Infrastructure need at all-time high: KPMG
Dubai, February 23, 2012
The need for infrastructure is at an all-time high, indicates findings from a recent global construction industry survey by KPMG.
It revealed that the need for development is so pivotal that it is pressuring the engineering and construction industry to step up as never before to meet the challenge, putting their efficiency and risk management processes to the test.
KPMG 2012 Global Construction Survey, The Great Global Infrastructure Opportunity, surveyed 161 engineering and construction companies around the world with revenues ranging from $250 million to more than $5 billion.
“With increased scale comes complexity as global industry players navigate a tough political, commercial, regulatory and governance environment which will test their risk management ability to the maximum extent,” said Geno Armstrong, KPMG’s international sector leader, engineering and construction, and a partner in the US firm.
Nearly 40 per cent of respondents from Europe, Middle East and Africa (EMEA), believe that the energy sector will have the biggest impact on revenues. Second behind energy were roads/bridges at 27 per cent followed by residential at 25 per cent.
While 49 per cent of respondents expect their backlogs will grow from 5 per cent to over 15 per cent in the next year, 71 per cent of respondents cite economic uncertainty as their biggest ongoing concern followed by a skills shortage (31 per cent) and thirdly, government deficits (30 per cent).
Meanwhile 62 per cent said that they expect margins on current bids to remain unchanged from their current backlog.
Bahrain-based KPMG partner and head of building, construction and real estate, Middle East and South Asia region, Wirtschaftspruefer Ernst Weber, said that, the shape of the industry is changing as the main players continue to focus on more diversified businesses, having the right expertise and a possible rise in acquisitions to buy that expertise.
“The future for the infrastructure industry in the region lies in optimising costs, streamlining supply chains, improving IT systems and growth through mergers and acquisitions,” he said.
Cost cutting still remains a challenge for companies as well, with organisational culture seen to be culprit for implementing the cuts for 61 per cent of respondents globally, and 78 per cent in the Americas. And a surprising 17 per cent of respondents globally said that cost reduction was not a priority at all.
With projects anticipated to become more complex, maintaining margins and mitigating risk are major concerns for most respondents. Globally, 45 per cent of respondents say that quantifying risks is the chief concern; in the Americas, 52 per cent of respondents say that identifying risk is the main focus and nearly 50 per cent said they want to understand the link between strategy and risk.
What respondents say may be the primary barriers to public-private partnerships in infrastructure investment is a perceived lack of policies, leadership and investment by the public sector as well as a lack of initiative in the private sector.
Less than half (47 per cent)of respondents believe government policies will have a positive impact on investment, which is roughly equal across all three regions, with Asia Pacific being the most positive (49 per cent) followed by EMEA (47 per cent) and the Americas (41 per cent).
Moreover, respondents showed concern about the public sector’s ability to drive infrastructure investment with 80 per cent of respondents globally saying that lack of leadership will hamper investment.
“With austerity policies in many countries constraining the scope for public sector spending, it is vital to create an environment that encourages private sector investment,” Armstrong said.
Weber said that as governments around the region seek to create 21st century infrastructure, they need to create an environment that encourages private sector investment. “This means addressing regulatory and legislative barriers and showing the kind of long-term will that transcends immediate political popularity.”
All survey responses for KPMG’s survey were gathered through face-to-face interviews in 2011 with 161 senior leaders – many of them CEOs – from leading engineering and construction companies in 27 countries around the world.
Fifty-two percent of respondents were from EMEA, 31 per cent from the Americas and 17 per cent from the Asia-Pacific region. Respondent companies’ turnover ranged from less than $250 million to more than $5 billion, with a mix of operations from global through regional to purely domestic.
KPMG in Bahrain will host a breakfast seminar on March 28 at the Intercontinental Hotel to launch the global construction survey results. – TradeArabia News Service