Infrastructure demand at all-time high globally

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As major urban areas strain to support rapidly growing populations adequately, the need for infrastructure globally is at an all-time high, according to KPMG's 2012 Global Construction Survey released on 9th February.

This development was so pivotal that it was pressuring the engineering and construction industry to step up as never before to meet the challenge, and putting their efficiency and risk management processes to the test, the survey found. 

KPMG surveyed 161 engineering and construction companies around the world with revenues ranging from US$250 million to more than US$5 billion. Nine South African companies took part in the survey. 

"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," Geno Armstrong, KPMG's International Sector Leader, Engineering and Construction said. 

Just over 40% of respondents globally anticipated that the energy sector offered the greatest opportunity for revenue in the next 12 months. 

Second behind energy were roads/bridges tied with residential at 24%, followed by rail and mining. 

"South African respondents were significantly higher with 78%, indicating that the energy sector provided the greatest possibility for revenue growth in the short term," Gavin Maile, KPMG Africa Construction Leader said. 

While 49% of respondents expected their backlogs to grow from 5% to over 15% in the next year, 71% of respondents cited economic uncertainty as their biggest on-going concern followed by a skills shortage (31%) and thirdly, government deficits (30%). A total of 62% said they expected margins on current bids to remain unchanged from their current backlog. 

Of those surveyed, 57% said their revenues in 2011 increased from 2010, with the Asia Pacific region seeing the greatest growth (72%) followed by Europe, Middle East and Africa (EMEA) at 53% and then the Americas (41%). 

To mitigate risk, manage project complexity and effectively meet the anticipated increase in demand, companies were seeking solutions to address efficiencies in their procurement/supply chain. 

Almost 60% of respondents said improvement in this area would lift profits and enhance cash flows. Almost 40% of respondents said the primary cause of inefficiencies in their supply chains were disparate processes and systems. 

Cost cutting still remained a challenge for companies as well, with organisational culture seen to be the culprit for not implementing the cuts for 61% of respondents globally, and 78% in SA. A surprising 17% of respondents globally said that cost reduction was not a priority at all. 

Survey respondents acknowledged that IT optimisation was critical to improving efficiencies, yet 50% stated that overhauling IT systems took too long and cost too much. Others (30%) said there were not enough Enterprise Resource Planning (ERP) packages available that were tailored to the construction sector. 

With projects anticipated to become more complex, maintaining margins and mitigating risk were major concerns for most respondents. 

Globally, 45% of respondents said that quantifying risks was the chief concern. In SA, 44% of respondents stated that the mitigation of risks was the main focus and nearly 56% said they wanted to understand the link between strategy and risk. 

"Our survey revealed that 54% of respondents failed to identify issues in the bidding stage that later caused margin erosion in significantly underperforming projects. Only 36% believe that their project review processes are very efficient," Maile said. 

"This is despite considerable investment in risk management over the years." 

What respondents said might be the primary barriers to public-private partnerships in infrastructure investment was 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%) of respondents believed government policies would have a positive impact on investment, which was roughly equal across all three regions. Moreover, respondents showed concern about the public sector's ability to drive infrastructure investment with 80% of respondents globally saying that lack of leadership would hamper investment. 

"These results highlight that the lack of government commitment is not just a South African issue, but rather a global issue of balancing available resources and priorities, " Maile added. 

While respondents globally anticipated that energy (34%) followed by transportation (33%) would likely attract the most private sector investment for their companies, two-thirds saw a lack of private sector initiative as another barrier to investment. A total of 56% of the Americas respondents saw transportation as having the biggest appeal for investment. 

 


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