TAMLYN STEWART

LOCAL construction companies had to fight more fiercely for tenders in the last three months of the year, according to FNB’s Civil Construction Confidence Index for the fourth quarter.

Respondents said declining demand for civil construction caused a relatively sharp escalation in tender price competition during the quarter.

That put pressure on companies’ profit margins, which led to less than-expected overall profitability of construction companies for the period.

Civil construction is the building of infrastructure such as harbours, power companies, railroads, dams and mines.

FNB Chief Economist Cees Bruggemans said that the main factors weighing on confidence in the construction sector were high interest rates, weaker private sector demand, shortages of public funding, poor administration and slow payments by government clients.

“You could add local politics to that — in the period ahead of the general elections there tends to be very little happening at local government level,” said Bruggemans.

Confidence in the sector declined from a reading of 69 index points in the third quarter, to 60 points in the fourth quarter.

Bruggemans said 7percent of respondents reported that they were cutting jobs due to the slowdown in construction activity, and that it was no longer limited to the smaller companies. “It doesn’t seem to be limited only to the smaller contractors. In previous quarters, the really big ones seemed to be in a league of their own, while the smaller ones indicated problems.

Apparently, among the larger companies, pockets of activity are getting weaker, said Bruggemans.

However, 84percent of respondents said a shortage of good quality skilled labour was a constraint on their business: “There remains a shortage of specific skills.”

Respondents said, however, they did not expect a further deterioration in overall business conditions and construction activity levels in the first quarter of next year, but Bruggemans said he believed the index could decline further.

Source: The Times