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Executive Summary:
The outlook for the Global Construction sector continues to be encouraging over the next five years, assuming the worst of the COVID pandemic is behind us.
Close to a year and half of dealing with COVID-19 has been a major challenge to all construction related organizations around the world.
COVID-19 has seen close to 230 million confirmed cases & close to 5 million deaths around the world. (Could be 10 million with the way some countries are under-reporting) and over 700,000 deaths in the USA.
The virus has created significant problems to the Global Construction sector, compelling many organizations to substantially modify, shut down, or severely slow down ongoing construction activities. The world economy & construction sector is in its most unpredictable position since the Great Depression of the 1930’s. International economic growth has slowed down significantly.
The pandemic has negatively impacted the economies and construction sectors of more than 180 of the world’s 200 countries. Some counties have successfully navigated around the pandemic, while many countries have significantly struggled with the virus.
COVID-19 will be with us for the next year or two, so don’t throw away your masks. Some of the main challenges for the construction industries include:
However, we are starting to see signs that the COVID-19 pandemic is starting to weaken, substantial headway has been made with the vaccine rollout and it appears that in North America economic recovery could be achieved in the next 3 to 6 months. However, we are not out of the woods yet, another COVID-19 wave could bring on an economic recession in the 4th Q of 2021. The construction sector continues to face headwinds as we transition into 2022.
Industrial Construction projects have seen a significant loss of worker productivity due to COVID mitigation programs.
Industrial Construction projects will on average take longer to accomplish, for example a 12 month typical construction schedule will take anywhere from 14 to 15 months to complete post COVID-19.
As we continue to transition into 2022 we are possibly moving into a new “normal” that still needs to be fully understood. We believe COVID-19 will have a major impact on how Construction Projects are bid, procured and executed in the foreseeable future.
We have been talking with a number of Construction Managers, Site Superintendents, Planners & Estimators in the last couple of months regarding the loss of productivity on specific trades due to COVID-19 on Industrial Construction projects currently being constructed in the USA & Canada:
This is the feedback we are getting: The majority of Refinery, Power, Manufacturing Pharmaceutical, Food Production & Owner companies are including clauses / contractual language in their construction contracts / Requests for Proposal (RFP’s) to minimize the spread of COVID-19 within their production sites, most of these contractual requirements will impact construction productivity. These include:
We have carried out an Order of magnitude increase on a $20 to $30 million Industrial project that could be in the $1.5 to $2 million range.
Current world political & economic risks & some positive issues facing the Global Construction Industry include:
If the majority of these concerns can be resolved or put to rest, then the Global Construction Industry has an excellent chance to grow & prosper in the next 3 to 5 years particularly in some of the 2nd & 3rd world developing economies of SouthEast Asia, Africa & South America. However, the current global war on COVID-19 needs to be won before this can be realized & this might take another year or two before this happens.
The USA, Canada, & Mexico are all gradually recovering from the pandemic.
The USA research of the impact of COVID-19 to project budgets & schedules related to industrial plant developments indicate that costs will increase by 5% to 10% from pre-COVID-19 levels.
The main reason we are seeing cost increases on Industrial Construction projects is due to the effect on direct and in-direct field construction labor caused by delays initiated by wearing PP all day, smaller crews, social distancing, cleaning routines, bussing and site check in routines.
The increased cost impact on a $25 million Industrial (200,000 man-hours) Project could be in the 5% to 7% range, without taking into account the significant spike in construction materials.
This will not be the case with Commercial / Residential type construction, we anticipate that this construction category will experience minimal change in productivity, however these facilities will be impacted by the increased costs by skyrocketing construction materials.
Increased construction materials prices is a major problem, brought on by pent up demand after the Covid slowdown and the current USA housing boom.
There are indications that the COVID-19 epidemic is starting to wane, however we are not out of the woods yet, a 3rd COVID wave is a distinct possibility in certain US / Mexican states & Canadian provinces.
At least an additional 250,000 or more extra construction workers will be needed in the 4th Q of 2021, to keep pace with the booming single family homes & apartment’s related construction that is really resonating across the vast majority of US states, extremely low mortgage rates, pent up demand & a flight to the suburbs is fueling this housing expansion.
A full US economic recovery will take at least 6 to 12 months to return to pre-COVID-19 levels. The good news is that the economies of USA, CANADA & MEXICO are starting to see growth as we move into the 4th Q of 2021. In the USA all of the states are now allowing construction work to proceed. Safety & worker protection has really become an important issue on construction sites in the last year.
The latest cost forecast of a barrel of Crude Oil $75 – $80. Oil & Gas Owners / Operating Companies are taking a second look at their 2022 CAPEX budgets, with the recent strong rise in oil prices a number of CAPEX related Petro-Chemical, Energy & Power projects could move forward in 2022
The majority of Refinery, Power, Manufacturing Pharmaceutical, Food Production & Owner related companies are including clauses / contractual language in their construction contracts / Requests for Proposal (RFP’s) to minimize the spread of COVID-19 within their production sites / campuses, most of these contractual requirements will impact construction productivity, they include:
Unfortunately COVID has put a lot of small / mid-sized A/E’s, contractors, sub-contractors & vendors out of business, cash flow problems & lack of work is the reason for this situation.
