The global construction market has been taking its lumps over the past two years, and many large international firms are scrambling to maintain their size. However, as the slump grows in duration, a few things are becoming clear: The construction recession is not universal, some regions and market sectors are doing well, and many international firms are thriving.
The financial woes of the past two years pummeled the global construction market. The U.S. construction market remains in recession. Worrisome debt burdens of several European countries and the weakness of the euro have left many large international design firms struggling. However, many regions around the globe have provided bright spots for some large design firms.
The impact of the hard times can be seen in the survey results represented in the ENR Top 200 International Design Firms list. The Top 200 as a group generated $52.45 billion in design revenue in 2009 from projects outside their respective home countries, a drop of 0.3% from 2008’s $52.62 billion. But the Top 200’s domestic design revenue saw a significant 7.4% falloff in 2009 to $59.37 billion from $64.14 billion in 2008. So, overall, the Top 200’s total design revenue dropped 4.2% to $111.81 billion in 2009 from $116.76 billion in 2008.
Despite the sluggish market, a few regions showed strength. The biggest winner was North Africa, where design revenue for the Top 200 jumped 34.9% in 2009. Design revenue from projects in Latin America rose 21.7% in 2009. Central and southern Africa rose 5%, while the Asian market crept up 1.5%.
The European market, the largest design market among the Top 200, took the biggest hit, falling 7.1% in 2009. International design revenue from projects in Canada felt the impact of falling oil prices on some of the huge oil-sands work, falling 4.3%. International design revenue in the Middle East was down 0.3%, and in the U.S. it was down 0.5%.
Contractors in Same Boat
The responses to ENR’s Top 225 International Contractors survey also tell an interesting tale. As a group, the ENR Top 225 generated $383.78 billion in revenue from projects outside their home countries in 2009, up 0.4% from $382.44 billion in 2008 (please note, this is a corrected figure from last year’s published results). This increase comes despite the financial turmoil experienced in many markets.
But a closer look at the figures shows that, for the most part, market downturn was regional in nature. Much of the construction recession was tied to the turmoil in the U.S. and European financial sectors, which tended to stifle project financing across the board.
This slump is reflected in the numbers from the ENR Top 225. The U.S. market was hit the most severely of all regions, with international contracting revenue dropping 16.5% in 2009 to $34.88 billion, down from $41.60 billion in 2008. Europe also showed a major downturn, falling 11.7% to $100.81 billion in 2009 from $114.11 billion in 2008.
The overall Canadian market was essentially flat, dragged down in part by weak oil prices which hurt the nation’s oil-sands projects. Although Canada seems to have survived the financial meltdown better than many countries, the sudden drop in oil prices last year stalled many of its oil-sands-related projects, resulting in Top 225 revenue dropping 0.1% in 2009 to $13.38 billion from $13.40 billion.
The Middle East showed a similar lack of movement. Much of the developer-driven market in places like Dubai disappeared overnight, and many petroleum-related projects were put on hold while oil prices stabilized. But many governments in the Middle East continued to invest in infrastructure and industry to diversify their economies. Top 225 revenue from projects in the region rose 0.1% to $77.56 billion in 2009 from $77.46 billion in 2008.
Other regions that were more focused on infrastructure and development showed significant growth. The biggest increases in international contracting revenue came in Africa. Thanks to development and natural resources, international revenue in central and southern Africa for the Top 225 grew 31.7% to $27.52 billion in 2009 from $21.04 billion in 2008. North Africa grew 30.8% among the Top 225 to $29.29 billion from $21.04 billion in 2008.
International contracting revenue from the Top 225 in Latin America rose 14.1% in 2009 to $24.82 billion from 421.76 billion in 2008. International revenue rose 10.3% in the Caribbean to $2.29 billion.
The Asian market also showed strong growth. The Top 225 had $73.18 billion in international revenue in 2009, up 6.75% from $68.56 billion in 2008.
Among market sectors, the lack of project financing was readily apparent from the Top 225 survey responses. International revenue from general building projects dropped 8.5% to $85.99 billion in 2009 from $93.93 billion in 2008.
Infrastructure projects gave a boost to international contractors. The Top 225 showed significant increases in 2009 in transportation work (up 10.6% to $112.34 billion in 2009), water projects (up 17.5% to $11.22 billion) and sewer and wastewater work (up 11.6% to $6.29 billion). And revenue from power projects rose 33.6% in 2009 to $35.69 billion for the Top 225.
However, many firms now worry that government work may be affected by public debt concerns, now most clearly seen in the economic crises in Greece and Ireland. “The global economic crisis is now entering into a new phase: a debt crisis,” in which the public sector may reduce its spending significantly, says Flemming Bligaard Pedersen, Group CEO, Ramboll, Denmark.
“Countries within the [European Economic Community] are or will take harsh measures to reduce their budget deficits, resulting in lower public spending and less for the consumer to spend and thus less private investments,” says Ton van der Velden, a board member at Netherlands-based Tebodin Consultants & Engineers.
Some firms worry that the continuing economic problems in Europe and the U.S. may affect the design market in developing countries, which have continued to be active. “The truth is that we have yet to see any significant slowdown in Asia or Africa. It may well be coming as European and North American donor/capital investment countries redirect money to their own economies,” says Barry Norman, international managing director for Australia’s SMEC. However, he has yet to see project postponements or a drop in tenders.
It’s a Small World
With many regions still adjusting to shrinking markets, competition among contractors is heating up and bidding is even more aggressive. “This may definitely lower the prices, reduce the quality and may leave incomplete projects, failed contractors and litigation,” says Erman Ilicak, chairman of Turkey’s Renaissance Construction.
But a global economy also means regional financial difficulties will ripple around the globe, requiring designers to be ready to respond. “We’ve always been willing to climb on a plane. Twenty years ago it was clear to us it was time to retire the word ‘foreign,’ ” says Kurt Strobele, CEO of Hatch Group, Canada.
Not everyone will flourish in these difficult times. A willingness to work hard to find opportunities key, sources say. “The international market remains patchy and will remain so for some time to come. This underpins our long-term view that only the strongest, with the most diverse skills and geography, will ultimately survive,” says Paul Dougas, CEO of Australia’s Sinclair Knight Merz.