Analysis released by global consulting firm PwC predicts that global spending  on capital projects and infrastructure (CP&I) will grow by 5% a year within four years, doubling the low rates of growth of just 2% expected this year.

The analysis by Oxford Economics, which examined spending across seven regions and six key infrastructure sectors, also projected that yearly global infrastructure spending would reach $5.3-trillion by 2020, up from an estimated $4.3-trillion in 2015, underlining the long-term strength of the sector.

Given the recent volatility in the market, the report also examined two scenarios against the baseline projection – a high growth recovery and a hard landing in the Chinese economy, given that China was the world’s largest CP&I market.

On the baseline outlook, using projections for economic growth, though current spending was showing signs of CP&I growth, CP&I spend would remain low – around 2% – for the coming year.

“It will make a slow but sustained recovery to 2020, when spending will be at 5%, or $5.3-trillion, per annum. The largest percentage increases in global CP&I investment between now and 2020 will be in social infrastructure and in manufacturing-related infrastructure,” said PwC.

Recent slowdowns were a result of the decline in oil and other commodity prices, the availability of public and private finance, a slowdown in China’s growth rate, and currency volatility, which all weighed heavily on the sector.

Slow growth was felt hardest in the utilities sector, buffeted by a combination of subsidy cuts in Europe for renewable-energy projects; sluggish global economic and trade growth, which reduced demand for electricity; and diminished private-sector thirst for capital projects in the face of a negative commodities price environment.

The UK's recent decision to exit the European Union came after the research for the report was finalised. It was therefore too early to comment on the specific UK and global impact of Brexit in 2020, however, in the short term, additional uncertainty and volatility was likely to directly impact on the UK capital projects and the UK infrastructure market, indirectly impacting on the global CP&I market.

PwC capital projects and infrastructure team member Richard Abadie noted that “even in these volatile times, there are still opportunities.”

He stated that sponsors and investors, however, were being selective on which projects to proceed with, as they needed to ensure that mining and oil and gas projects were profitable at today’s depressed commodity prices.

“Companies would want to remain invested because the long-term demand for infrastructure remained strong – particularly given its fundamental link to economic growth prospects,” he said.

The firm’s research underlined the contagion effect of oil and commodity prices, and China’s economic conditions on the sector’s prospects as a whole. The extraction sector was in for a difficult time under the upside or downside forecasts.

“Any slowdown in China is likely to have a ripple effect on [sub-Saharan African] economies that rely on Chinese demand for their exports to stimulate their markets,” said PwC South Africa transport and logistics leader Dr Andrew Shaw.

Meanwhile, he stated that economic activity in sub-Saharan Africa (SSA) had weakened substantially.

“Overall, growth for the region fell to 3.5 % in 2015, the lowest level in 15 years, and was set to decelerate further to 3% this year – well below the 5% to 7% range experienced over the past decade, according to the International Monetary Fund’s ‘Regional Economic Outlook: Sub-Saharan Africa, 2016’ survey,” he said.

This was largely owing to the marked decline in commodity prices, which had put substantial strain on many of the largest SSA economies. In addition, many oil exporters continue to face difficult economic conditions, particularly in West Africa, and several southern and eastern African countries, including Ethiopia, Malawi and Zimbabwe were suffering from a severe drought.

Despite this markedly weaker picture, the IMF predicted that medium-term growth prospects for the region remained favourable.

Although it showed the smallest overall spend on infrastructure, SSA was the fastest-growing regional infrastructure market, with a projected average increase in transport spending of over 11% a year from 2015 to 2025.

Most of this growth was expected in roads and ports.

Shaw reiterated that infrastructure was generally a long-term investment and that there was a significant backlog in infrastructure investment in Africa that needed to be addressed, irrespective of what the next few years of gross domestic product growth looked like.

He added that infrastructure in these times could act as a significant stimulus for growth. It could also improve country competitiveness and help ready countries for increased commodity demand when the global economy began to pick up.

“The overall need for infrastructure will not diminish. In addition, certain megatrends will continue to drive growth in infrastructure spend over the medium term. These include continuing global urbanisation, the growth of emerging economies, the rising middle class, technological innovation and resource scarcity,” commented Shaw.

He added that, even in these volatile times, there were still opportunities for projects and investors.

“While levels of investment and infrastructure will always be sensitive to factors such as macroeconomic conditions, commodity prices and the cost of finance, the need for essential services is constant.”