GlobalConstruction2020

Global Construction 2020 and Global Opportunities

Raymond BevenPartner, 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• 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 USPoland 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 • 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 – 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 • 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)


• 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


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 • 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: • Increase of importance of emerging markets to 2020:

– 2005: 35% of global construction output

– 2020: 55% of global construction output


• 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– 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



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)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 lowest-growth 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 decademarkets 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 second-• Has already been overtaken by China as world's second-largest 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)construction output)

– India expected to see double-digit growth in residential and non-residential 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, • 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 – 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 – 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• 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 BevenPartner

T: +44 20 7490 6293M: +44 7771 972375E: [email protected]

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