Global construction sector pessimistic in regard to growth prospects, public sector orders seen as the life buoy

Teet Tender,

PricewaterhouseCoopers

Advisory Service Line Leader

Global construction sector pessimistic in regard to growth prospects, public sector orders seen as the life buoy

The PricewaterhouseCoopers’ (PwC) Global CEO Survey presented at the World Economic Forum in Davos at the end of January showed unprecedented pessimism among the world’s business elite in regard to the foreseeable future of their companies. Outcomes of the survey in respect of the engineering and construction sector indicates that managers’ optimism in this sector is even lower than the overall average.

While a year ago the construction contractors were full of optimism, with 56% of them very confident about the continued growth of sales turnovers within 12 months, the number of optimists had dropped more than threefold by the end of 2008: only 18% believed in the continued increase of corporate revenue. The mood was not much lighter regarding the long-term perspective: only 24% of the respondents believed in an increase their companies’ income and only 15% believed in the continued growth of the industry.

The economic recession has been particularly harsh on US construction companies, but due to globalisation the economic crisis has affected all the countries and regions, although the exact impact and timing of the crisis may somewhat differ. Companies involved in infrastructure related and other public sector construction projects are in a somewhat better position, as they are engaged for a long term and they can be rather confident in cash inflows. Construction companies in Estonia also tend to see public-private sector partnership (PPP) as a life buoy that allows for a better distribution of costs and hedging of risks, particularly in the case of large-scale projects. Although company managers do not see PPP projects as an immediate definite solution compared to regular construction projects, they still believe that the proportion of PPPs in construction and infrastructure projects will expectedly grow in the medium and long-term perspective. A key success factor is good customer relationship management as well as the retaining and developing of highly qualified employees in oder to establish these relationships.

The senior managers who took part in the survey consider the governments’ active response to overcome the economic crisis positive, but on the other hand over a half of them fear that it has already caused excessive restrictions and control actions. Construction contractors think the public sector focuses too much on technical details in organising procurements and conducting tenders, paying insufficient attention to business and financial risks.