Construction boom integral to economic prosperity

The global construction industry has got back on track this year, with investment in new and existing projects booming. World Finance considers the industry leaders in our Construction Awards 2013

 

The global construction industry looks likely to grow with the wider emergence of capable Asian markets, notably India and China, and a cyclical rally of growth throughout much of the US economy. As a significant number of emerging nations look to undergo a cataclysmic shift towards prosperity, so too does the constitution of the construction sector.

A changing climate
The report anticipates growth in global construction will, in the coming decade, outpace that of global GDP, topping an estimated $12trn by 2020; with China, the US and India set to generate over half that sum.

Likewise, projections for the immediate future of construction are optimistic pretty much across the board, as rapid urbanisation, a rising population and impressive economic growth – the vital driving forces for the sector – continue to surface across the global economy. Though the past four years have marked a period of relative uncertainty for many investing in the construction industry, the insatiable hunger for energy and infrastructure-related projects has persisted.

The comparatively lofty demands of infrastructure projects require that construction companies possess a far greater degree of expertise than traditional contractors. As a growing number of contracts depend upon a fairly extensive knowledge of engineering know-how, construction firms will likely look towards the diversified and progressive opportunities to be had in M&A deals.

Infrastructure contracts, in particular those in China and India, are of a far grander scale and complexity than that of traditional contracts, requiring that many SMEs expand in order to accommodate greater expectations and unforeseeable complications.

Furthermore, obligations of scale demand that the industry negotiates political, commercial and regulatory complexities on a regular basis, which should test the sector’s governance and risk management practices – likely to the point of change and subsequent betterment.

Growing optimism
A recent survey undertaken by Timetric, entitled 2013-1014: Market Trends, Buyer Spend and Procurement Strategies in the Global Construction Industry, has reported a growing sense of optimism among construction executives. The results suggest that revenues for the coming year will top those seen in 2012.

53 percent of respondents were more optimistic about revenue growth expectations over the coming 12 months compared with the previous year, whereas only 24 percent were less optimistic and 22 percent expected no change. The respondents were also largely agreed upon increasing levels of consolidation throughout the industry, with 50 percent anticipating an increase in M&A deals throughout the coming 12 months.

The forecast also identifies India, the UAE, Brazil, China and Saudi Arabia as focal points for construction. India is outlined as an especially ripe region for growth in that housing, roads, ports, aviation and energy developments look set to punctuate in the coming months. Aside from emerging markets, the US, Canada, Australia and the UK were identified as likely markets for growth, whereas Italy, Spain and France – whose economies are struggling to varying degrees – are anticipated to harbour much less construction activity.

Investment drivers
The survey results indicate that 12 percent of buyer respondents intend to introduce e-procurement in 2013. The adoption of internet-based means of transaction, in effect, signals a wider shift towards expansion and ultimately globalisation. As investment in IT infrastructure looks set to increase dramatically throughout 2013, so too does the technological capacity of engineering and construction firms.

Though government spending remains a relative blight on the industry, public and private sector spending persist as robust and enterprising grounds for growth. Specifically, demand for sustainable construction projects is expected to spur a significant degree of public and private spending throughout 2013. reports that green projects grew from $10bn in 2005 to $85bn in 2012, and with a number of major tax incentives still to come, investment in the sector is anticipated to grow to as yet unseen levels.

The principal facets expected to elicit greater spending through 2013 are: building materials, water supply and waste management, plant and heavy machinery, fire detection and suppression, and architects. The products and services are each anticipated to bolster construction firms’ capacity to protect against a range of anticipated problems, highlighting risk as a key factor in ensuring the longevity of construction and engineering firms.

A rise in spending year-on-year is partly a consequence of the industry’s tendency towards globalisation and greater risk prevention. The US Census Bureau maintains that spending has increased 7.1 percent year-on-year as of March 2013, although there was drop of 2.1 percent month-on-month.

Preparing for the future
Vice President of Economic Affairs at McGraw-Hill Construction, Robert Murray, says of the global construction industry: “2013 is setting the stage for a full-fledged recovery in 2014.” This echoes the common consensus that 2013 is essentially a preparative year for the industry, with many firms consolidating existing assets in order to better stage a major recovery. “The construction industry has stabilised at a low level,” says Murray. “The modest gains experienced during the past two years have in effect produced an extended bottom for construction starts, in which the process of recovery is being stretched out.”

To view the winners of the Construction Awards 2013 please click here.

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