Global Construction 2020 and Global Opportunities Raymond Beven Partner, London
17 November 2010
Introduction: Structure • • • • • • • •
Key Findings of Global Construction 2020 Current Global Economic Situation Global Construction Situation Major Economic Factors – towards 2020 Global Construction Outlook – towards 2020 Regions and Countries Global Construction 2020: conclusions Example Current Activity in Emerging Markets
Key Findings of Global Construction 2020 • Global Construction 2020 – published by Global Construction Perspectives and Oxford Economics in November 2009 (www.globalconstruction2020.com) • Scope of Forecasts – major global and regional construction markets compared and contrasted: – Analysis of construction output for 35 individual countries, representing over 85% of world output – Markets analysed globally, by region and by key countries
• Covers infrastructure, residential and non-residential sectors • Key finding: "Our forecasts cover the next decade to 2020...They find a major global industrial sector in transition as emerging markets overtake developed countries to become the biggest part of the market."
Key Findings of Global Construction 2020 • Construction market today - $7.5 trillion = 13.4% of world output • Construction market in 2020 – $12.7 trillion = 14.6% of world output • Main markets in 2020 by growth: China, India, Russia, Brazil, Poland and US • Key trends identified in GC 2020 – Construction in emerging markets to increase by 110% in next decade – representing 17.2% of GDP – Infrastructure construction in emerging markets to grow by 128% (compared to 18% in developed countries) – The Rise of China – expected to represent 19.1% of global construction output by 2020
Current Global Economic Situation • Financial Crisis and Global Rescue Packages – As a result of downturn in global economy – estimated that global GDP has dropped 2% – Countries most affected = those most exposed to world economy – Response of major banks – cuts in interest rates – Response of governments – fiscal stimulus packages – Big question: "Are these measures enough to revive world economy?"
Current Global Economic Situation • Indications are that many economies have passed their troughs – led by Germany, France and Japan in 2009 Q2 • Expected that upturn will be "sluggish and bumpy" • Individual country economies will experience recovery as a combination of (i) country-specific strengths and weaknesses and (ii) global economic factors
Current Global Construction Situation • 2007-2009: downturn in global construction industry "has been one of epic proportions“ • As a result, in the period 2005-2009... – Marked slowdown in global rate of growth to 0.8% pa – Developed countries saw an average 2.9% pa decline in annual construction output (a slump of $650 bn) – Emerging markets saw only a slowdown in growth - to an average 6.7% pa growth – So by 2009, the major construction markets were...
Current Global Construction Situation
Major Economic Factors - towards 2020 • Budget Constraints Will Limit Developed Countries – Developed countries: many facing fiscal deficits • will act as a constraint on government spending • infrastructure spending unlikely to continue
– Emerging markets: a number of major emerging markets will not face such severe budgetary constraints • Able to in invest in infrastructure • Need to replace and build new infrastructure as population increases
• Environmental Challenges and Opportunities – Policies (e.g. Carbon reduction, renewables) remain vague – need government commitment for effective implementation – Potential to have negative effect on economic growth if pursued aggressively (e.g. Climate change, waste disposal, “clean” technologies)
Major Economic Factors - towards 2020 • Emerging Markets Drive Recovery – World economy expected to grow by 3.5% - 4% per annum in decade from 2011 – Partly as a result of fast growth in emerging markets – Demographic differences: Emerging markets: likely to see largest growth in population Developed countries: expected to see little or no population growth – some will even decline
Major Economic Factors - towards 2020
Global Construction Outlook – towards 2020 • Expected return to growth in global construction to 2020: – Period 2009-2014: average growth of 5.1% pa – Period 2014-2020: average growth of 4.7% pa – Higher rate in 2009-2014 reflects rebound from downturn in 2007
• Expected average rates of growth in construction by region to 2020: – 2%-3% pa in developed countries – 6%-7% pa in emerging markets
Global Construction Outlook - towards 2020 • Emerging markets to dominate output growth – strongest markets for growth will be: – India, China, Asia Pacific, South and Central America, Middle East and parts of Africa, and parts of East Europe (...and Central Asia?)
