Conquering low confidence in construction

Confidence in the civil engineering industry is down, which means fewer opportunities for construction companies. How will this impact on vehicle sales for original equipment manufacturers? MARISKA MORRIS investigates

First National Bank (FNB), in partnership with the Bureau for Economic Research (BER), published its FNB/BER Civil Confidence Index report in June, which indicated a continued low level of confidence in the civil engineering industry. This is expected to impact on the construction industry and other related sectors.

The index is determined by the responses from professionals in the sector with a maximum of 100. In the first quarter of 2019, this figured dropped to an all-time low of ten. The second survey, conducted between April and June, showed a slight uptick with civil confidence at 11. However, this still means that close to 90 percent of respondents were dissatisfied with the prevailing business conditions in the industry.

“It’s disheartening that the level of confidence has been so low for such a prolonged period,” says Siphamandla Mkhwanazi, property economist at FNB. He notes, however, that the industry perception is not unreasonable. In the first quarter of 2019, Statistics South Africa reported a 0,9 percent decline of construction works.

“The reasons for the downbeat sentiment are clear from the underlying data. The main drivers of depressed confidence in the sector are weak market activity (demand) and intensifying tender competition. These have severely squeezed profit margins,” Mkhwanazi explains. “The slowdown in construction activity is expected to continue and will probably intensify.”

The low demand – especially new demand – is a key reason for the industry’s lack of confidence. Mkhwanazi notes that 88 percent of respondents consider insufficient demand for new construction work to be a constraint on their business operations. The lack of opportunity could have very serious consequences.

“This is likely to keep output in the sector subdued, which will have negative consequences for employment growth,” Mkhwanazi predicts. “In turn, this will add to the already existing pressure on households’ finances and their ability to spend. Industries such as manufacturing of cement and steel products will also take a knock from the slowdown in the construction sector.”

The decline in construction is also likely to have an impact on the transport industry and vehicle sales – at least in theory. Mkhwanazi explains: “For example, with low demand for construction work, demand for transport equipment, machinery and warehousing will also take a knock.”

However, the reality for at least one vehicle original equipment manufacturer (OEM) is proving to be a little different. Fuso Trucks Southern Africa has recently enjoyed healthy sales figures.

“In the last couple of months we have experienced unexpected growth in sales of our FJ26-280 construction chassis, which is suitable for both mixer and tipper applications,” says Mpho Matseba, product and marketing manager at Fuso Trucks Southern Africa.

“Although it’s not excessive growth, it is certainly well above our expectations. It is derived mostly from the small, medium and micro enterprise (SMME) segment, which indicates that there is still activity within certain parts of the construction industry.”

This begs the question: What does the Fuso FJ26-280 construction chassis offer that attracts an industry experiencing low confidence levels? According to Matseba, the product meets all the important customer demands including payload, performance and price.

The engine design is based on proven Mercedes-Benz technology. This is combined with the oil-lubricated fuel pump and a lower engine speed that reduces wear, while the various technologies, including the speed limiter and cruise control, ensure better fuel economy.

Matseba notes: “It has certainly proved itself from a performance, durability and affordability standpoint. The tipper application achieves ten cubic metres and, due to a number of weight-reduction measures that have been implemented, the mixer application now comes close to achieving the required six cubic-metre payload.

“In addition, the LCD intelligent instrument cluster makes vital information available at a glance, including trip mileage, average fuel consumption and total fuel consumed. All this is available for a favourable retail price of R976 700 (excluding VAT).”

Fuso is so confident in the model that the range has received a “facelift”. Matseba explains: “We are excited to note that this range has recently received a facelift with a view to ensuring superior performance, safety and driver comfort. The model now comes standard with 13 enhanced or new features and is available for sale at the prevailing price.”

While the industry has favoured Fuso, the company is still aware of the need for more construction opportunities and looks forward to the uptick. “We are not oblivious to the fact that industry growth is required to sustain and amplify our current performance,” Matseba says.

“Our aim is to continue to aggressively target SMMEs entering the construction segments with affordable packages, which, hopefully, should allow us to maintain the current momentum and grow significantly should there be an upturn in the near future.”

So, perhaps a good product can prevail despite the confidence levels in an industry.

In the meantime, Mkhwanazi suggests ways in which the confidence and business opportunities within the industry can be improved. He notes: “The biggest hindrance right now is the severe lack of demand. This is linked to the unfavourable position of government finances.

“Ideally, under these circumstances, the private sector would chip in and plug the gap. However, with the low business confidence that has prevailed in the country for several years, we have not seen this happen. Stimulus in the sector depends on whether the public and private sectors can foster some kind of partnership. However, this will require the elimination of policy uncertainty and a plugging of the trust deficit.”

The vehicle manufacturing industry can only hope that under new governance, the financial position of the country and confidence in the economy will improve, and that as a result more opportunities will be created in the construction sector.