The FINANCIAL — 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?
A general increase in backlogs and margins is giving cause for optimism across the industry, with further growth anticipated. 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 experienced an increase in backlogs of at least 5 percent in the period from 2012 to 2013. Moreover, though margins are not rising at the same rate as backlogs, 80 percent say their margins will either remain stable or increase more than 2 percent in the same period, according to KPMG International Cooperative.
Not surprisingly, Americas have the highest confidence for growth with 90 percent forecasting margins as stable or increasing by more than 2 percent. By contrast, 28 percent of companies in the AsPac region see margins decreasing below 2 percent.
“Our 2013 survey shows the overall outlook in the industry is directionally positive,” said Geno Armstrong, Global Chair, Engineering & Construction and a principal with KPMG in the US. “A higher level of confidence in the Americas, demonstrated by large margin growth, is an indication of greater efficiency and cost management,” Armstrong added.
Looking at growth forecasts for 2013, optimism pervades, with 64 percent expecting growth up to 25 percent, while 23 percent see growth edging at zero percent or less. The highest growth is expected in Central and South America, and Africa. Mr. Armstrong attributes the growth to favorable trading conditions in the regions, as well as good prospects for mining, oil and natural gas in certain parts. Respondents in Australia, the Middle East and the UK forecast the least amount of optimism in 2013. And overall, companies with revenues above $5 billion see the greatest potential for growth, according to KPMG.
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 the Americas, privatization 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). In the burgeoning economies of the AsPac region, not surprisingly, population growth (49 percent) and urbanization (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. One out of five predicts it will be less than 2 years, according to the report.
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.
As companies ramp up for growth, an overwhelming majority (93 percent) say that their risk management programs have improved project performance. Yet, over three quarters of respondents claim the existence of underperforming projects due to project delays, poor estimating practices and failed risk management processes.
In anticipation of continued growth, 47 percent of respondents say their companies are making plans for international expansion into new regions. Africa (35 percent), US/Canada (28 percent), and the Middle East (22 percent) are the leading regions for expansion.
Entering new sub-sectors of the industry is also in the works for 44 percent of respondents, with the power sector (54 percent) leading the list, followed by water-related activities (28 percent) and mining (27 percent).
Discussion about this post