It’s not the world as we know it
With spending in recession-hit Western countries set to slump, it’s time to dig out the atlas to find the emerging economies that have cash for construction. Kristina Smith reports.
Whichever party wins the general election, it will be followed by an emergency budget in which the new Chancellor will outline swingeing cuts to public spending. But the UK can take cold comfort from the fact that it isn’t alone. Throughout the West and the Middle East, governments will be forced to tighten their belts and lenders will be thin on the ground.
“With the amount of public sector deficit we’re all going to suffer in the developed world, it’s difficult to understand how infrastructure and public spending is going to happen,” says Graham Robinson, director of Global Construction Perspectives and co-author of a report on future global propsects.
Global Construction 2020 predicts that the developed world’s share of the global construction market will shrink from 65% in 2005 to 45% (see page 26), while there will be a corresponding increase in demand and output in a range of emerging markets. The BRIC economies – Brazil, Russia, India and China – will feature strongly in the next decade, but the report also highlights lesser-known emerging markets that are just coming to the UK industry’s attention.
Consider fast-growing, oil-rich Angola and Nigeria, which both have huge infrastructure requirements and a low construction skills base. Or Vietnam, benefiting from international investment and looking to emulate China’s growth. Or Turkey, Europe’s sixth-largest economy with a fast-growing population and a potential stepping off point for destinations further east such as Turkmenistan and Tajikistan.
Emerging prospects and projects in these countries, coinciding with dramatic falls in UK output, mean that it’s not surprising that contractors and consultants are looking to try their hand. “Life in Britain is harder, so people are looking at more difficult places than before. There used to be easier pickings elsewhere, but the downturn in the Gulf means people are looking elsewhere,” says Dominic James, director of export adviser British Expertise.
While many companies looking at the atlas with fresh eyes will be firms displaced from the Middle East and UAE by the crash in the property market there, other contractors and consultants are first-timer exporters calculating that their lack of experience will not disadvantage them when everyone else is studying the guide books too.
Take one London-based specialist contractor, which is on the brink of signing a joint venture with a South African company to tap into the huge social housing market in South Africa, Angola and other African nations. Tasked with finding new markets, the business development director looked at the far East and the Americas before homing in on Sub-Saharan Africa through what he calls “some lucky contacts” – being introduced to the head of a Johannesburg business through a UK client.
What he discovered was that populations throughout Sub-Saharan Africa are moving from rural to urban environments, creating demand for housing, schools, shops and hospitals, and presenting an opportunity for firms that can offer a lower-cost, better-quality product than the established competition.
“I spent months reading and got absolutely nowhere. You can learn the GDPs, what the country’s needs might be but ultimately you need to find someone who is in the country,” says the director, who does not want to identify his firm until the deal is signed.
Late in, late out
As this specialist contractor has realised, the global downturn may have devastated the construction market in the West, but emerging countries have not felt the same impact. “A number of the emerging markets we operate in were late into the downturn, and early out,” says Rob Smith, senior partner at Davis Langdon, which operates globally. “Many places in Asia, specifically China, India, Malaysia, Indonesia, Vietnam and Thailand, were in and out.”
At the same time, less-developed economies are realising that they need infrastructure to grow, and that projects can best be delivered by structuring long-term, complex PPP deals. “Ghana, Rwanda, Mozambique, and Angola are all set to grow over the next five years, and they have a desperate need for power, water, education, health, road, rail and airport projects,” points out Turner & Townsend director Mark Walmsley FCIOB, who moved to the firm’s Johannesburg office in January. “There are massive opportunities here. We’re already working on several PPP health projects in South Africa, a police project in Uganda, and another health project in Lesotho.”
Business advisers and overseas hands agree that export opportunities do exist for companies with a clear specialism, such as expertise in PPP/PFI projects or infrastructure project management. For instance, Vietnam is looking enviously over the border at China’s high-rise cities, but its construction sector needs expertise in building higher than six storeys. In Egypt, where project manager Hill International is established, there are plans to build 2,500 schools in the next 10 years under its PFI system.
