Civil contractor confidence falls as tenders fail to materialise

Civil contractor confidence has fallen in the fourth quarter as tenders fail to materialise although most of the underlying indicators, such as activity and profitability, improved.

The current index level means that the vast majority (85%) of respondents are dissatisfied with prevailing business conditions.

According to the FNB/BER Civil Confidence Index, civil contractor confidence fell by two points to register a level of 15 in the fourth quarter after rising to 17 in the third quarter.

“It is difficult to pinpoint the reasons behind the persistently weak level of confidence. One possible reason is that, although growth in activity is somewhat better this quarter compared to a few years ago, the total value of construction activity is still much lower,” Siphamandla Mkhwanazi, senior economist at FNB, says.

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While the low level of civil contractor confidence is justified, the further decline the fourth quarter was at odds with some improvement in underlying activity.

“The still low level of activity in absolute terms and delays in awarding tenders could have kept a damper on the business mood,” he says.

There are signs that activity could improve further, although only slightly. The rating of insufficient new demand as a business constraint declined to 83% from 89% in the third quarter, the lowest level of the index since the fourth quarter of 2020.

Mkhwanazi pointed out that respondents noted that there was indeed an improvement in tender activity.

“However, tender awards are lagging significantly and the validity of tenders is increasingly being extended. This means that, while there is interest, not all projects will be realised, or at best, commissioned in good time.”

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He added that an acceleration in the rollout of infrastructure projects by the state and further progress on structural and regulatory reform to boost private sector infrastructure spend would go a long way to alleviate the woes in this sector.

The FNB/BER civil confidence index can vary between a maximum of 100, which indicates that all respondents were satisfied with prevailing business conditions and a minimum of zero, indicating that all respondents were dissatisfied. A level of 50 indicates that the respondents are equally divided between satisfied and dissatisfied.