By Gerhard Hope
Latest research predicts that construction-industry growth in the MENA region will buck the global trend
A new report sponsored by PricewaterhouseCoopers (PwC), and carried out by Global Construction Perspectives and Oxford Economics, predicts growth in global construction will outpace world GDP growth over the next decade. The report, Global Construction 2020, forecasts that global construction will grow by 67% from $7.2trillion to $12trillion annually by 2020.
The Middle East and North Africa (MENA) region is expected to outpace the global growth rate. A total of $4.3trillion is forecast to be spent on construction in the region over the next decade, representing growth of 80% to 2020. Mohammad Dahmash, PwC’s leader of real estate, construction & engineering for the Middle East commented: “Particular emphasis will be placed on social and affordable housing to meet the needs of the growing indigenous populations.” The report cautions, however, that recent events in the region may delay the growth in construction in some areas.
“The procurement process is also getting sophisticated, and many countries within the Middle East have started applying Build Operate Transfer (BOT) and Public Private Partnership (PPP) schemes, which not only help in financing projects, but also ensure the efficient implementation and execution to international standards,” said Dahmash.
“PPPs will take root in other countries because most countries do not have lots of spare cash right now. We see substantial PPP activity already in the European countries. They are talking about it in India as well,” said Arup Group chairman Phillip Dilley.
“Today, India is already building new infrastructure using its own money, but their ambitions are such that they will not be able to finance all of it through government expenditure. They will need additional private money, and to raise those funds they will need to make their partnership models more appealing to external investors. These will surely be PPP-style relationships,” said Dilley.
Within the region, growth in construction will be driven by population increases, economic growth, the desire for diversification and, in some cases, preparations for global sporting events, particularly the 2022 FIFA Soccer World cup in Qatar. Qatar is the fastest-growing construction market covered by the report, noted Dahmash.
Important facilitators of construction growth in the region are expected to include changes to mortgage laws in Saudi Arabia, driving residential construction, and more private participation in infrastructure investment across the region.
Charles Lloyd, PwC’s head of capital projects and infrastructure for the Middle East and North Africa, commented: “This report shows that the MENA region is likely to continue to be a major source of growth in the global construction market. Demographic factors, economic growth and regional governments’ pursuit of more balanced economies will all be powerful stimuli of construction demand.”
However, the report also highlights continued rapid growth in construction in China and India, and a rebound in the US market. These factors will mean greater demand for materials and more competition to attract other key parts of the supply chain. “We may be moving from a buyers’ market globally to a sellers’ one, and all governments will need to market their investment programmes actively if they are to attract world-class skills,” said Lloyd.
According to the report, emerging markets outside the Asia region will grow less strongly, but all emerging regions will outpace developing countries, while several non-Asian countries will enjoy high growth. Russia and Turkey, for example, are flagged as construction powerhouses in Eastern Europe over the next decade, as general infrastructure is built linking trade between Asia and Europe.
Russia’s construction growth will be more rapid than growth of its actual GDP, as it invests in transport infrastructure and seeks to double its energy output. Other key drivers are expected to be rail, road and airport upgrades to prepare for hosting the 2014 Winter Olympics in Sochi and the 2018 FIFA Soccer World Cup. Poland and Ukraine will also invest in infrastructure in anticipation of hosting the Euro 2012 soccer tournament.
The report states that Turkey’s increased investment to upgrade its infrastructure ahead of potential European Union membership will boost construction output sharply, transforming it into the region’s second-biggest market by 2020.
Construction growth in South and Central America will be more muted, states the report, but infrastructure investment will drive output in Brazil in the first half of the decade as it prepares for the 2014 FIFA Soccer World Cup and the 2016 Rio Olympics.
Meanwhile, growth in Saudi Arabia, with its young and burgeoning population, is expected to increase dramatically. Similarly, Egypt’s growing population will buoy construction growth. With large public debts, Egypt has passed a law allowing private investment in traditionally publicly-funded infrastructure. However, recent events may delay this development, notes the report.
The report states that Qatar, Libya and Algeria will finance most of its construction from exporting oil and gas. Qatar’s planned growth will be accelerated by $100billion investment in rail, road, water and related infrastructure.
Reflecting the fact that the report was compiled before the current social and political unrest that has engulfed parts of the region, it notes that, as well as modernizing and improving its infrastructure, Libya was building three new sports stadia in anticipation of hosting the 2013 African Nations Cup. Before the latest developments, Tripoli was even a candidate to host the 2017 Mediterranean Games.
In Sub-Saharan Africa, Nigeria will register rapid growth from an extremely low base, driven by the residential and infrastructural needs of a rapidly growing population. Similarly, South Africa’s construction output will be boosted significantly by hosting the 2017 African Nations Cup, but at a level lower than that of the lead-up to the 2010 FIFA Soccer World Cup.
The global construction sector accounts for over 11% of global GDP, and therefore “reflects the impact of countries’ economies very directly,” as well as being “an important catalyst for recovery and growth,” said PwC global leader: engineering and construction Jonathan Hook.
“There are a number of well-documented issues facing the global economy: the growth of emerging markets, increasing urbanisation, changing population demographics, the challenges presented by climate change, declining infrastructure in developed economies and dealing with the legacy of the financial crisis and public sector deficits,” said Hook.
“The construction sector will be at the heart of global economic growth, which has a leading role to play in ensuring that construction is cost-effective,” concluded Hook.