The FNB/BER (Bureau of Economic Research) civil construction confidence index, which came out on Tuesday showed a marginal increase to 23 in the second quarter from 21 in the first quarter.

A reading of 23 indicated that less than one out of four civil contractors were satisfied with prevailing business conditions.

The slightly higher level of business confidence agreed with the modest rise in the volume of work. The volume of construction activity in the first half of this year increased relative to the last nine months of 2010, First National Bank said.

The groups found that some of the biggest new projects came from public corporations including Eskom, TCTA, SANRAL and Transnet as they managed to secure financing and consequently award tenders for projects announced some time ago.

Additional work was also commissioned by the government, more specifically the provinces and for smaller projects, but little additional work continued to stem from local governments.

FNB said work was also flowing from the private sector, specifically the mining sector, but little work arose from the building sector.

"Business confidence did not increase by more in the second quarter, because the demand for work remained extremely weak", said Cees Bruggemans, chief economist of FNB.

As a result tendering competition continued to be very fierce (see attached chart) and profitability depressed. Firms therefore continued to cut costs and they primarily did so by reducing their workforces further.

The second quarter results confirmed that construction activity had bottomed, the bank said. However, the recovery was from very low levels, patchy and far from secured.

Factors, such as difficulties to obtain financing, delays in getting approval for projects and inadequate project planning, continued to cause long, indeterminate time lags between the announcement of projects and the awarding of tenders, the group concluded.