After prolonged economic uncertainty, the bulk of companies in the global engineering and construction sector have expressed renewed confidence in the growth prospects for the industry, indicating that the sector is finally in an upturn, the KPMG International 2013 Global Construction Survey revealed on Thursday.

The survey, which was compiled using feedback from 165 of the sectors’ biggest global firms in 29 countries, found that a recovery in the global economy was driving intensified investment into infrastructure and manufacturing, which, in turn, was expanding international order books.

Additional growth momentum was expected to emerge from an upsurge in coal and natural gas extraction projects as the global population expanded and urbanisation intensified, driving increased demand for power.

“The survey indicates that a general increase in order books and margins is giving cause for optimism across the industry, with further growth expected,” KPMG Africa construction leader Gavin Maile said at the report’s launch, in Johannesburg, on Wednesday.

Just over 50% of respondents from the Americas, Europe, the Middle East and Africa (Emea) region, as well as the Asia-Pacific region said their companies were expecting an increase in order books of at least 5% in the period from 2013 to 2014.

Of the ten biggest South African engineering and construction companies polled, seven indicated that they expected their order books to increase by more than 10% – significantly ahead of the global trend.

This optimism extended to industry growth forecasts, with 64% of respondents expecting growth of up to 25%, although 23% saw growth at 0% or less.

“However, 75% of global companies, and 80% of local firms, think the industry will still take another two to five years to see a real turnaround,” Maile commented, adding that the highest growth was expected in Central and South America, as well as Africa.

He attributed the anticipated growth to favourable trading conditions in the regions, as well as good prospects for mining, oil and natural gas.

In South Africa, 60% of companies interviewed forecast growth of up to 25% for 2013, while respondents in Australia, the Middle East and the UK were the least optimistic about growth prospects for 2013.

Overall, companies with revenues above $5-billion saw the greatest potential for growth.

GROWTH DRIVERS

The survey found that, globally, government infrastructure plans remained the leading driver for growth in the sector, as economies began to emerge from the post-recession environment and governments resumed development programmes.

Sixty-six per cent of respondents felt that government spending would be the greatest driver of growth, while 42% felt that global economic growth would drive an upturn in the industry and 38% believed the greatest driver would be population growth.

“In South Africa, all ten companies that participated in the survey indicated that government infrastructure plans would have the largest impact on the future of the industry, followed by urbanisation (60%), global economic growth (50%) and access to new energy resources (50%),” said Maile.

In the Americas, privatisation efforts through public–private partnerships (PPPs) ranked as the second-biggest driver for growth behind government infrastructure plans. This was followed by access to new energy sources, such as natural gas or renewables.

“Interestingly, only one company in South Africa believes that 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,” he observed.

Meanwhile, in the burgeoning economies of the Asia-Pacific region, population growth and urbanisation were considered the second and third drivers of growth.

GROWTH BARRIERS

Despite the resurging optimism, companies maintained a balanced view on likely obstacles to growth, with 72% identifying budget deficits and public funding shortages and 43% ranking a lack of private sector funding as the greatest threats to industry recovery.

In South Africa, 80% of the polled construction executives agreed that budget deficits and the public funding crisis were the leading market impediment, followed by regulation and private sector financing availability.

As companies ramped up for growth, 93% said their risk management programmes had improved project performance, despite more than three-quarters claiming the existence of underperforming projects.

“All ten South African companies confirmed the existence of one or more underperforming project that significantly impacted their organisation. Yet 80% of those companies indicated that their investment in project risk management had paid off,” said Maile.

EXPANSION

In anticipation of continued growth, 47% of global respondents had adopted international expansion strategies into new regions, with 35% of those identifying Africa as their first priority, followed by the US and Canada (28%) and the Middle East (22%).

Entry into new industry sectors was also important for growth for 44% of respondents, with 57% of those indicating that they planned to enter the power and energy sector, 28% intending to enter water-related sectors and 27% looking to mining.

From a local point of view, 70% of South African companies identified the power and energy sector as a top priority, followed by water-related activities (50%) and mining (40%).

“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,” he held.

Responding to the results of the survey, Public Enterprises Minister Malusi Gigaba, who attended the launch event, critiqued the lack of focus on industry-specific shortcomings, most notably the spate of recent collusive tendering.

“While I welcome the results of the survey, it places minimal focus on failures on behalf the sector, which include price collusion, reliance on imported goods and skills, as well how to correct project-delivery related anomalies. These need to be addressed,” he said, before acknowledging the industry’s critical developmental role.