• Increase of importance of emerging markets to 2020: – 2005: 35% of global construction output – 2020: 55% of global construction output
Global Construction Outlook - towards 2020 • Growth in emerging markets will more than double to $7trillion – 17.2% of GDP in 2020 • Key to growth of emerging markets is infrastructure: – Estimated to grow by 128% over the next decade – Compared to 18% in developed countries
• Sectors in which we can expect to see growth: – Transport, energy, social infrastructure, schools, hospitals, government accommodation, water, defence infrastructure, natural resources
Global Construction Outlook - towards 2020
Global Construction Outlook - towards 2020
America and Europe • North America – expected to see highest-growth of any developed country • Result of double-digit annual growth in residential construction • Brazil – construction market expected to grow ahead of FIFA World Cup (2014) and Olympic Games in Rio (2016) • South and Central America – growth markets expected to be Mexico, Colombia and Argentina • By comparison, Western Europe – expected to see lowestgrowth of any developed region
America and Europe • Eastern Europe – expected to grow by 100% in next decade – led by Poland and Russia: – Russia: as a result of rapid expansion, construction market expected to be worth $335bn pa by 2020 – Poland: construction market expected to be one of 10 fastest-growing markets in next decade
Japan • Total construction output in 2020: estimated to be US$100bn pa lower than in 2003 • A result of decline in population and an infrastructure sector constrained by government debt • Has already been overtaken by China as world's secondlargest construction market; expected in next decade that India will overtake Japan as third-largest construction market • NB: Example of future dominance of emerging markets over developed countries
Rise of China and India • Asia Pacific region estimated to grow by 125% in next decade • In terms of construction, India and China expected to show highest growth rates: – China expected to be world's leading construction market by 2018 – expected to be valued at circa US$2.5 trillion by 2020 (19.1% of global construction output) – India expected to see double-digit growth in residential and nonresidential markets (becoming the world's third largest construction market by 2020)
Middle East and Africa Construction market expected to grow by 83% up to 2020: • Nigeria – will be fastest growing market in Africa – result of increased wealth and urbanisation • South Africa – recent boost due to hosting FIFA World Cup, expected to continue rapid growth over next decade • UAE – despite recent downturn, construction market expected to show positive growth overall to 2020
Global Construction 2020: conclusions
Global Construction 2020: conclusions • Outlook for Construction – Growth in World Economy: best opportunities in global construction likely to be found in emerging markets – World Population Growth: upward trend in population growth in emerging markets likely to have positive impact on construction – Fiscal constraints: taken in conjunction with demands made by population growth, likelihood of major infrastructure projects in emerging markets – Impact of Environmental Policy: perhaps positive in terms of sustainability resulting in "smarter" buildings and improved infrastructure; cost to be balanced against this
Current activity in emerging markets • The Philippines – Plan for 50 PPP projects with investment total of $14 billion – 10 projects already in procurement (includes road, rail and water)
• Nigeria – ‘Vision 2020’ PPP infrastructure programme – Four to be brought to market in 2011 (includes a school building scheme and waste water treatment plant)
• Saudi Arabia – Focus on transportation, energy and water infrastructure projects – A mixture of investment through PPP and privatisation
Current activity in emerging markets • Kuwait – Government-created body, Partnerships Technical Bureau, administers PPP programme – Currently plans include a new metro rail and independent water and power production (IWPP)
• Ukraine – Adopted new law on PPP in July 2010 – Encompasses wide range of infrastructure including mining, heat production, waste disposal, transport, electricity production
Global Construction 2020 and Global Opportunities
Raymond Beven Partner T: +44 20 7490 6293 M: +44 7771 972375 E: raymond.beven@pinsentmasons.com
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