Companies with expertise in sustainability could also be in demand. Global Construction 2020 points out that while carbon emissions have reportedly fallen in the UK and US, they are increasing by up to 5.5% in emerging markets. This could mean that new economies will have to invest in more sustainable buildings and technology – areas where UK expertise could prove invaluable. In addition, the relative weakness of the pound against most global currencies also means that the cost of UK expertise is more competitive than before.
Dominic James of British Enterprise points out that not every construction business is in a position to work in an emerging market, but says that companies that do take the decision to expand overseas rarely regret it. As a first step, he recommends joining a trade mission to a target market. “Afterwards, you’ll probably want to go back out there under your own steam to build up relationships. You could also get an appointment with a UK Trade and Investment (UKTI) adviser who can go through your business’s balance sheet and work out whether it makes sense.”
UKTI, the government agency that supports would-be exporters, is encouraging construction firms to consider opportunities in Turkey and South Africa. The latter is a good springboard from which to attack other Sub-Saharan countries – James comments that Nigeria in particular has attracted a lot of attention over the past six months – while South Africa’s stability, legal system and planned government investment make it a good proposition in its own right.
UKTI’s 2009 report, Building Turkey: Opportunities for the UK Construction Sector, highlights infrastructure, regeneration and tourism projects that are in the pipeline, plus the 600,000 homes. “We’ve been finding very strong interest in British firms forming JVs with Turkish contractors,” says British Expertise chief executive Graham Hand. “Turkish contractors bring a value-for-money proposition, but British firms can supply a more sophisticated design aspect.”
His colleague Dominic James even suggests that UK-Turkish link-ups could provide a bridgehead for UK firms to move into Central Asia. “There’s a thirst for knowledge about these Central Asian countries and how to get into them. We’re seeing increasing stability there and good governance is gradually spreading,” says James. The region is also receiving investment from the European Bank for Restructuring and Development, with Uzbekistan, the Kyrgz Republic, Tajikistan, Turkmenistan and Mongolia benefiting from 40 projects a year worth $300m.
Establishing a presence in Vietnam, Angola or Turkey is, of course, very different from setting up a branch office in English-speaking Dubai, for instance. The business development director and first-time exporter quoted above says that finding a local partner is a pre-requisite when operating in less well-regulated markets. “Working in South Africa is very similar to working in the UK in that they have a well-developed legal system and a contract is a contract,” he says. “But when you move outside, it’s a different story. You cannot trust a contract, you need payment up front and you need people on the ground who know the right people.”
Although information and support from UKTI and British Expertise is helpful, the consensus is that you can’t beat first-hand experience. South Africa-based Denis Mullane is in charge of global business development at consulting engineer WSP. “Try to find some other sucker who has been in before you and learn from their experience,” he advises bluntly. “You can go down all sorts of diplomatic routes and there’s plenty of official government information available, but mostly it depends on who’s been there before and what their experience was.”
WSP works in many countries in Sub-Saharan Africa for clients it knows and trusts. But working on a couple of projects in a new and unfamiliar country and setting up an office there are two different decisions, says Mullane. “The big step is not ‘should we be in Ghana?’, it’s ‘now we have done two jobs with a South African client in Ghana, are we ready to work with a Ghanian client?’”
Sometimes, explains Turner & Townsend Asia director Duncan Stone, it is necessary to set up in one country to access another. In Asia, much of the trade in the region happens between Asian countries, so T&T has joined forces with South Korean construction consultancy Hanmi Parsons to set up an office in Seoul, from where it will work with Korean investors targeting Vietnam and other south-east Asian markets. The move is part of T&T’s strategy to shift the percentage of its overseas workload from 40% to 60%.
