Consulting engineering sector’s confidence level falls to record low – Cesa

Consulting Engineers South Africa’s (Cesa’s) biannual economic and capacity survey has indicated positive news for the period January to June, noting that construction sector confidence had seen growth for the first time in six quarters.

However, confidence levels in the consulting sector deteriorated for the current quarter, reaching a record low  since the survey started in the mid-1990s. “We can only assume that construction sector growth was driven predominantly by the private sector, with an improvement in both private building plans passed and completed in the second quarter, while the civil engineering industry is in survival mode,” stated Cesa CEO Chris Campbell.

He added that, in civil engineering, there has been a backlog of connection projects to the grid; however, Energy Minister Jeff Radebe vowed to move this process along, which contributes to the uptick in construction sector confidence.

The latest Cesa survey showed that, although the lowest-ever confidence level among consulting engineers was reported, respondents were, nonetheless, optimistic about the future. “We have to start adapting to a low-growth environment as the outlook for infrastructure spending is being hampered by poor economic growth, lower-than-expected revenue by government, international economic instability and price volatility, and low private sector confidence,” Campbell remarked.

Confidence in the consultingengineering sector lags business sentiment, he said, adding that overall business confidence deteriorated to a level of 39 in the second quarter of the year, which is down from 45 in the first quarter, when “Ramaphoria” prevailed.

“Market sentiment among the private sector is important to the engineering industry, since the private sector contributes on average nearly 40% to total earnings. It is important for confidence levels to be restored to a level of between 60 and 70 to stimulate investment.”

Further, economic indicators suggest that investment in relation to GDP will be slow over the medium term, owing to low government spending, financial constraints experienced by State-owned entities and weak private sector confidence. The National Development Plan has set the target of 30% contribution of GFCF to GDP by 2030, which Campbell pointed out now looks like a rather optimistic goal.

Cesa’s survey found many consultingengineering firms were in survival mode. Regulation issues, including the procurement of consultingengineeringservices, remained one of the the industry’s biggest challenges. “Unrealistic tendering fees remained a concern for members, while the extended time to finalise a proposal was affecting profitability in the industry,” said Campbell.

Fee earnings in the first half of the year decreased by 10% compared with the second half of 2017, a big drop in such a short time-span. The number of firms looking for engineers decreased to 20%, from 51.7% in the previous survey, with a notable decrease in demand for technicians to 3%, down from 73.4% reported two surveys ago.

Demand for other technical staff increased in the latest survey to 18%, up from 3.7% in the previous survey.