The global construction market has taken a series of hits over the past couple of years. First, there was the economic slowdown in China, hurting the mining-and-metals sector as Chinese imports dried up. Then, the plunge in oil prices hit markets in that sector and spending in oil-producing countries. Now, international contractors are being forced to assess the impact of Britain’s exit from the European Union as well as growing political turmoil in the Middle East and elsewhere.
The uncertainties in the international construction market can be seen in the results of the ENR Top 250 International Contractors list. On this list, firms are ranked based on contracting revenue from projects outside of their home countries, measuring their presence in international commerce. ENR’s Top 250 Global Contractors list ranks contractors based on total worldwide contracting revenue, regardless of the projects’ locations.
The ENR Top 250 International Contractors had $501.14 billion in contracting revenue in 2015 from projects outside their home countries, down 4.1%, from $521.55 billion, in 2014. This drop comes after a similar 4.1% slide in 2014 Top 250 revenue. The Top 250, as a group, also had $897.33 billion in revenue from domestic projects in 2015, down 1.3%, from $909.26 billion, in 2014.
On a regional basis, North Africa was the biggest gainer, at 6.7%; its markets continue to recover after several years of political strife. Latin America also was a major gainer, rising 5.1% in 2015 over 2014, as was the U.S. market, which grew 4.4% in 2015.
On the other hand, the international contracting market in Canada took the biggest hit, falling 22.4%, reflecting the downturn in its oil-sands market. Central and southern Africa also fell dramatically, down 17.0% in 2015. Asia, the largest global market, also saw a double-digit decline, dropping 12.1% in 2015. Further, Europe and the Middle East saw market slowdowns, falling 6.4% and 3.2%, respectively.
Many large global contractors saw the market soften in 2015 but are working hard to build their sales. For Sweden’s Skanska AB, construction is generally “slightly slower” than last year, says Johan Karlström, president and CEO. But the order book is “considerably up,” mainly in the U.S. but also in Sweden and Norway, he adds.
Sales by France’s VINCI Construction SA have been stalled by a dip in public-sector work at home, says Jérôme Stubler, chairman. “After the  local elections, we have [suffered] a drop of 30%” in sales, he says. However, VINCI is benefiting from “the very high level of dynamism” of the firm’s concessions unit.
Some large firms believe there is growing interest in infrastructure that will boost their markets. For example, Hochtief Chairman Marcelino Fernández Verdes forecasts the firm’s strong pipeline of work will be stimulated by public infrastructure investment, continuing beyond this year.
Many large contractors say competition is having a impact on the market. “A negative factor is the entry of low-cost contractors from India, China and Korea. These contractors are affecting the market unfavorably,” says Samer Khoury, president for engineering and construction at Greece’s Consolidated Contractors Group.
Khoury says this low-bid mentality has led to a new trend: many failed contracts. “Some contractors are bidding very low and fail halfway through projects, at which time reputable contractors like CCC are asked to come in and complete these projects,” he says.
Many contractors in the global market are scrambling to find regions and countries with active markets, causing competition to ramp up. “With several markets showing [contraction], the convergence of construction companies in potential markets is increasing competition and forcing companies to take on projects without adequate appreciation of the risks involved,” says S.N. Subrahmanyan, president of India’s Larsen & Toubro Ltd.
Further, this competition has not gone unnoticed by customers. “Sensing the desperation, many of the clients are shifting major contractual risks onto the contractors,” says Subrahmanyan.
The European market has been shaken by the political turmoil from the U.K.’s late-June vote to quit the European Union (Brexit). “There are lots of scenarios … we cannot predict if there is any impact on our business in the U.K. at all,” says a Hochtief spokesman.
Many firms are taking a wait-and-see approach on Brexit. “We haven’t seen any cancellations of projects in the U.K.,” says Skanska’s Karlström. “But we expect the market for private-sector development in the nonresidential building area to start to slow down.” Karlström still sees a good pipeline of U.K. projects and hopes to pick up any work on the continent from international banks potentially relocating from London.
Many firms are finding U.K. work challenging. For example, VINCI experienced a difficult period when the public sector used target-price, cost-plus contracts, says Stubler. But the firm “now is operating profitably” by sharing cost savings and overruns—such contracts created successful partnerships between owners and contractors. But Stubler says the increasing use of bid competitions has reduced their effectiveness. Instead of “putting the teams on the same side, you now have armies of [cost consultants] on both sides,” he observes.