The Canadian economy and construction sector was severely impacted by the COVID-19 virus, this and low oil demand / deteriorating oil prices, however with the recent spike in oil prices is somewhat of good news for the Canadian oil patch.
The COVID-19 virus will hopefully fade away in the next 6 to 12 months. Canada is currently experiencing a housing boom, and the rest of the construction sector will remain flat for the next 3 to 9 months.
Mexico has seen over 2 million confirmed COVID cases & 200,000 related deaths due to the virus, however a recent report indicated the number of deaths is closer to 350,000.
Like its two northern neighbors the Mexican economy and construction sector struggled with the COVID-19 pandemic. A sustained economic recovery will take anywhere from 6 months to 12 months to achieve.
The protracted & disorganized rollout of vaccinations is a serious problem in many European countries.
Europe experiencing 2nd & 3rd wave and COVID remains a serious problem and the new Indian strain present additional challenges.
The UK has so far seen close to 7.5 million cases of COVID & more than 136,000 deaths. Germany has seen more than 4.2 million COVID cases, resulting in close to 93,000 fatalities. Spain has experience more than 4.95 million confirmed cases of COVID & has lost close to 86,000 citizen
Poland & the Czech Republic are dealing with a 3rd wave of COVID, other countries including Germany, Italy, Portugal & France continue to struggle with the COVID virus, look for this to continue for the next 3 to 6 months. The European Union’s vaccination rollout is going so badly that both China & Russia are now approaching individual countries to sell their vaccines.
However we are starting to see signs that the COVID-19 epidemic is starting to decline in the UK, Sweden, Norway & Denmark.
How the new Brexit trade agreement will impact European construction is still TBD, the UK & the European Union continue to squabble over the terms & conditions of the so called agreement, some industry experts believe the UK will benefit at the expense of both France and Germany.
The COVID-19 virus has negatively impacted the construction sectors of Germany, France, Italy, Spain & the UK, the latest thinking is that these construction sectors will start to see an improvement in the 4th Q of 2021.
Construction work has now gradually resumed on many construction sites across Europe, industrial construction worker productivity is forecast to be reduced due to mandated social distancing and new safety rules.
In the UK the housing sector is expected to weather the COVID-19 storm, however new retail construction, hotels and office construction will be in the doldrums for at least the next 12 to 18 months, Germany, France and Italy are expected to see a similar situation.
Lots of European construction related organizations are looking for future Government funded infrastructure investment in the next couple of months to help in weathering the downturn brought on by the pandemic.
A number of large and mid-sized construction related organizations have reduced home office staff and site based positions, the current view is that this could amount to between 15% and 25% of current staff levels.
Sweden has been the only major European country not to impose a shut down or social distancing. Worker absence has been somewhat higher, delays of various construction materials have caused some delays, however at most it has been a minor nuisance at a few construction sites. Recent reports from Sweden suggest in hindsight that lockdowns and social distancing should have been introduced like the vast majority of other countries.
The European construction sector has a reasonable chance to grow & succeed in the next 6 to 12 months & return to pre-COVID-19 levels if the virus vaccination program can be rapidly implemented to its 350 million citizens.
Asia Pacific is set to rebound in 4th Q of 2021, China will do well in the 4th Q of 2021, Malaysia experiencing a COVID spike, and unfortunately India is experiencing a COVID tsunami (millions of casualties), however this situation is showing signs of improvement.
We are starting to see positive signs that the COVID-19 epidemic is starting to decline in most Asian countries. China’s economy and construction sector has recovered quickly, and rigorous lockdowns and population tracing policies checked the spread of the virus. The Chinese government also funded billions of dollars on future infrastructure projects.
Pre-COVID-19, almost a fifth of the world’s GDP originated out of China. The once buoyant Chinese economy slowed down rapidly in 2020. GDP growth in 2021 is forecast to be 5% to 6%.
China’s real estate house of cards could be brought down by real estate firm Evergrande defaulting on its debt, Evergrande is the world’s most indebted company, this could send ripples throughout the global financial market.
China’s factories and production facilities are back in business as we transition into the 4th Q of 2021. The Chinese economy & construction sector has experienced a growth spurt in the last 3 months. However this spurt has started to slow down in the last 4 weeks.
Hong Kong may well present future challenges to China once COVID-19 has been resolved, social unrest does not appear to be waning. China has changed the one country, two systems previous approach, this could result in mass demonstrations and could stymie future construction & economic activity.
India now ranks # 5 in the economy league table, larger than both the UK & France, look for 2021 GDP to be between 5% & 6% once the COVID virus is fully contained, which could take another 6 months. Unfortunately the Indian economy has started to slow down rather rapidly in the last 3 months as a result of the COVID pandemic lockdowns. Infrastructure construction is the only good thing to report on at this time.
In general the Asian construction sector dealt well with the effect of COVID-19 and is currently set to get beyond the last twelve difficult months. Most countries are starting to increasingly move forward again as we transition into the 4th Q of 2021 with perhaps the exception of India.
