SEV: Construction & Infrastructure Session · 2019-03-13 · opportunities, supported by Sovereign Wealth Fund. • Transport outperforming sector, especially rail. • Post 2020

SEV: Construction & Infrastructure Session

Thursday 28th February 2019

Richard Marshall, Head of Infrastructure & Power Research

fitchsolutions.com | fitchconnect.com 2

Global Key Themes For Infrastructure In 2019

• Technology and sustainability are going

to revolutionise the construction and

infrastructure sectors, but these are

long-term trends in a slow moving

industry,

• In 2019 we expect:

• More infrastructure-negative policy

making across the world, largely led by

populist governments

• Less of a focus on large, flagship projects

– vulnerable to political interference

• A growing focus on more basic

infrastructure such as power

transmission and distribution and

wastewater treatment

Transmission And Distribution

Infrastructure To Become More

Prominent

Populists In Government Risk

Major Infrastructure Policy Shifts

Oil Prices Will Not Support Expansive

Infrastructure Investment

Wastewater Treatment To Gain

Traction Amid Sustainability

Concerns


Construction Disruption

• Revenue optimisation,

environmental considerations &

addressing inefficiencies

in project delivery are the three

complementary trends which will

continue to drive the uptake of new

technologies in the construction

and infrastructure sectors.

• Most immediate impacts:

• Modular construction

• BIM

• More efficient building materials.


Construction Crucial For Low Carbon

2017-2026 = Fitch Solutions forecasts.Chart: Share of energy consumption during building life. Source: Skanska

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

Building Consumption

80%

Materials15%

Construction5%

Construction and building materials industries will be at the forefront of delivering the low-carbon economy, as companies work to address the

sectors’ significant carbon emissions, and clients demand low-carbon projects.

Construction has a crucial role in addressing emissions; directly from materials

production and site activity; and indirectly through type of projects – up to 30%

of emissions.

Why Change? Client demand – sustainability at core of corporate & government

strategy. Construction facilitates this.

Technology will be central in efforts to decarbonise:

Materials & Methods: Cement production, new materials, building

techniques, circular options.

Types of Projects: Electrification and automation, efficiency standards,

project life-cycle planning.

Global Construction Industry Value, USDbn


Global Projects

• Rail & Renewables Sectors are the fastest growing

segments globally:

Sector Highlights

Source: Fitch Solutions Key Projects Database

Biomass2%

Geothermal3% CSP Solar

5%

PV Solar37%

Tidal/Wave2%

Off-Shore Wind19%

On-Shore Wind32%

Planned/Under Construction Capacity, 368GW

0

200

400

600

800

1000

1200

CommuterRail

HighSpeed

Light Rail Mainline Metro Monorail

Number Of Rail Projects, By Segment


• Asia will be the main growth driver

of all key power generation

technologies

• Natural gas to register cross-

regional growth

• Middle East/North Africa and Sub-

Saharan Africa to maintain focus on

natural gas and hydropower

Global Power Generation Growth

e/f = Fitch Solutions estimate/forecast. Source: EIA, National Sources, Fitch Solutions

-500

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

4.500

Asia Central And EasternEurope

Western Eur North Am Latin America Middle East And NorthAfrica

Sub-Saharan Africa

Coal Hydropower

Natural Gas Oil

Nuclear Non-Hydro Renewables

Power Generation Additions Between 2017e and 2027f, TWh


0

10

20

30

40

50

60

70

Rail Roads & Bridges Airports Ports Education Healthcare Other

Europe Project Pipeline

• EU driven connectivity goals crucial for

Europe’s project pipeline. CEF and TEN-T

to create strategic corridors.

• Carbon efficient projects in focus for

2021-2027 MFF – shifting freight from road

to rail, multimodal projects, public transport.

• Key Projects: Germany/Denmark: Fehmarn Belt Tunnel

Spain: Basque Y HSR, Valencia - Castellon HSR

France: Grand Paris Express, Marseille-Nice HSR

Romania: Targu Mures-lasi-Ungheni Highway

Sweden: East Link Rail

Rail Baltica

Commuter Rail; 46,4

Freight; 21,3

High Speed; 191,3

Light Rail; 5,7

Mainline; 59,2

Metros; 48,7

Monorail; 0,1

Europe – Projects At Planning, By Country & Sector, Value USDbn



• Across Asia, there is a positive relationship

between the growth outlook for the

construction and infrastructure sector and

the number of risks that potential market

participants face.

• Indonesia, the Philippines and Vietnam are

home to challenging business environments,

as measured by our Infrastructure Risk/Reward

Index (RRI).

• Malaysia and Thailand are moderately

developed markets with above-average risk

environments.

• Frontier markets such as Cambodia and

Myanmar are forecast to be the fastest-

growing, but also receive the lowest Industry

Risk scores in our RRI.

• Hong Kong and Singapore have the lowest

risk, but also the weakest growth outlook.

Asia Regional Outlook

Asia – Infrastructure Risk Index Scores & Construction Real Growth Forecasts

Cambodia

Myanmar

Pakistan

Philippines

Sri LankaBangladesh

VietnamLaos

IndonesiaIndia

MalaysiaMongolia

ThailandChina

New Zealand

Australia

Singapore

South Korea

TaiwanHong Kong

Japan

0

2

4

6

8

10

12

0 10 20 30 40 50 60 70 80 90 100Co

ns

tru

cti

on

Avg

. R

ea

l G

row

th %

, 2018-

22

Infrastructure Industry Risks

Scores out of 100. Higher score = more attractive market. Colour correlates to development stage of economy..

Source: Fitch Solutions.


