When SA was awarded the World Cup, construction firms “came home” to work on the plethora of new public-sector infrastructure projects. Six years later, the sector has had to reposition again — this time with an eye to the north for sustained higher margins.
The surge in global construction activity has captured the attention of SA firms, providing a much-needed avenue of new projects. Global construction activity is expected to grow 70% by 2020, powered predominantly by emerging markets such as China and India.
By 2020, construction in the developing world will have more than doubled to generate total sales of US7 trillion. Building in developed countries is expected to grow by only 35% to sales of $4,2 trillion, according to the Global Construction 2020 report.
SA’s big construction firms — Murray & Roberts (M&R), Aveng and Group Five — hope to tender for projects in Africa, though they have burnt their fingers before. They foresee tenders for infrastructure projects, particularly roads, energy, water and mining. The Middle East — notably Abu Dhabi and Qatar — and Australia are also expected to yield new work.
M&R CEO Brian Bruce says that despite the recession and the European sovereign debt crisis, most of the world will continue to grow. “The problems in Greece and Spain have created sensitivities around the oil price. But the demand for resources will continue to grow. About 80%-90% of the world will continue to grow.”
A new KPMG report says there has arguably never been more interest in global infrastructure projects. Renewable energy is expected to be one of the biggest areas of growth, and includes a groundbreaking tidal power project in South Korea and wind farms in China.
Other projects include a $20bn 515km high-speed rail link in Brazil, Hong Kong’s $10,7bn Zhuhai-Macau bridge, and London’s Gateway Port. New water projects include Jordan’s 325km Disi water conveyance project and South Korea’s four rivers restoration project.
But there are risks. The strong rand will make tenders for projects outside SA less competitive than they were before the recession. Companies such as road construction group Raubex that hope to extend their footprint in Africa will have to compete with aggressive Chinese companies that have far lower costs. In Africa, SA firms will also compete with each other, which will reduce margins.
The risks of operating in Africa also extend to the difficulties of doing business in some countries. These stumbling blocks will offer advantages to companies with a track record of working in Africa.
Raubex commercial & financial director Francois Diedrechsen says the company’s ability to be self-sufficient and its experience working in rural areas give it an edge and will offer it an advantage even in the face of higher competition.
Nonpayment is also an issue. Angola, for example, owes construction companies more than 2bn.
Source: Financial Mail
