Strategy Management Consultancy Global Regional Analysis 2016 knowledge center Linesight Knowledge Center linesight.com
Contents Spending on Infrastructure Projects 3 6 Level of Economic Activity 7 Global Capital Flows in Real Estate in 2015 7 Share of Construction Spending by Region 2020 8 Global Growth Forecasts for 2015 & 2016 8 Index of International Construction Costs at Jan. 2016 9 Top 20 International Contractors 10 Top 20 International Design Firms 11 Global Inflation % 2015 12 Oil Production / Consumption Statistics 13 Contributors to the Global section of Knowledge Centre 2016: Kim Hegarty, Helen Pender Linesight 2016 2 Global
Spending on infrastructure projects Is it the solution to boosting the global economy? Oxford Economics and PWC forecast that global infrastructure spending will be nearly $78 trillion between 2014 and 2025. The IMF, the EU, the World Bank, the group of 20 industrial economies and top development banks in Asia and Africa certainly think it s one of the necessary measures. They have all called for increased investment in infrastructure projects in an attempt to kick-start the growth of the Global Economy. World Bank research shows that every 10% increase in infrastructure provision increases output by approximately 1% in the long term. Developing economies, particularly those with rapid urbanisation, need to increase their spending as lack of investment in infrastructure inhibits the growth of the economy, while in more advanced economies with low growth and high unemployment, investment in infrastructure will support growth. Investment in infrastructure impacts economic growth in two ways: Directly as an increase in GDP Indirectly as infrastructure investment is complimentary to other investments; it influences the productivity of private investment, reducing operating costs and increasing a country s competitiveness thus attracting foreign investment. Oxford Economics and PWC forecast that global infrastructure spending will be nearly $78 trillion between 2014 and 2025 with almost 60% in the Asia Pacific region over half of which will be in China. The slowdown in growth in China s economy has been widely publicised and is expected to continue into 2016 and 2017. To counteract this China has tried a number of measures including cutting interest rates, reducing lending restrictions and vastly increasing spending on infrastructure. In the first nine months of 2015 The National Development and Reform Commission (NDRC) approved 218 projects with an investment value of 1.8 trillion Yuan ($280 billion). Many of these projects are PPPs and include plans to build over 2,000 km of railways, highways, two highway bridges across the Yangtze River and dredge part of the Grand Canal between Beijing and the eastern city of Hangzhou. The biggest single investment is a 244 km expressway in Northwest China s Gansu province, which is expected to cost 37 billion Yuan. In the short term these measures do not appear to be sufficient to counteract the slowdown in growth due to China s planned shift to a domestic driven economy. In Europe as a consequence of the Global Financial Crisis government expenditure in many countries is down due to increased debt burden. This is limiting the ability of many states to spend on capital and infrastructure projects. Germany however is under pressure to invest in public infrastructure. It is currently operating on a trade surplus. 3 Global
The quality of Germany s infrastructure is declining and investment in infrastructure would increase Germany s growth potential while also providing a welcome boost to economic activity throughout the eurozone. In January 2016 the Connecting Europe Facility (CEF) allocated 217 million of the total funding of 5.35 billion for trans-european energy infrastructure for the period 2014 2020. The projects are mainly in Central and South Eastern Europe. Of the 15 projects selected for funding nine are in the gas sector and six in the electricity sector. Only two are for construction work; the largest of which, the construction of a gas pipeline from Bulgaria to Austria via Romania and Hungary, received the largest portion of funding ( 179 million). The other 13 are for studies, such as environmental impact assessments which have the potential to become infrastructure projects in the future. In the US, President Barack Obama released a budget in February 2015 which included spending of $478 billion over six years; the spending is expected to be concentrated on highways, bridges and transit infrastructure as it is generally accepted that a huge portion of the US s vast network of roads and bridges are in poor repair. The World Economic Forum s Global Competitiveness Report ranks the quality of roads in the US as 16th and its rail infrastructure as 15th in the world. Targeted Funding Operation/ Maintenance Project Definition Risk Management Transparency / Governance Systems / Controls 4 Global
