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Sep 18, 2008:
The index that measures confidence in the South African civil construction sector fell modestly for the third straight quarter, reflecting a downswing in the private residential building cycle market, but the overall mood remained upbeat.
Compiled by the Bureau for Economic Research (BER), the BER/FNB Civil Construction index dropped from a level of 71 in the second quarter to an index value of 69 in the third quarter.
However, the index value is still at elevated levels - a sign that the sector remained fundamentally optimistic about the current business conditions, according to FNB's chief economist Cees Bruggemans.
"Overall business conditions remain relatively favourable in the civil construction industry," said Bruggemans, adding that the index was boosted by the workload of large construction companies.
Big construction companies such as Aveng, Murray & Roberts and Group Five, whose latest earnings were well ahead of analysts' forecasts, are participating in mega contracts that include the Gautrain, Sanral road building projects, Eskom and Transnet capital expansions.
Order books of these companies are swelling, but those with operations in the residential property market painted a bleak picture in the medium term as higher interest rates erode demand for new homes.
This downswing in the private residential building cycle, along with relatively weak activity levels in the Western Cape, had an adverse impact on the overall results.
Whereas 67% of respondents to the previous survey reported that insufficient demand for construction was a constraint, the figure rose to 84% in 3Q 2008, the survey showed.
"The weaker demand conditions experienced by respondents resulted in a rise in tendering competition for new work. Gross margins came under pressure and the overall profitability of survey respondents consequently suffered," said Bruggemans.
Looking ahead, the broad construction outlook was for expansion at a rapid pace, especially among the major construction companies.
"But even the smaller to medium-sized companies expect business conditions to remain fairly stable in 4Q 2008 as reported in our latest survey," said Bruggemans. – Tiisetso Motsoeneng, I-Net Bridge