After prolonged economic uncertainty, a majority of companies in the global engineering and construction sector have fresh confidence in the growth prospects for the industry, according to KPMG International's 2013 Global Construction Survey: Ready for the Next Big Wave?
"Our 2013 survey shows the overall outlook in the industry is directionally positive," said KPMG Africa Construction Leader, Gavin Maile. "A general increase in Order Books and Margins is giving cause for optimism across the industry, with further growth expected".
Just over 50 percent of 165 mostly C-level respondents from the Americas; Europe, Middle East and Africa (EMEA); and Asia-Pacific (AsPac) regions say their companies are expecting an increase in order books of at least 5 percent in the period from 2012 to 2013.
From a South African point of view, KPMG interviewed ten of the leading construction companies in the country. Of the ten companies, 70 percent indicated that they foresaw their order books increasing by more than 10 percent in 2013 over 2012, which is significantly ahead of the global trend.
Looking at growth forecasts for 2013, optimism pervades. 64 percent of the respondents expect growth of up to 25 percent, although 23 percent see growth edging at zero percent or less. The highest growth is expected in Central and South America, and Africa.
Maile attributes the growth to favourable trading conditions in the regions, as well as good prospects for mining, oil and natural gas in certain parts. In South Africa, 60 percent of the companies interviewed forecast growth of up to 25 percent in 2013. Respondents in Australia, the Middle East and the UK forecast the least amount of optimism in 2013. Overall, companies with revenues above $5 billion see the greatest potential for growth.
Drivers and Barriers to Growth
Government infrastructure plans still remain the leading driver for growth in the sector overall according to 66 percent of respondents, followed by global economic growth (42 percent), and population growth (38 percent). "In South Africa, all ten companies who participated in the survey indicated that government infrastructure plans will have the most impact on the future of the industry, followed by urbanisation (60 percent), global economic growth (50 percent) and access to new energy resources (50 percent)", said Ashleigh Raine-Botha, KPMG Industry Analyst.
In the Americas, privatisation efforts via public-private partnerships (48 percent) ranked as the second-leading driver for growth behind government infrastructure plans (58 percent) followed by access to new energy sources, such as natural gas or renewables (42 percent). "Interestingly, only one company in South Africa believes that Public-Private Partnerships (PPP's) will be a key market driver. Last year's survey revealed that globally there was a lack of trust between the private sector and government in recent years, and this needs to be overcome if we are to find ways to finance large infrastructure projects going forward", said Maile.
In the burgeoning economies of the Asia-Pacific region, population growth (49 percent) and urbanisation (47 percent) were the second and third drivers, respectively.
Nearly two-thirds (63 percent) say that it will be between 2 to 5 years for market drivers to have a positive impact on the industry. South Africa is again in line with the global sentiment, with 60 percent indicating a 2-5 year timeframe.
Even with resurging optimism, many companies maintain a balanced view on what the likely obstacles to growth might be, with budget deficits and public funding shortages being the overwhelming factor according to 72 percent. Private-sector financing ranked second (43 percent) among respondents. 80 percent of South African construction executives agree that budget deficits and the public funding crisis is the leading market impediment, followed by regulation and private sector financing availability.
As companies ramp up for growth, an overwhelming majority (93 percent) say that their risk management programmes have improved project performance. Yet over three quarters of respondents claim the existence of underperforming projects, which have significantly impacted their organisations due to project delays, poor estimating practices and failed risk management processes.
"When responding to the question as to whether the company had experienced one or more underperforming projects that significantly impacted their organisation, all ten South African companies confirmed the existence of such projects. Yet 80 percent of those companies indicated that their investment in project risk management had paid off", said Maile.
Expansion Plans – New Geographies and Sectors
In anticipation of continued growth, 47 percent of respondents
say their companies are making plans for international expansion
into new regions. Africa (35 percent) is the top priority followed
by US/Canada (28 percent), and the Middle East (22 percent).
Entering new industry sectors is also important for growth for 44 percent of respondents, with the power/energy sector (57 percent) leading the list, followed by water-related activities (28 percent) and mining (27 percent). "From a local point of view, 70 percent of South African companies identified the power/energy sector as a top priority, followed by water-related activities (50 percent) and mining (40 percent)", according to Raine-Botha.
"The power sector is, without question, presently attracting the most interest," said Maile. "With the increase in economic activity and the hyper-focus on energy security, it stands to reason that many players will see opportunity in this area. Power as well as water, mining, and other resources will increasingly become a critical priority of the business agenda in this industry."
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