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CONSTRUCTION: Construction Sector Optimistic


Recent Gauteng Business News

Optimism in the construction sector abounds despite falling demand in commercial and residential building work and in the face of the global financial crisis according to a global KPMG survey. The survey covered construction companies in 30 countries with revenues ranging from US$250 million to US$5 billion.

Geno Armstrong, international sector leader of KPMG’s Engineering and Construction practice says that “there is a perception that the global financial crisis has devastated the construction industry. While it certainly has had a significant impact on the way these companies do business, we’ve found that they view these conditions as an opportunity to get leaner. When the recovery does finally arrive, these companies should be well-prepared to succeed.”

Fifty three percent of global respondents stated that their backlog volume of jobs has gone up or stayed level. The picture was similar with profits in the current order backlog with just 44 percent of global respondents claiming a decrease. Contractors in Africa, Europe and the Middle East appear to have been hardest hit with 54 percent indicating their projected profit rates have declined.

Gavin Maile, KPMG Africa Construction Partner, indicates that “in South Africa profit rates for new contracts are coming under pressure, especially in the housing sector, with numerous contractors bidding on each contract.

“While globally the future for the industry promises huge government stimulus packages with the potential to reinvigorate the infrastructure market, it is unclear how much money will be made available for infrastructure and where it will find its way,” says Maile. “This is a matter of much debate in the boardrooms of engineering and construction companies around the globe. The situation in South Africa is slightly different, where a significant number of infrastructure projects had already commenced before the downturn, especially in the critical areas of power, roads and football stadia.”

Only 12 percent of global respondents believe that proposed government stimuli packages will bring a significant increase in opportunities over the next 24 months. Although contractors in the Asia-Pacific region had the most confidence in government packages, 82 percent of respondents are expecting a moderate or significant increase in opportunities over the next 24 months with 43 percent of respondents from Africa, Europe and the Middle East believing that such stimuli will have no demonstrable impact in that timeframe. In contrast, 73 percent of American respondents are expecting some stimulus impact by mid-2011.

“The direct impact of South African infrastructure projects, on the other hand, is already flowing through the local economy,” says Maile.

The survey reveals further optimism in the construction industry’s ability to retain its talent in difficult times. While 35 percent of global respondents have not reduced their workforce, very few contractors appear to have felt the need to cut workforce costs via salary reductions, reduced working hours or unpaid sabbaticals. It was found that 28 percent of respondents have taken no action at all with regard to workplace reductions.

Whilst the 2008 survey identified a general talent shortage in the industry, the 2009 respondents show a great reluctance in shedding valued employees. “Construction companies are becoming increasingly conscious that this is a talent-focused sector. South Africa has experienced the return of many talented individuals and foreign nationals are seeking work here. When the recovery does come, engineering and construction companies want to make sure that they have the right skills and experience ready for the opportunities available,” adds Maile.

“The survey indicates that the recession, rather than forcing cutbacks, as would be expected, has in fact intensified contractors’ efforts to manage the risks associated with projects. What was once considered a weakness in the sector is now receiving renewed attention.”

Seventy three percent of respondents to the survey say they have put even more effort in the last 12 months into due diligence and checking the financial stability of clients. The majority of respondents reported carrying out more in-depth analyses of performance risks on ‘mega projects’ and devoting considerable time and resources to improving risk management through investments in systems and more comprehensive assessment of cash flow, compliance and safety risks.


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