The global construction sector remains optimistic despite falling demand in commercial and residential building work and in the face of a difficult global financial climate, according to a global KPMG survey out on Thursday.

'Navigating the Storm', published by auditing and tax group KPMG in November 2009, reflects the results of more than 100 interviews with senior leaders at engineering and construction companies in 30 countries worldwide, including South Africa, with revenues ranging from $250-million to $5-billion.

Findings from the survey concluded that profit levels were expected to be maintained or increase by mid-2010, while the economic downturn created opportunities for leaner companies in the sector.

Geno Armstrong, international sector leader of KPMG's engineering and construction practice said: "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."

Backlogs are growing

More than half (54 percent) of global respondents said that their backlog volume of jobs had gone up or stayed level. The picture was similar with profits in the current order backlog with just 44 percent of respondents claiming a decrease.

Contractors in Africa, Europe and the Middle East were hardest hit with 54 percent indicating their projected profit rates had fallen.

Gavin Maile, KPMG Africa construction partner, said: "In South Africa profit rates for new contracts are coming under pressure, especially in the housing sector, with numerous contractors bidding on each contract.

"While globally the future for 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," said Maile.

"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, roads and football stadia," he said.

Just over one in 10 global respondents believe that proposed government stimuli packages would bring a significant increase in opportunities over the next 24 months. Although contractors in the Asia-Pacific region had the most confidence in government packages, 82 percent of respondents are expecting a moderate or significant increase in opportunities over the next 24 months with 43 percent of respondents from Africa, Europe and the Middle East believing that such stimuli would have no demonstrable impact in that timeframe.

In contrast, 73 percent of American respondents are expecting some stimulus impact by mid-2011, KPMG said.

SA benefits from inflows

"The direct impact of South African infrastructure projects, on the other hand, is already flowing through the local economy," said Maile.

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

It was found that 28 percent of respondents have taken no action at all with regard to workplace reductions.

"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 indicates that the recession, rather than forcing cutbacks, as would be expected, has in fact intensified contractors' efforts to manage the risks associated with projects. What was once considered a weakness in the sector is now receiving renewed attention," he said.

Article by: www.iafrica.com