It appears that the increased expenditure on infrastructure has not yet had its intended impact on the growth of the Global Economy. According to the Bureau of Economic Analysis the US economy grew by an annualised 1% in the last quarter of 2015, this is higher than the expected 0.7%. However it appears as though this growth was mostly due to personal consumption expenditure while government spending in investment actually subtracted 0.01% points from growth. Thus it would appear that the increased infrastructure spend has not had a major impact on the GDP. Increasing investment alone is not enough. Other factors must be considered to ensure maximum benefit from investment in infrastructure. They include: Management and Planning Infrastructure investment needs to be managed well to realise its potential contribution to growth. By their nature infrastructure projects require considerable forward planning; they tend to be long term with significant time and money invested in planning and preparation. This is evident from the CEF funding mentioned earlier where 13 of the projects to receive funding are for studies alone. Another example of the long-term nature of infrastructure projects is the Sydney Metro Project Stage 2 of this project was announced in late 2015 but the first trains will not run until 2024. Targeting Funding Funding needs to be targeted to the area of greatest benefit to the economy. Investment needs to be made in projects with higher long-term socio economic benefits. Project Definition A well-defined set of requirements provides a sound basis for successful execution. Transparency / Governance Having a credible regulatory environment often projects traverse many government functions, different business organisations and a number of communities. Systems / Controls Allocation and utilisation of resources using established systems and control procedures for managing the process. Risk Management Risks need to be clearly identified, analysed, evaluated and mitigation processes applied. This process needs to be combined with continuous monitoring and review of the risks. Operation and Maintenance Commitment to maintain the efficiency of the infrastructure, maintaining its life span and keeping operating costs to a minimum. 5 Global
Global infastructure spending $ trillions, current prices 10 9 8 7 6 5 4 3 2 1 0 2006 2008 2010 2012 2014 2014 2018 2018 2022 2024 Source Oxford Economics Despite significant efforts since the Global Financial Crisis, which began in 2008, global economic growth remains low and unemployment persistently high. The World Economic Forum Global Competiveness Report 2015 2016 calls for productivity enhancing reforms to break this pattern. It appears that the increased expenditure on infrastructure has not yet had its intended impact on the growth of the Global Economy. 6 Global
Level of Economic Activity Average % pa Rates of Change in Real GDP 2010 2020 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0 Western Europe North America Asia Pacific (Developed) Eastern Europe South & Central America Asia Pacific (Emerging) Middle East Sub-Saharan & North Africa Africa Source Global Construction Perspectives and Oxford Economics Global Capital Flows in Real Estate in 2015 $12bn $22bn North America $32bn $75bn Europe $68bn $16bn $3bn $24bn $3bn APAC $53bn Middle East $2bn $12bn $35bn Latin America Source IHS Global Insight 7 Global
Linesight Share of Construction Spending by Region 2020 Eastern Europe 5% North America 17% Western Europe 24% Asia 46% Middle East 2% Africa 2% Latin America 4% Source IHS Global Insight Global Growth Forecasts for 2015 & 2016 2015 2016 Canada 1.3 2.1 2.6-3.8 2.4 0.1 Eurozone US 2.5 Russia UK 1.5 2.7 1.7 China 6.8 India Mexico 2.4 3.0 7.5 Nigeria 3.9 6.6 Japan 0.8 1.3 7.7 4.9 Brazil -2.4-0.3 World 2.9 Australia 3.3 Argentina 0.6 1.2 Source IHS Global Insight 8 Global South Africa 1.7 2.1 2.5 2.6