If UK construction plc is looking at a sharp decline in public spending, combined with minimal GDP growth until 2020, then many will share T&T’s conclusion that overseas expansion is vital to overall business health. While there are opportunities in more familiar overseas markets – such as Saudi Arabia or Qatar, and increasingly India – one obvious benefit of the lesser-known markets is that they’re likely to attract less competition. And T&T’s Stone adds that you’ll often be more appreciated. “Smaller markets can be much more welcoming to foreign investment because they don’t have the resources or expertise that bigger countries do,” he says. cm
Emerging markets: where could your turnover grow?
Vietnam’s legal and financial systems are still undeveloped by Western standards, making the country an above average risk. But Vietnam is attracting attention due to its phenomenal growth rates – last year Davis Langdon ranked it as the world’s fourth fastest growing construction market. Spending on construction is expected to hit $1.4bn in 2015. Which is probably why Qatar’s state-owned developer Qatari Diar is in talks to invest there.
Predicted to become Europe’s third largest economy by 2050 and offering, according to the UK government, “multi-billion pound construction opportunities”. As well as the immediate need for 600,000 new homes a year, Turkey will require massive infrastructure development. Under way already are the £8bn Nabucco gas pipeline project, the Istanbul-Ankara high-speed rail project and the Bosphorus crossings.
The UK is already the largest investor in Azerbaijan, mainly in the oil sector. But this has been the world’s fastest-growing economy in the past three years – with GDP growth of 20% a year – and opportunities exist in all sectors. While UK firms may find it hard to compete with locals for many construction projects, architectural services and project management skills will be in demand, particularly in the capital, Baku.
Strong historical ties mean that Nigerians look to British goods and services above other countries. GDP is forecast to grow by 5.5% next year, bringing demand for buildings and infrastructure.
Angola, meanwhile, has Africa’s fastest-growing economy, and demand for equipment and services to the construction industry offers opportunities for UK firms. With little domestic materials production, most are imported.
With a population growing at 2m a year and a “new” middle class of 20m demanding more housing and better infrastructure, Brazil needs construction input. Add to that the 2014 football World Cup and the 2016 Olympics, which UKTI estimates will require 80 projects, and you’d think British firms would be piling over. But Brazil remains largely untapped, although Halcrow, Balfour Beatty and Mott MacDonald have a presence there.
Global construction market
Total value of output
Fancy a slice of the overseas action? You need to be pretty special to catch the eye of a firm looking to expand in one of the new emerging markets, says Kevin Flynn, director of recruitment specialist Hays International.
“They are looking to buy knowledge and skill which can then also be transferred to the local workforce,” says Flynn. “So the person would be someone with specific skills in the sector and in that geographic region or a similar region.”
Firms looking to set up in Libya or Morocco, for example, would look to people who have had two to three years in Dubai or Abu Dhabi.
And in this market, maturity is a definite bonus. “In the East and overseas generally, experience and visible experience is valued,” says Flynn. “If you can bring 20 or 30 years’ experience, you will command a high level of respect.” An added bonus could be that older professionals may already have put their children through the education system so they won’t require such expensive enhanced pay packages as someone with a young family.
Flynn says he is advising younger people to get a few more years’ experience and their professional qualifications under their belt before they look overseas, as the competition for roles is coming not just from expats but from other nationalities.
Turner & Townsend, however, still believes in bringing young people from its UK business to work in its Asian offices. “Where the weakness is in terms of the overall business is in the delivery side of the service,” says Duncan Stone who runs the firm’s Asian business.
So people with two or three years’ experience are coming over to work purely on the delivery side, rather than in management or marketing where people must speak the local language. For example, people with two or three years’ experience working on Tesco contracts in the UK are now working on Tesco projects in China, to ensure that Tesco gets the same service in the new market.
“It’s an exciting place for young people if you can find a niche for them,” says Stone. He also points out that the weakness of the pound means that a younger UK person’s salary is now only marginally more expensive than a more senior local’s.
If you are considering working overseas, remember that salaries aren’t as exciting as they used to be in the 1980s. Expect to take home roughly 10-20% more than you would in the UK, taking into account the fact you will be paying little, if any, tax.