Friday, January 21

Infrastructure Project Award Delays Hit Civil Construction Industry Confidence


Delays in the award of infrastructure projects are believed to be responsible for the drop in confidence in South Africa’s civil construction industry in the fourth quarter of this year.

Confidence levels deteriorated despite the fact that most underlying indicators, such as activity and profitability, improved in the fourth quarter.

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Source: BER Stellenbosch University

The FNB / Bureau for Economic Research (BER) civil confidence index, released Monday, fell two points on a scale of 100 points to 15 in the fourth quarter.

This follows the index rising four points to 17 in the third quarter of 2021 despite the fact that most of the underlying indicators worsened in the third quarter of this year.

The current level of the index means that 85% of the civil construction respondents in the FNB-BER survey are dissatisfied with prevailing business conditions.

The index has been hovering around the 20-point mark since mid-2017.

Contributing factors

FNB senior economist Siphamandla Mkhwanazi said it is difficult to pin down the reasons behind the persistently weak confidence level.

Mkhwanazi said the low level of confidence from civil contractors is justified, although the further decline during the fourth quarter is at odds with some improvement in underlying activity.

“One possible caveat is that although activity growth is somewhat better this quarter compared to a few years ago, the total value of construction activity is still much lower.

“The still low level of activity, in absolute terms, and the delays in the awarding of tenders could have dampened business sentiment.

“An acceleration in the deployment of infrastructure projects by the state and further progress in structural and regulatory reform to boost private sector infrastructure spending would go a long way toward alleviating problems in this sector,” he said.

Read:

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The government presents a portfolio of R595bn of new infrastructure projects

Looking ahead, Mkhwanazi said there are signs that activity could improve further, if only slightly.

Mkhwanazi said the rating of insufficient new demand as a trade restriction decreased from 89% in the third quarter of this year to 83% in the fourth quarter, which is its lowest level since the fourth quarter of 2020.

“Respondents noted that there is indeed an improvement in bidding activity.

“However, tender awards are being significantly delayed and the validity of tenders is increasingly extended.

“This means that while there is interest, not all projects will get done or, in the best case scenario, they will be commissioned on time,” he said.

Expect

Construction market intelligence firm Industry Insight said last month that there is hope for a strong recovery in civil construction if the government can go ahead with its ambitious plans to invest in large-scale civil projects and incentivize the private sector.

Read: A solid recovery is anticipated in civil construction

However, it said in its latest SA Construction Industry Forecast Report that the non-residential construction segment is expected to come under increased pressure over the next 12 to 18 months due to large cuts in the public sector spending and a severe lack of demand for commercial buildings. with oversupply.

Industry Insight added that the civil construction industry appears to be emerging from the ashes and has finally reached a tipping point “from absolute lows.”

Reality

“This statement, however, comes with several caveats as the strong bidding activity we are seeing is not exactly translating into contracts awarded at the rate we would like, with extremely disappointing data so far this year,” he said.

In another report, Industry Insight highlighted data in a Statistics SA report that revealed that public sector capital spending on new construction sites fell to its lowest level in five years.

Industry Insight said investment fell 18% year-on-year in 2020 to R116 billion, but has been in decline since 2016 when about R200 billion was spent on new construction, including residential and non-residential buildings, roads, water and electricity. .

“Spending in 2020 was 40% lower compared to 2016, which translates to R77 billion,” he said.

Industry Insight added that thanks to some higher value projects awarded in September 2021, which is the latest data available, there was some improvement in the overall value of civil projects awarded compared to recent months.

The face value of awarded civil construction projects rose to just under R3 billion in September 2021, the highest value since March 2021, it said.

However, Industry Insight said that despite the decline in April and May 2020 due to pandemic Covid-19 restrictions and the subsequent increase in bidding activity, the total face value of projects awarded in the first nine months 2021 is still 19% lower in the year. y-o-y compared to the same period in 2020.

He said that the number of awards also improved in September 2021, after four consecutive months of declines, but that it remains at low levels.

A rebound between February and May 2021 supported an overall increase of 24% year-on-year in the first nine months compared to 2020.

“The bidding activity, in terms of the number of projects being bid, slowed down for the fourth consecutive month but remains above the average number of tenders issued during 2019 and 2020.

“On average, tenders increased 12% compared to 2019 and 36% year-on-year compared to restricted Covid-19 2020,” he said.

Industry Insight said that since various Construction Industry Development Board (CIDB) grade 9 civil projects were tendered in September 2021, the estimated value of these tenders based on the distribution of tenders by grade CIDB, It recovered to R5.7 billion from lousy levels in August 2021 when bid values ​​barely reached R4 billion.

He said that most of these tenders were related to roads, mainly in KwaZulu-Natal, while two road tenders were also issued for other provinces.

One of these tenders was issued by the South African National Highway Agency (Sanral) in the Eastern Cape and the other by Trans African Concessions (TRAC), one of Sanral’s long-distance toll concessionaires, in Mpumalanga, he said.


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