Global construction boom creates opportunities worldwide

James Kynge, Emerging Markets Editor, Financial Times, Peter Evans, Product Line Manager Construction EMEA, AIG Property Casualty, Alberto Diaz Del Rio, Global Head of Business Development, Acciona Concesiones and Trevor Sturmy, Managing Director, Infrastructure Project Finance, HSBC at the Construction Goes Global conference held at Asia House

James Kynge, Emerging Markets Editor, Financial Times; Peter Evans, Product Line Manager Construction EMEA, AIG Property Casualty; Alberto Diaz Del Rio, Global Head of Business Development, Acciona Concesiones and Trevor Sturmy, Managing Director, Infrastructure Project Finance, HSBC at the Construction Goes Global conference

Global construction boom creates opportunities worldwide

22/09/14

By Naomi Canton

China, Japan and India currently account for more than 80 per cent of the world’s homebuilding industry, with 270 million new homes needed in China and India alone by 2025.

Global construction is expected to rise by more than 70 per cent to US$15 trillion or 13.5 per cent of global GDP by 2025 and China will account for a quarter of that.

According to the 2013 report Global Construction 2025,  published by Global Construction Perspectives and Oxford Economics, just seven nations will account for 72 per cent of the expected growth:  China, the US, India, Indonesia, Russia, Canada and Mexico. The same report said more than 60 per cent of global construction activity will be undertaken in emerging markets by 2025.

Emerging Asia remains the fastest growing region for construction, despite a slowdown in growth in China, owing to rapid and mass urbanisation. A white paper Construction Goes Global: Infrastructure and Project Delivery Across Borders, published by global insurance organisation AIG, states that by 2030 more than 55 per cent of the Asian population will live in cities.  Building affordable housing and infrastructure in emerging markets is therefore a major market opportunity for local and Western companies.

“Global construction is a multi-trillion dollar industry with a huge number of jobs, roles and functions, as well as connected sectors such as finance and insurance,” said James Kynge, Emerging Markets Editor at The Financial Times, speaking at the Construction Goes Global conference held on 18 September at Asia House, in partnership with AIG.

India is expected to be close to a US $1 trillion construction market by 2025.

In 2013 India’s homebuilding industry was valued at US$325 billion, accounting for 17.9 per cent of the Asia Pacific homebuilding industry value. But India is still short of 100 million homes. “The industry will just grow,” Amit Mehta, Senior Vice President and Head European Operations, Tata Capital (India), said. “Income levels are going up which is making housing more affordable. India needs a lot of investment and it can’t be funded only by the Government. We need to reach out to foreign capital,” he added.

He admitted there were challenges for foreign companies investing in India’s infrastucture. “There are obviously institutional voids in emerging markets – that’s why they are emerging,” he said. He also pointed out growth rates in India varied significantly depending on the state and so foreign companies should take advice on where to invest. The big infrastructure gap India currently faces has been caused partly by problems with land acquisition and planning permission. But he said construction was now the next most important sector for the economy of India after agriculture and 100 new cities and industrial corridors were being planned by the Narendra Modi-led Government.

The Chinese construction market is expected to be twice the size of that of the US by 2025.

Tim Chapman, Director Infrastructure Design Group, Arup (China) said China had grown in 30 years from “a very poor economy to a very developed one.” So far the Chinese have built 173,000 km of national-level roads in China, larger than the entire US system and they have also built 17,000km of high-speed rail, Mr Chapman pointed out.  “The big challenge in China,” he said “is how it can provide infrastructure in a massive and sensitive way without sacrificing the community or causing pollution in its push for GDP growth.” China and India may face water shortages in 100 years’ time too and the tipping point for climate change would be 20 years’ time, he added.

“One of the things we would like to see is a UK construction industry that operates not just on a UK stage but on a global stage,” said Head of Infrastructure Delivery, Infrastructure UK at HM Treasury Stephen Dance, the keynote speaker at the conference. “But we don’t really have any that are right up there in terms of global capability,”  he added. “It’s partly due to an overly fragmented supply chain in the UK. It is part of our remit to help UK industry become more competitive globally,” he said.