In France, public-sector cuts have hit the highway sector. However, Stubler sees signs of recovery. And he detects a revival in demand for apartment buildings and offices after the private sector shelved projects that were bid in 2015.
Elsewhere in Europe, business is slow in the Czech Republic and Poland, mainly for political reasons, says Stubler. After growing last year, the Spanish demand is now flat, while the recovering Portuguese market still has overcapacity, he adds. German demand is “restarting a little,” he notes.
In Poland, Karlström reports a shift away from EU-funded small to medium-size public projects—“exactly the market we have focused on.” The firm is reducing its size and moving into other sectors. Demand is strong in Sweden, stable in Norway and mixed in Finland, he says. But there are “a lot of international players coming in” to the civil sector, he adds.
Hochtief recently put its European transportation, energy and building businesses into Hochtief Infrastructure, creating “a more efficient lineup,” notes Fernández. Regional sales dropped in this year’s first half, but pre-tax profit rose. Germany itself now accounts for only around 5% of group sales.
For some contractors, especially among Turkish firms, Russia is hot. “Russia is still an opportunity for us,” says Bahattin Demirbilek, president of Turkey’s ESTA Construction. He says ESTA understands how to operate and find manpower in the Russian and Commonwealth of Independent States markets. However, Demirbilek worries that business may be hurt due to economic sanctions against Russian energy companies as a result of Russia’s 2014 annexation of Crimea.
The oil glut has hurt the Russian market. “In Russia, with the drop in oil prices and the devaluation of ruble in 2015, we observed a decrease in infrastructure investments,” says Cenk Duzyol, board member of Turkish-based Renaissance Construction’s parent, Rönesans Holdings. But oil-exporting countries such as Russia and Turkmenistan have increased their industrial plant investments to boost exports, he says.
Because of the fall in oil prices, VINCI’s African business has dipped, says Stubler. Oil-exporting countries “are reducing their investment,” he says. The drop is being partly offset by increased spending by oil-importing nations benefitting from low prices, he adds.
The political turmoil also has hurt the markets in the Middle East and North Africa. For example, when India’s Punj Lloyd entered into Libya, “the country held a lot of promise of infrastructure growth,” says Atul Jain, director. But Libya’s political turmoil “collapsed the output of Libya’s economically crucial oil industry to a fraction of its usual level, with most facilities blockaded or damaged by rival groups.”
Jain says the oil-price free fall has hurt opportunities. “It is estimated that some $400 billion worth of oil and gas projects have been deferred or cancelled,” he says. But he believes that, by 2017-18, oil prices will rise to a level that will make investment attractive again.
Renaissance Construction also is looking at African markets. “We are focusing on Algeria and Mozambique,” says Duzyol. He says these countries offer full access to African markets, especially in niche markets such as port works.
The African market frustrates some contractors. “West African countries are the most disappointing for doing business due to the huge corruption that has dominated this portion of Africa,” says Roham Vaghei, business development director for Iran’s Sunir.
Constant delays at each stage of the tender process are often the result of fraud and collusion, he says.
Turkish airport contractor TAV Group is taking a close look at sub-Saharan Africa, too, says CEO Sani Sener. But he worries that “legislation for contracting is still not well established” in much of Africa, unlike the other countries in which TAV works.
Qatar, VINCI’s largest Middle Eastern market, is still busy but is due to slow down, says Stubler. Huge infrastructure investments preparing for the 2022 World Cup soccer tournament will start winding down in about four years. VINCI is looking to diversify into Dubai, Abu Dhabi, Oman and Saudi Arabia.
Despite the oil-price drop, Gulf Cooperation Council countries remain a prime market for global contractors. “Kuwait’s upcoming infrastructure projects for the next 10 years are estimated at $83 billion,” says Jalal Chaarawi, business development manager for Kuwait-based Combined Group Contracting Co. He also notes the 2022 World Cup and increased infrastructure projects in Qatar are keeping the GCC market active.
Sener says TAV is moving into the large commercial buildings market to boost TAV’s presence in the GCC countries. “Our specialization in this field is for high-rise and supertall towers, shopping malls, hotels and resorts, and iconic buildings, such as museums and governmental buildings,” he says.
