Globally, the industry seems to have sidestepped the worst of the recession {writer: Piet Coetzer}

Optimism in the construction sector abounds, despite falling demand in residential and commercial building work and in the face of the global financial crisis, according to a global KPMG survey concluded in November 2009 and released in early February this year.

The survey by the international audit, tax and advisory firm was the fourth of its kind by KPMG and covered construction companies in 30 countries, including South Africa, with revenues ranging from $250 million to $5 billion.

Geno Armstrong, international sector leader of the firm’s Engineering and Construction practice said, that “there is a perception that the global financial crisis has devastated the construction industry. While it certainly has had a significant impact on the way these companies do business, we’ve found that they view these conditions as an opportunity to get leaner. When the recovery does finally arrive, these companies should be well prepared to succeed.”

Most companies taking part in the survey said that they had worked hard at becoming leaner over the last 12 months as the recession had set in. Only around 35% reported that they had succeeded in avoiding job cuts.

Of the respondents, 53% stated that their backlog volume of jobs has increased or stayed level. The picture was similar with profits in the current order backlog, with only 44% of global respondents claiming a decrease.

Contractors in Africa, Europe and the Middle East appear to have been hardest hit, with 54% indicating that their projected profit rates have declined.

In South Africa, profit rates for new contracts are coming under pressure, particularly in the housing sector, with numerous contractors bidding on each contract on offer, said KPMG Africa construction partner Gavin Maile at the time of the survey’s release.

“While globally the future of the industry promises huge government stimulus packages with the potential to reinvigorate the infrastructure market, it is unclear how much money will be made available for infrastructure and where it will find its way,” he said.

“This is a matter of much debate in the boardrooms of engineering and construction companies around the globe. The situation in South Africa is slightly different, where a significant number of infrastructure projects had already commenced before the downturn, especially in the critical areas of power, road and football stadia.”

Only 12% of global respondents believe that proposed government stimuli packages will bring a significant increase in opportunities over the next 24 months.

Although contractors in the Asia-Pacific region had the cost confidence in government packages, 82% of the respondents are expecting a moderate or significant increase in opportunities over the next 24 months; with 43% of respondents from Africa, Europe and the Middle East believing that such stimuli will have no demonstrable impact in that time frame.

In contrast, 73% of American respondents are expecting some stimulus impact by mid-2011. “The direct impact of South African infrastructure projects, on the other hand, is already flowing through the local economy,” Maile said.

The survey reveals further optimism in the construction industry’s ability to retain its talent in difficult times. While 35% of global respondents have not reduced their workforce, very few contractors appear to have felt the need to cut workforce cost via salary reductions, reduced working hours or unpaid sabbaticals.

It was found that 28% has taken no action at all with regard to workplace reductions.

While the 2008 survey identified a general talent shortage in the industry, the 2009 responses show a great reluctance in shedding valued employees.

“Construction companies are becoming increasingly conscious that this is a talent-focused sector. South Africa has experienced the return of many talented individuals, and foreign nationals are seeking work here. When the recovery does come, engineering and construction companies want to make sure that they have the right skills and experience ready for the opportunities available,” said Maile.

The survey further indicates that the recession, rather than forcing cutbacks as would be expected, has intensified contractors’ efforts to manage the risks
associated with projects.

Of the respondents, 73% indicated that they have put even more effort over the last 12 months into due diligence and checking the financial stability of clients. The majority of them reported carrying out more in-depth analyses of performance risks on mega projects and devoting considerable time and resources to improving risk management through investments in systems and more comprehensive assessment of cash flow, compliance and safety risks.