Index of International Construction Costs at January 2016 200 180 160 140 120 100 80 60 40 20 0 Malaysia Romania Ghana India Hungary Czech Republic Poland China Spain UAE Germany Ireland Netherlands UK Italy France USA Canada Australia KSA Singapore Japan Switzerland Caribbean Hong Kong Sweden Source Linesight 9 Global
Top 20 International Contractors Based on Total Firm Contracting Revenue 2015 Rank 2014 Rank Firm 1 3 CHINA RAILWAY GROUP, China 2 1 CHINA STATE CONST. ENGINEERING CORP., China 3 2 CHINA RAILWAY CONSTRUCTION CORP., China 4 4 CHINA COMMUNICATIONS CONST. GROUP, China 5 5 VINCI, France 6 6 ACS, Spain 7 14 POWER CONSTRUCTION CORP. OF CHINA, China 8 8 BOUYGUES, France 9 7 HOCHTIEF AG, Germany 10 10 CHINA METALLURGICAL GROUP CORP., China 11 9 BECHTEL, U.S.A. 12 11 SHANGHAI CONSTRUCTION GROUP, China 13 13 CIMIC GROUP LTD, Australia 14 15 SKANSKA, Sweden 15 12 FLUOR CORP., U.S.A. 16 16 STRABAG SE, Austria 17 20 HYUNDAI ENGINEERING & CONSTRUCTION CO., S.Korea 18 18 OBAYASHI CORP., Japan 19 17 EIFFAGE, France 20 25 TECHNIP, France Revenue $bn 113.11 110.58 97.04 60.31 51.87 46.08 38.69 32.34 31.12 30.03 28.30 26.62 18.90 17.69 16.92 16.47 16.37 14.96 14.44 14.34 Based on Contracting Revenue from Projects Outside Home Country 2015 Rank 2014 Rank Firm 1 1 ACS, Spain 2 2 HOCHTIEF AG, Germany 3 3 BECHTEL, U.S.A. 4 4 VINCI, France 5 9 CHINA COMMUNICATIONS CONST. GROUP, China 6 10 TECHNIP, France 7 7 BOUYGUES, France 8 8 SKANSKA, Sweden 9 6 STRABAG SE, Austria 10 11 SAIPEM, Italy 11 23 POWER CONSTRUCTION CORP. OF CHINA, China 12 5 FLUOR CORP., U.S.A. 13 12 CONSTRUTORA NORBERTO ODEBRECHT, Brazil 14 13 HYUNDAI ENGINEERING & CONSTRUCTION CO., S.Korea 15 14 FERROVIAL, Spain 16 17 SAMSUNG C&T CORP., S.Korea 17 20 CHINA STATE CONST. ENGINEERING CORP., China 18 - OZTURK HOLDING CO., Turkey 19 18 ROYAL BAM GROUP, The Netherlands Revenue $bn 38.71 29.30 21.41 19.68 15.83 14.22 14.20 14.02 13.97 13.62 11.65 11.52 10.20 9.69 8.37 7.85 7.24 6.90 6.17 Note 2015 ranking is based on 2014 construction contracting revenue Source: Engineering News Record 10 Global
Top 20 International Design Firms Based on Total Firm Revenue 2015 Rank 2014 Rank Type of Firm Firm 1 1 EA AECOM, U.S.A. 2 2 AEC JACOBS, U.S.A. 3 - EAC POWER CONSTRUCTION CORP. OF CHINA, China 4 3 EC WORLEYPARSONS, Australia 5 5 EC AMEC PLC, U.K. 6 6 EC FLUOR CORP., U.S.A. 7 10 E ARCADIS, The Netherlands 8 11 EAC CHINA COMMUNICATIONS CONST. GROUP, China 9 16 E WSP, Canada 10 7 EAC CH2M HILL, U.S.A. 11 9 GE FUGRO, The Netherlands 12 8 EC SNC - LAVALIN INTERNATIONAL, Canada 13 18 EC CB&I, U.S.A. 14 15 EA ATKINS, U.K. 15 19 EA DAR AL-HANDASAH CONSULTANTS, Egypt 16 13 E TETRA TECH, U.S.A. 17 17 EAL STANTEC INC., Canada 18 14 EC BECHTEL, U.S.A. 19 27 EC CHINA RAILWAY CONSTRUCTION CORP., China 20 20 E MOTT MACDONALD GROUP, U.K. Revenue $bn 10.31 5.97 5.62 4.74 4.13 4.00 3.98 3.62 3.57 3.54 3.40 2.90 2.66 2.49 2.37 2.36 2.25 2.21 2.15 2.05 Based on Contracting Revenue from Projects Outside Home Country 2015 Rank 2014 Rank Type of Firm Firm 1 4 EA AECOM, U.S.A. 2 1 EC WORLEYPARSONS, Australia 3 6 E ARCADIS, The Netherlands 4 5 E FUGRO, The Netherlands 5 2 EAC JACOBS, U.S.A. 6 14 E WSP, Canada 7 3 EC FLUOR CORP., U.S.A. 8 8 EA DAR AL-HANDASAH CONSULTANTS, Egypt 9 7 EC AMEC PLC, U.K. 10 11 EAC CH2M HILL, U.S.A. 11 12 EC TECHNIP, France 12 10 EC SNC - LAVALIN INTERNATIONAL, Canada 13 9 EC BECHTEL, U.S.A. 14 13 E MOTT MACDONALD GROUP, U.K. 15 17 EC TECNICAS REUNIDAS, Spain 16 18 E ARUP, U.K. 17 15 EC KBR, U.S.A. 18 20 EA ATKINS, U.K. 19 24 EAL STANTEC INC., Canada 20 19 EC HATCH GROUP, Canada Revenue $bn 4.99 3.95 3.56 3.00 2.92 2.91 2.67 2.37 1.95 1.52 1.43 1.43 1.43 1.43 1.32 1.13 1.11 1.11 1.06 1.00 Note 2015 ranking is based on 2014 construction contracting revenue Key to Type of Firm: A - architect, E - engineer, C - contractor, P - planner, Source Engineering News Record L - landscape architect 11 Global
Global Inflation % 2015 10.50 9.50 8.50 7.50 6.50 5.50 4.50 3.50 2.50 1.50 0.50-0.50 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 China Euro Area US India Saudi Arabia Source Trading Economics 12 Global
Oil Production/Consumption Statistics World Oil Demand mb/d 97.5 95 92.5 90 87.5 85 1Q2013 3Q2013 1Q2014 3Q2014 1Q2015 3Q2015 1Q2016 3Q2016 Source International Energy Agency / OECD World Oil Supply mb/d 97.5 95 92.5 90 87.5 85 1Q2013 3Q2013 1Q2014 3Q2014 1Q2015 3Q2015 Source International Energy Agency / OECD 13 Global