rife.

Metelerkamp said the real value of construction projects awarded is down by 20.6% year on year over the past 12 months and has remained on a sharp downward trajectory since 2017.

Tender activity

He added that tender activity remains weak, although it is relatively on par with levels reported last year and is not falling by the sharp rates seen previously.

However, Metelerkamp said awards activity, based on the number of projects awarded, remains poor and is down by between 13% and 14% year on year, thereby increasing the disparity between tenders and awards.

Metelerkamp said private sector building construction is expected to come under renewed pressure, as the rate of decline in project approvals has accelerated, affecting both the residential and non-residential market segments.

He said conditions are expected to remain under pressure over the medium term, with no real positive change seen so far in any of the main drivers of investment, including local and foreign business confidence, economic growth despite the much-improved Q2 performance, and government revenue.

Metelerkamp said the lack of improvement in government revenue puts pressure on the government’s ability to increase investment in infrastructure.

“Political instability is likely to continue to suppress confidence, and may even accelerate, as evident by an increase in violent protest action during the first half of the year and extending to another round of violent xenophobia attacks, thereby maintaining the current bleak outlook,” he said.

“However, the announcement of higher levels of infrastructure expenditure emanating from SOEs [state-owned enterprises] and the upcoming medium-term budget statement might hold some relief for particularly the civil industry.”

Read: SOE tenders give construction sector hope