The Construction Economy - an international perspective -

Geoff French

President, FIDIC

CESA 2011 Conference East London

FIDIC was founded in 1913

Its membership is now

• 89 countries • 60,000 engineering firms • 1,500,000 professionals

Member Associations

Groups of Member Associations GAMA Group of Africa Member Associations www.fidic.org/gama ASPAC Asia-Pacific group www.fidic.org/fepac Regional Federations FEPAC Panamerican Federation of Consultants www.fepac.org.br European Union EFCA European Federation of Engineering Consultancy Associations www.efcanet.org

Regional Organisations

Vision, Mission and Objectives

Vision “Enabling the development of a sustainable world as the

recognised global voice for the consulting engineering industry” Mission “To work closely with our stakeholders to improve the

business climate in which we operate and enable our members to contribute to making the world a better place to live in, now and in the future”

Vision, Mission and Objectives

Objectives 1. “Be the recognised international authority on

issues relating to consulting engineering best practice”

2. “Actively promote high standards of ethics and integrity among all stakeholders involved in the development of infrastructure worldwide”

3. “Maintain and enhance FIDIC’S representation of the consulting engineering industry worldwide”

4. “Enhance the image of consulting engineering”

Vision, Mission and Objectives

Objectives

5. “Promote and assist the worldwide development of viable consulting engineering industries”

6. “Promote and enhance the leading position of FIDIC’s Forms of Contract”

7. “Improve and develop FIDIC’s training and publishing activities”

8. “Promote and encourage the development of Young Professionals in the Consulting Engineering Industry”

Global Economic Outlook - 1

Global GDP evolution • 2008: Deceleration • 2009: Contraction • 2010: Recovery, 3.9% growth* • 2011: Continuing slow recovery 4.0% growth*

Weak and bumpy global recovery

Growth in developing countries was more than twice as high as in high-income countries

* IMF

Global Economic Outlook - 2

2011-2012 perspectives: Recovery

• Steady but slower growth • Recovery including more countries • Developing countries leading growth with strong

domestic demand • Financial reforms in some high-income countries

Global Economic Outlook - 3

2011-2012 recovery: Risks

• Financial turbulence in high-income countries

• Increasing capital inflows in some developing countries could fluctuate currency values and create credit and asset bubbles

• Rising food and fuel prices in particular impacting low-income countries

Global Economic Outlook - 4

World Bank/IMF conclusion:

• need to restore market confidence through fiscal consolidation that supports structural reform

• need for tighter macroeconomic policies in developing countries

Global Economic Outlook - 5

2011-2012 Recovery. What must be done?

• Redefine the foundations of stability and restore confidence in an inclusive globalisation

• Multilateral institutions to be more coordinated and regional/global initiatives will be increasingly important

• Governments and institutions must develop policies to prevent rather than manage a crisis and be aware of the strong impact domestic policies in a few key economies can have on the rest of the world

Global Outlook and Trends - 1

Global Characteristics • population growth

• 7 billion by 2011 • 8 billion by 2040 • more need for basic infrastructure

Global problems • global warming • water scarcity • energy shortages • pressure of urbanisation

Global Outlook and Trends - 2

Global Trends • Global construction to outpace GDP growth over next

ten years • Total construction spending growth will be seen in all

regions in 2011, EXCEPT Western Europe and USA • Growth will be led by South America and the Asia

Pacific Region in 2011

• Global growth in total construction spending by 2015

Global Outlook and Trends - 3

Construction sector • global construction output in 2010 was about USD

6 trillion (global GDP in 2010 was USD 63 trillion) • Professional services in the construction industry

represent 10% of the global construction output: USD 600 billion

Project financing • new forms of public-private partnership

investment

Project costs and returns • deliver more for less.

Consulting Engineering Sector - 1

Major issues in the industry

• Late payment as a consequence of the financial crisis and recession

• Oppressive or unfair contract terms • political environment • clients conditioning payments of outstanding fees on

a discount basis • loss of trust in the market • unlimited liability • corruption • availability of skills

Consulting Engineering Sector - 2

Consulting engineering as a strategic industry

• Consulting engineering firms have a profound effect on the natural environment and society, and this gives them a strategic role in understanding change and in providing solutions to adapt to new scenarios

• Consulting engineers should have more influence in the definition of the solutions to global problems

• Consulting engineers should aim at gaining visibility as a knowledge-based industry.