Mekong Region

Mekong the fastest-growing regional construction

market in Asia, driven by strengthening economic

growth, foreign investment and expansionary fiscal

policies.

Thailand and Vietnam are home to growing middle

classes and sizable government-led plans for

infrastructure projects.

Cambodia, Laos, Myanmar and Thailand occupy key

positions along China’s Belt & Road initiative, and are

benefitting from expansionary investments in roads,

railways, power plants and industrial facilities.

Expanded fiscal and foreign investments will help

realize long-planned regional integration projects such

as pan-Asian highways and railways and a Mekong-

region power grid.

Cambodia and Myanmar are emerging as low-cost

manufacturing hubs, and as they attract

manufacturers they will also require transport

infrastructure investments.

+11,6%

+11,1%

+7,6% +7,5%

+4,9%+4,6%

0%

2%

4%

6%

8%

10%

12%

14%

Cambodia Myanmar Vietnam Laos Thailand Asia Average

Mekong Region – Construction Industry Real Growth

Forecasts, 2018-2022, % Chg y-o-y

Source: National Sources, Fitch Solutions


GCC: Diversification Progress

Note: Scores out of 10. Source: Fitch Solutions

GCC – Diversification Scorecard GCC – Diversification Scores

Source: Fitch Solutions

CountryDiversification

ScoreCore View

UAE 8.0First mover advantage in several sectors, strong business environment.

Political willingness to reform means that the UAE will maintain its competitive advantage over its neighbours.

Saudi Arabia

5.0Saudi Arabia was late to diversify, but is now showing a strong

commitment to reform. In addition, the country has a strong potential to develop a number of sectors, including tourism and manufacturing

Oman 3.5

Oman has a lot of potential in the logistics and tourism sector, but reforms are moving at a relatively slow pace, especially given strained financial

resources. Questions of succession present longer-term risks to diversification.

Qatar 3.0

Qatar is using the FIFA World Cup as a catalyst for diversification, and has undertaken a number of reforms of the business environment. However,

limited progress seen in terms of developing non-hydrocarbon sectors outside construction

Bahrain 2.5

Bahrain is comparatively more diversified but still highly reliant on hydrocarbons to drive exports and revenues. Rising competition from

neighbours and increasing entertainment options in Saudi Arabia could cut into its competitive advantage. Fiscal vulnerabilities limit the government's

ability to support diversification

Kuwait 1.0One of the least diversified economies in the region. Political willingness to reform is virtually absent given continued clashes between the executive

and legislative branches.

0

1

2

3

4

5

6

7

8

9

UAE Saudi Arabia Oman Qatar Bahrain Kuwait

2017 2018


Saudi Arabia

• Over the next decade, we forecast growth of

3.1% y-o-y on average, below the average

growth rate for the MENA.Extremely diverse

project pipeline compared to regional peers.

• Vision 2030 will drive significant investment

inflows into the Kingdom’s commercial

infrastructure sector – but overall Vision 2030 is

overly ambitious, as nascent private sector

still not up to the task.

•Saudi Arabia focus on investing in

petrochemical capacity in response to growing

demand as the country seeks to leverage cheap

feedstock and lessen its economic reliance crude

oil exports.

•Transport sector will focus on port and rail

infrastructure to boost logistics and trade

capacity and promote internal connectivity,

respectively.

Key Trends

Saudi Arabia – Project Pipeline By Stage and Sector, USDmn


0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

At planningstage

Feasibilitystudies/EIAunderway

Approved Intender/Tender

launched

ContractAwarded

Underconstruction

Social Infrastructure

Construction

Transport

Energy & Utilities


UAE

• Dubai to outperform Abu Dhabi: World Expo 2020 a

catalyst.

• Abu Dhabi still good source of infrastructure

opportunities, supported by Sovereign Wealth Fund.

• Transport outperforming sector, especially rail.

• Post 2020 – slowdown as project pipeline slimmer.

Key Trends

30%

7%63%

Energy & Utilities Social Infrastructure Transport

Total Infrastructure Project Pipeline Value: USD100bn

f = Fitch Solutions forecast. Source: Fitch Solutions, National Sources

0,00

1,00

2,00

3,00

4,00

5,00

6,00

7,00

0,00

50,00

100,00

150,00

200,00

250,00

2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f

Real Construction industry value, AEDbn Construction Industry Value, Real Growth, % y-o-y

Construction Sector Value, AEDbn (LHS) & Y-O-Y Growth, % (RHS)


Sub-Saharan Region

• High Risk region – growth rarely

sustainable.

• Nigeria and South Africa moving

away from periods of negative

growth in 2016 and 2017, but will

remain sluggish. Ghana offers

best risk-reward balance.

• East Africa in a boom period, but

Ethiopia slowing and Kenya to

reign in expenditure.

Key Trends

Nigeria

GhanaSouth Africa

Kenya

Rwanda

Ethiopia

Tanzania

CameroonUganda

Angola

Botswana

Namibia

Zambia

Cote d'Ivoire

MozambiqueGabon

ZimbabweSudan

Global Average

0,0

10,0

20,0

30,0

40,0

50,0

60,0

30,0 35,0 40,0 45,0 50,0 55,0 60,0 65,0 70,0 75,0 80,0

Ris

ks

RewardsScores out of 100. Higher score = more attractive market. Source: Fitch Solutions


THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment

on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from

Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or

information with Fitch Solutions Macro Research.

Disclaimer

SEV: Construction & Infrastructure Session

Thursday 28th February

Thank You

Documents

SEV: Construction & Infrastructure Session · 2019-03-13 · opportunities, supported by Sovereign Wealth Fund. • Transport outperforming sector, especially rail. • Post 2020