Look forward

The global construction industry hopes to continue growing next year.

In this issue, we carry a fascinating comment piece by Taylor Wessing (Middle East) construction partner Mark Fraser, who says that certain optimistic signs, such as the resuscitation of stalled projects, bodes well for 2012 – despite the liabilities imposed on contractors by the Civil Code (see the full article on p22).

However, Fraser cautions that the market for new projects is likely to remain stagnant going into the New Year. This situation is exacerbated by the slowdown in Abu Dhabi, which seems to be following the same trajectory as the Dubai market.

Despite the impetus of its 2030 Vision, the capital has pushed back the delivery of flagship projects such as the Guggenheim and Louvre on Saadiyat Island.

What is perhaps more surprising is that Qatar, which the industry is regarding as the region’s next major growth hub, cancelled $7bn worth of projects in the last year, according to Citigroup. This raised the value of its cancelled and delayed projects by 4% to $156bn. This situation is likely to turn around as the World Cup build-up kicks up, but as yet it has not materialised in tangible projects.

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What is inevitable is that the UAE has now been superseded as the region’s dominant construction market. The two countries now vying for this title are Iraq and Saudi Arabia.

The former has to shore up its crumbling infrastructure after decades of non-investment, while the latter is facing a massive housing backlog. So what do prospects look like for the global construction industry in 2012?

The latest construction trade survey from the Construction Products Association in the UK reports that construction output is expected to fall by 1.1% in 2011 and 3.6% in 2012, with no return to growth until 2014.

The reason for this is due to the drop in public-sector investment, which is significant given the build-up to the 2012 Summer Olympics.

Meanwhile in the US the construction industry is expected to grow slightly in 2012 to $412bn, following the 4% decline to $410bn anticipated for 2011. Of particular concern is that public works construction, electric utilities and the institutional building sector are all expected to decline – which is the exact opposite of the trend in the Middle East, for example.

The Australian Performance of Construction Index saw an increase of 4.7 points to 34.7 points in October, but cautions that this is still well short of the 50-point level that indicates expansion rather than contraction. All sub-sectors – houses, apartments, commercial construction and engineering construction – reported stronger figures compared to the September data, which augurs well for next year.

In South Africa, major players in the construction industry such as Group Five, Aveng, Murray & Roberts and WBO are all trading at year lows, with some reporting declines in their share price of close to 50% on the year. As with the US, infrastructure spending is expected to remain muted, which is worrying given the developmental needs of the country.

An assurance partner at Ernst & Young sums up the future prognosis for the construction industry perfectly when he says it is now “a case of the ‘not so bad’ being the new good.”