Western Cape Business News

Send  Share  RSS  Twitter  23 Oct 2014

CONSTRUCTION: Some Brightness Seen In Construction


Recent Western Cape Business News

A number of indicators showed that the recovery in the construction sector continued in the third quarter of this year. However, confidence remained low, as absolute activity levels remained unsatisfactory and uncertainty about prospects may have remained considerable.

Respondents to the Stellenbosch-based BER survey (sponsored by FNB) expect the recovery to gain further momentum in this quarter. More work is likely to flow from local governments, because it is easier to make decisions now that the local election is completed. National Treasury’s monitoring of local governments’ budgeted capital spending may also advance construction activity.

However, a number of developments may cause respondents’ optimistic expectations not to be fully realised and that the recovery does not continue in a straight line in the next six months or so, FNB/BER warns.

           The spending by mines could be spread over a longer time period than initially planned should the present overseas financial turmoil usher in a period of even weaker global demand and lower commodity prices.

           Financing is likely to continue hampering some investment spending by public corporations. Sanral is a new case in point.

           Construction work comes to an end as certain big projects, such as the power stations, progress and spending on machinery and equipment takes over.

In all, the short-term prospects for the civil construction are brighter given indications of recovery in activity, although a number of head winds may see the recovery not continue in a straight line.

As the graph shows the FNB/BER construction confidence index edged lower from 23 in the second quarter 2011 to 21 in the third. This is much lower compared to the average level of 84 in 2006.

The 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 unsatisfied). A level of 50 indicates that the respondents are equally divided between those satisfied and dissatisfied. The current reading of 21, therefore, indicates that the bulk of respondents remained dissatisfied with prevailing business conditions.

Construction activity flowed from a number of sectors. Work at some public corporations (such as Eskom, Transnet, Sanral and TCTA) continued on and off. For instance, work at the Medupi and Kuseli power stations have only resumed partially since labour problems brought it to a halt in May.

Also the mining sector increased spending on construction works. This is more done to sustain than to expand existing capacity. And little work continued to flow from the government. Some provinces awarded more tenders, but in others they were postponed due to investigations into their awarding.

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