Consulting Engineering Sector - 3

Global characteristics International market place for consulting engineering is becoming more competitive:

• export-led recovery has given rise to many new players seeking work

• firms are becoming more international and their workforces more multinational and mobile

• developing world is embracing knowledge intensive professional services by leveraging technology and offering low-cost solutions

• Size • Breadth • Reach …………. and their interaction

The pressures on consulting engineers relate to

The Pressures

• the top global design firms are very large 1st AECOM $5.1 bn 2nd URS $4.8 bn 10th Arcadis $2.5 bn 11th Atkins $2.2 bn

22nd China Communications $1.3 bn • only 9 firms with 50% or more of leader 25 firms with 25% or more of leader

Size Issues

• squeeze on medium sized firms • UK top 10 in 1990 3 still UK owned and in top 10 3 part of major US firms 4 significantly smaller (16th, 24th, 54th, 57th) • UK numbers 11-20 in 1990 all have been acquired or moved out of the sector

Size Issues

Breadth Issues

1990

Arup 57%

Motts 69%

BDP 9%

Maunsell 75%

Atkins 55% Halcrow 81%

Acer 70%

High Point 66%

Golder (UK) 70%

Gibbs 83%

2010

49%

39%

6%

64% (AECOM)

42%

74%

41% (Hyder)

74%

84%

82% (Jacobs)

Civil and Structural Staff as % of total

Breadth Issues

• US firms generally have both consulting and contracting capability • UK’s biggest contractor is now also second biggest consultant

• UK’s fourth largest contractor is also a significant consultant • AECOM have Davis Langdon • Atkins have Faithfull & Gould • Motts have Franklin & Andrews • Arcadis acquiring EC Harris

Reach

• Most major firms want global reach - to service global clients - to guard against recession in a particular sector - stronger valuations in UK from greater international presence • European firms active at present - Atkins acquired PBSJ in USA - Grontmij recently acquired Ginger - Arcadis acquiring E C Harris - Balfour Beatty acquired Parsons Brinkerhoff • US firms buying UK firms to achieve desired reach - Halcrow being acquired - Gibb, Babtie, Maunsell, Oscar Faber, Scott Wilson, Binnie, Watson

Hawksley, Kennedy & Donkin, Bullen, MRM, Allott & Lomax, Merz & McLellan all bought by US firms

By 2020 ?

• a small number of very large players? • providing the full breadth of services?

• global? • will they all be US based? • what role will there be for the others? • what does this mean for FIDIC members?

Appendices

Opportunities in the global market

• Global estimates for infrastructure spending requirements over the next 25 years, more than $50 trillion

- Asia, excluding Japan, in the fast lane

- U.S. and Europe, in the slow lane

Opportunities in the global market

• Construction markets affected by national and global uncertainties

• Global construction growth will remain weak in 2011, but will continue to improve at a slow rate.

Regional Analysis : China

• China continues to grow at around10% although adjusting to avoid overheating economy.

- Investment in infrastructure remains strong.

- Main efforts in handling traffic congestion and improvement of water quality.

Regional Analysis : India

• India’s infrastructure needs are great and the outlook for growth is strong (8% in 2011)

- Government’s commitment to doubling infrastructure spending to $1 trillion over the 2012-2017 period.

- Half of the budget is hoped to be raised from the private sector.

Regional Analysis: USA

• USA recovery is slower than expected.

- Too much stimulus a danger, as is too little

- Total construction in 2011 is expected to rise 2% after declining 9% in 2010.

- Growth expected in renewable energy sources, sewage and waste disposal, road and rail.

Regional Analysis : Middle East

• Middle East could renew the expansion experience in previous years.

- The power sector is expected will grow in 2011 and 2012, followed by water/sewer and transportation projects.

Regional Analysis : Africa

• Africa’s investment in infrastructure is continuing to grow

- Northern African countries will receive substantial international financial support

- Investments in transport, energy and telecom in Sub-Saharan Africa are increasing.

Regional Analysis : Europe

• profitability of European firms decreased significantly in 2010

• Consolidation of European firms accelerated.

• Construction is growing in some countries and declining in others.

• weak western European market is expected to persist in 2011 and 2012

• Eastern European countries will pick up steam in 2012.

• PPP market is improving as new infrastructure funds are created with the support of European institutions

Regional Analysis : Latin America

• Latin America will lead the world’s regions in infrastructure growth

- Expected growth of 7.5 % p.a. from 2010-2020.

- Main areas: rail, power plants, hydroelectric dams and port construction

- Danger of overheating

- Mexico, Brazil, Chile, Colombia, and Peru leading macro-economic reforms to consolidate growth and attract financing of large infrastructure projects

- Shortage of engineers to meet expansion programs