He said there were also many opportunities for foreign companies wishing to invest in the UK’s economic infrastructure (eg energy, transport, waste and telecommunications ), which he said had suffered years of underinvestment under successive governments. “Value for money is our focus. We are agnostic as to where it comes from. We welcome Chinese investment in the UK and the Malaysian investment in Battersea Power Station which we have supported via the Northern Line extension. But it’s not just Asia.  We are open to the Middle East and other sovereign wealth and we want to attract capital from hedge funds and institutional investors.”

The 2010 National Infrastructure Plan has been the first attempt to create a strategic programme for the UK’s economic infrastructure. Mr Chapman said some of the projects outlined in the vision would be funded by the UK taxpayer and others by private investment. “The costs of delivering infrastructure in the UK are higher than they need to be,” he said adding UK Infrastructure was seeking better procurement and for regulated utility companies to act in a way that encouraged industry to reduce prices.

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From left James Kynge, Emerging Markets Editor, Financial Times; Amit Mehta, Senior Vice President and Head European Operations, Tata Capital (India); Tim Chapman, Director Infrastructure Design Group, Arup (China) and Heng Leong Cheong, Chief Strategic Relations Officer, Battersea Power Station Development

But the complex planning regulations and other hindrances of the UK did not put off a consortium of Malaysian developers from acquiring the derelict decommissioned coal-fired Battersea Power Station in south west London to transform into homes and leisure facilities. Speaking at the event, Heng Leong Cheong, Chief Strategic Relations Officer, Battersea Power Station Development, said: “People that may not know Malaysia may think that we have a tendency to punch above our weight but Malaysia is a very small country compared to China or India with a population of just 30 million. Because of that a lot of growth in Malaysia tends to be generated abroad,” he said.

“Lots of projects in Malaysia such as the Petronas Twin Towers, we have only been able to do by standing on the shoulders of giants,” he added. “So, for example, the Petronas Twin Towers were designed by an Argentine American architect and the contractors were Korean and Japanese. Malaysia has no hesitation in awarding contracts funded by the Malaysian taxpayer to foreign contractors. When we acquired the Battersea Power Station site one of the questions we were asked was ‘How are you going to deliver?’ and that caught us by surprise. Malaysians are very used to getting the best talent in the world and ignoring the nationality of our partners,” Mr Heng Leong Cheng said.

Malaysia has a national automobile policy to encourage people to buy cars to support its two car makers so there has been lots of investment in road infrastructure rather than public transport. “But now we are finally looking at more investments in public transport and looking into the London Underground,” he added.

Green buildings were a very new concept in Malaysia, Mr Heng Leong Cheong said. “Once someone asked a Malaysian developer for a green building and he said: ‘You can have it any colour you like.'”

According to Mr Mehta  green buildings were a massive opportunity for western construction companies in India, for example, in creating buildings where water can get recycled. “The engineering of a whole city should be environmentally friendly. Houses should be created to use less heating,” he said.

The Foreword of Construction Goes Global: Infrastructure and Project Delivery Across Borders, was written by one of the panellists at the conference Trevor Sturmy, Head of Infrastructure and PPPs, Europe and Sub-Saharan Africa, HSBC Bank PLC.

Mr Sturmy said infrastructure was a key driver of global growth and an important feature of the world economy.  “There are many things that banks can do to facilitate investments of large amounts of capital. There are lots of stakeholders in big cross-border projects and putting together these deals is complicated but it is something a global bank can help with,” he added.

“The changing nature of the global construction industry is a matter of great interest to AIG, a global insurance company. We are very involved in working with and engaging with many of our clients engaged in cross border infrastructure projects across multiple geographies,” said Jacqueline McNamee, UK Managing Director, AIG Property Casualty.  She said urbanisation,  population growth, technology and globalisation would all have a major impact on construction globally.

“We are looking to promote dialogue around this subject,” she said. “A great many UK companies are playing a very active role in Asia. We see Asia House as an invaluable forum that does excellent work in promoting debate on these topics,” she added.

naomi.canton@asiahouse.co.uk

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