The global construction market has taken a series of hits over the past two 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. But the level of uncertainty has been ratcheted up in the past six months by wide-ranging global events that may provide opportunities—or roadblocks—to the worldwide market.
The uncertainty in the 2015 market can be seen in the results of ENR’s Top 225 International Design Firms survey. The Top 225 firms generated $65.43 billion in design revenue in 2015 from projects outside their home countries, down 7.7%, from $70.85 billion, in 2014. They also had $70.76 billion in revenue from domestic projects in 2015, down 3.7%, from $73.48 billion, in 2014.
On the Top 225 International Design Firms list, firms are ranked based on design revenue from projects outside of their home countries, measuring their presence in international commerce. The ENR Top 150 Global Design Firms list measures total worldwide design revenue, regardless of the project location.
Click Here to View ENR's 2016 Global Sourcebook
The petroleum market, the largest market for the Top 225, was the big loser, with international revenue dropping 20.2%, to $17.74 billion, down from $22.23 billion in 2014. Part of this falloff can be attributed to the absence from the list of France’s Technip, which reported $1.43 billion in petroleum design revenue on last year’s list. Even discounting Technip’s presence on last year’s list, the petroleum market still fell 14.7%.
On a regional basis, the two largest markets for the Top 225 saw significant drop-offs in 2015, with Asia falling 16.0% and Europe down 11.9%. And, once again, low oil prices hurt the Canadian market, which dropped 14.2% in 2015, after falling 15.0% in 2014. Despite lower oil prices, the Middle East market rose 6.0%, while the U.S. market was up 1.8%.
The market jitters also can be seen in the results of the ENR Top 250 International Contractors list. Like the design-firm lists, companies on the Top 250 International Contractors list 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.
But the level of concern about the world construction market has ramped up in the past six months. Already, persistent low oil prices had put many energy projects on hold. Then, in June, Britain voted to exit from the European Union.
Brexit and Its Legacy
Global firms are pondering how the U.K.’s late June referendum to quit the EU will affect them. “The consequences … remain unclear,” notes Keith Howells, chairman of U.K.-based Mott MacDonald Group, adding that “a lot of infrastructure projects seem to have momentum.”
Many firms worry the vote will hurt markets. “Brexit has brought a new level of uncertainty to our business and particularly to our biggest markets in the U.K. and in Ireland,” says Liam Foley, group director of business development at Ireland’s PM Group.
Brexit already has produced financial fallout, Foley says. “Currency exchange rates will have the most immediate impact following the drop in value in [the British pound] following the decision. It is too early to anticipate long-term effects, but the uncertainty over the next two to three years is likely to adversely impact investment decision-making,” he observes.
Most firms see continued opportunities in the U.K. “We will obviously see a period of uncertainty. Our commitment to serve our U.K. customers will remain the same,” says Tomas Carlsson, CEO of Sweden’s SWECO AB.
The Brexit vote also has given impetus to populist and nationalist political movements across the world, most prominently in Europe. Right-wing populist parties are gaining ground in several European countries, with some experts fearing more countries may follow Britain’s lead in exiting the EU.
For example, on Dec. 4, Italian voters rejected Prime Minister Matteo Renzi’s referendum on constitutional reform, resulting in his resignation. Many experts think this vote will give momentum to the movement within Italy to leave the EU.
In the wake of a nationalist trend in France, President François Hollande on Dec. 1 announced that he would not run for re-election. And populist and nationalist parties have made gains in Greece, Spain and Austria. This uncertainty may hinder the implementation of the so-called Juncker plan, announced in 2014 by European Commission President Jean-Claude Juncker, to expand the lending power of the European Investment Bank to fund infrastructure.
Even more jarring to the international community was the election of Donald Trump as U.S. president. Trump campaigned against such trade pacts as the Trans Pacific Partnership (TPP) and the North American Free Trade Agreement. Many global construction firms believed the TPP’s dropping of trade barriers in the Pacific region would stimulate construction of production facilities, as well as the necessary infrastructure to support such facilities, in Asia and South America.
Trump’s election also had an immediate impact on Mexico. The peso fell 11% in value in the wake of the Trump election. This drop will affect not just the Mexican economy; indeed, it will raise the cost of materials and equipment for firms working on current projects in Mexico, hiking the cost of new projects.
However, many firms laud Trump’s proposal to expand spending on U.S. infrastructure. The U.S. market has been one of the bright spots in global construction, and the Trump $1-trillion infrastructure plan, if implemented, will expand further the market here.
One potential boost to the global construction market was the Organization of Petroleum Exporting Countries’ Nov. 30 announcement of its intention to cut back on oil production to boost the price of oil.
Over the past two years, the upstream and midstream petroleum market had been hit hard because of low prices. “The oil-and-gas business has definitely been hit … we had a lot of stuff canceled in the Middle East and the U.S.,” says Howells of Mott MacDonald.
Atul Jain, director of India’s Punj Lloyd, 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 Jain believes that, by 2017-18, oil prices will rise to a level that will make investment attractive again.
However, the OPEC decision to cut production signals that oil-producing countries may start to invest in production facilities again. Already, investment analysts are beginning to tout stock of publicly traded construction firms that focus on the petroleum market.
The global construction market has been faced with numerous shocks to the system, going back to the worldwide financial meltdown in 2008. It appears that 2017 will continue to cause firms in the global market to tread carefully, waiting for the next big shock.