On the other hand, some firms are shying away from the region. China’s Qingjian Group is wary of the Middle East because of the high costs and technical demands from owners in the region, says Liu Zhenlong, vice director. He is wary of increasing levels of terrorism and says many parts of the Middle East are “heavily influenced by the political instability.”
Further, Saudi Arabia’s policy shift to limit the use of foreign workers in favor of Saudi locals has some foreign contractors concerned. The policy change, announced in December 2015, “really negatively impacted our business in the kingdom. [The policy change] is making it more difficult to find qualified workers and adding to the cost,” says Chen Xiaodong, director of international business for China’s Sinopec Engineering (Group) Co. Ltd.
While Iran is undergoing major economic reforms and international sanctions are being eased, Subrahmanyan says the country “still has some distance to go, and it will remain on our watch list.”
For many firms, the Asian market holds the most promise. Many global firms say financing is more secure in Asia, and the political and economic situation is not as volatile as in many other parts of the world.
China’s “One Belt, One Road” infrastructure development plan continues to draw interest. “We are ready to respond to President Xi’s belt-and-road initiative to focus more on countries covered by the initiative,” says Chen. The firm is working closely with Chinese government agencies and financial institutions to seek out more opportunities, he notes.
Some international firms think China’s financial clout in the international market may be faltering. “The recession, which has slowly crept into China’s economy, has decreased the lending power of Chinese banks,” says Vaghei. He says this reduction may lower the competitive capabilities of Chinese contractors that have dominated both the Asian and African markets. Further, this decrease in lending power opens up opportunities for other firms, he notes.
Global financial and political upheavals have forced international contractors to target markets in which economic growth and infrastructure spending are stable. Many international contractors are finding Southeast Asia to be promising. “There are a lot of investment opportunities, and the political conditions and security conditions are relatively sound,” says Liu of Qingjian Group.
Many global contractors agree that Asia holds promise as a safe and stable market. “Asia-Pacific is the promising region [that] will enjoy both factors,” says Vaghei. Sunir has found success in Bangladesh, which has been successful in attracting multilateral development-bank funding, he says. But Vaghei believes competition will intensify in Asia in the coming years.
Southeast Asia accounts for about 7% of VINCI’s construction sales, and Stubler plans to increase that by winning projects and making local acquisitions. The firm is targeting Malaysia, Indonesia, Singapore, Vietnam and Hong Kong, he says.
Having seen sales and profits fall substantially since last year in the Asia-Pacific region, Hochtief attributes recent signs of recovery to its increased focus on construction, infrastructure, contract mining and public-private-partnership financing. The firm has a regional presence via its controlling interest in Australia-based CIMIC Group, which owns Leighton Contractors and others. Leighton last month secured a $1.1-billion contract from the Hong Kong government to build the 2.2-kilometer Tseung Kwan O-Lam Tin road tunnel. Leighton has 51% of a joint venture with China State Construction Engineering (Hong Kong) Ltd.
While the Australian market is being fought over by international contractors, VINCI went local in New Zealand with its acquisition last year of medium-sized HEB Construction. The New Zealand market is relatively small but “well managed,” says Stubler.
VINCI Construction’s affiliate Soletanche Freyssinet is “doing well” in Australia, but the market is tough, says Stubler. Mining investment is down, while planned infrastructure “is taking time” to materialize.
For Chinese contractors, a recent Chinese government initiative has spurred a more entrepreneurial spirit. The reform “tries to provide more autonomy for state-owned companies on daily operations and business decisions,” Chen says. He believes it will help Chinese contractors achieve their full potential.
The U.S. is one of the most promising markets. While VINCI aims to build up its U.S. business, Skanska is already a major player there. Prospects are “very good and strong” in both the civil and building sectors, says Karlström. As for P3s, “there are more projects in the market than we can focus on,” he says.
In Latin America VINCI is “emphasising Chile, Peru and Colombia,” says Stubler. Last year, the firm created a partnership with Colombian contractor Constructor Conconcreto SA, but the market has been difficult. Complicated procurement rules mean “you have to be good and lucky,” he says.
Global contractors are making sure they are ready for anything. “We have to prepare ourselves for some trends just in case it actually impacts our business. For instance, we are studying the impacts or implications of Brexit and what it means for our business if Mr. Trump is elected the president,” says Chen of Sinopec Engineering Group.