Construction on the up
The recovery in the construction sector gained momentum during the third quarter, First National Bank and the Bureau for Economic Research said yesterday.
The FNB/BER construction confidence index rose to its highest in three years, gaining four index points to reach 42.
"The rise in confidence was underpinned by improved activity but profitability came under renewed pressure," the organisations said.
There were signs that the construction recovery was gaining momentum.
Though activity had improved consistently over the past two years, it ratcheted up more significantly during the past six months.
The higher growth had a number of sources.
Provincial spending on capital projects, dominated by road and water infrastructure work, remained on track.
Capital expenditure in KwaZulu-Natal, Gauteng and the Free State grew robustly. But Eastern Cape, Limpopo and North West struggled to complete projects.
According to the Treasury, capex by provinces rose by 14.6% during the first quarter of the 2012-2013 financial year, which ended in June.
Continued capital outlays by Eskom on the Medupi, Kusile and Ingula power stations, as well as continued capex by Transnet, supported construction activity.
In contrast, municipalities are still underspending on their capex budgets.
They spent R33.2-billion on capex for the 2011-2012 financial year but this represented only 72.5% of the total capital budget for the full year. There was therefore underspending of R12.8-billion, according to the Treasury.
The improvement in activity has led to some constraints in the construction sector, including a shortage of skilled labour.
The shortage of building materials was less inhibiting to business operations during the third quarter compared with the previous quarter.
But, despite the increase in activity and the more relaxed competitive environment, profitability came under renewed pressure.
"Input prices are rising faster than tendering prices and this continued to squeeze profit margins during the third quarter," said FNB economist Cees Bruggemans.
Conditions in the civils sector have improved significantly over the past few quarters. This was likely to continue.
But the pace of the recovery depended on the public sector's ability to spend its capex budgets, FNB and the bureau warned.