Japan has weathered the COVID-19 reasonably well with just over 1,700,000 confirmed cases and close to 18,000 deaths. Japan’s construction sector is forecast to see minimal growth going forward.
Vietnam successfully handled the pandemic crisis, with very few confirmed cases. Construction work never stopped during COVID-19, however there has been a significant spike in confirmed cases in the last 6 weeks.
Indonesia, South Korea, the Philippines, Cambodia, Bangladesh and Laos have all had COVID-19 issues, it appears they are dealing with the COVID-19 crisis relatively well. COVID-19 will regrettably impede some Asian economies and construction sectors somewhat in the 4th Q of 2021, however recent indications from this region of the world is that the construction sector is starting to see some significant improvements.
The African continent is still besieged with the COVID pandemic that will take many months to resolve.
The two largest economies in Africa, South Africa & Nigeria have been hard hit by COVID. South Africa has seen 2.9 + million confirmed cases of COVID & more than 90,000 deaths. Nigeria has seen close to 205,000 confirmed cases of COVID & more than 3,000 deaths.
The lengthy & shambolic rollout of vaccinations is a serious problem in many African nations that could take months to fully implement. Nevertheless we are starting to see some positive signs the COVID-19 epidemic is starting to lessen, however there remains a lot of challenges ahead in the 3 to 6 months.
South Africa is seeing a troubling new form of the COVID-19 virus which appears to be highly contagious. Many governments have banned travelers from South Africa from entering their countries.
Unfortunately some countries in Africa lack the basic equipment or even trained health workers to respond to the COVID challenge, so the numbers of COVID cases could be questionable.
The African construction sector is dealing with the effect of COVID-19 and is presently lessening the impact, some counties never stopped construction activities and others completely closed down, construction activities in most countries are starting to slowly move forward again as we transition into the 4th Q of 2021.
The COVID-19 virus has been responsible for up to 50% of ongoing construction projects around the African continent to be closed down or delayed in the last 12 months, recent reports are that many of these closed down projects are starting construction activities again.
Other countries such as Egypt, Nigeria, Ethiopia & Kenya have been hard-hit & their construction sectors will labor to move ahead in the 4th Q of 2021. There are concerns that future lockdowns will bring considerable suffering for Africa’s deprived citizens, who lack basic services, without regular employment & lacking basic medical facilities to fall back on.
Russia has so far seen close to 7.3 million COVID cases & more than 200,000 casualties to the virus. The lengthy distribution of the Russian vaccination program continues to be a problem. However we are starting to see signs the COVID-19 epidemic is starting to weaken,
Russia announced in August 2020 that it had produced a COVID-19 vaccine (Sputnik COVID-19 vaccine, reported to be 95% effective). This vaccine went into full production in September 2020, and Russia has been successful in selling this vaccine to a number of countries around the world, including Argentina, Belarus and a number of other countries.
The COVID-19 virus has been responsible for up to 40% to 60% of ongoing construction projects to be shut down or delayed. The projects that have continued to work have imposed rigorous safety and travel restrictions. The COVID-19 virus will influence future CAPEX projects and some projects will be cancelled.
Russia also continues to be vulnerable to US & Western European economic sanctions that will continue to suppress construction activity.
Oil prices have increased by more than 35% in the last 3 months, this is great news for the Russian economy & construction sectors. We are starting to see some positive signs the COVID-19 pandemic in Russia is starting to weaken as we move into the 4th Q of 2021.
South America is still struggling with the COVID pandemic, Brazil & Peru have really been hard hit.
South American construction activity & projects have for the most part gradually started to resume again. Peru, Ecuador, Guyana, Uruguay, Venezuela & Paraguay have unfortunately been severely impacted by the pandemic. In Brazil construction work for the most part did not stop, however each region dealt with the crisis in different ways.
COVID appears to be getting worse in some South American countries. Brazil is seeing more than 3,000 COVID related deaths each day, with more than 21.3 million confirmed COVID cases & over 593,000 deaths, Brazil accounts for 25% of the world’s daily COVID-19 fatalities, many experts warn the worst may lie ahead.
Chile has seen close to 1.65 million COVID cases & more than 37,000 deaths so far. In spite of launching the world’s fastest COVID-19 vaccination campaign, Chile has been forced to announce strict new lockdowns as it plunges deeper into a relentless 2nd wave of COVID cases which is stretching the medical resources & intensive care capacity.
Argentina, Peru, Colombia & other South American nations have been hard hit in the last 12 months with the COVID pandemic, it could take more than 6 months until some relief is experienced.
COVID-19 in South America will be prevalent for at least the next 6 months to 12 months, it will hopefully slowly start to fade into the background by the end of 2021. The long-drawn-out & disjointed rollout of vaccination programs is a serious challenge in many South American countries that could take more than 6 months to see positive results.
South American construction activity & projects have for the most part gradually started to resume again. Peru, Ecuador, Guyana, Uruguay, Venezuela & Paraguay have unfortunately been severely impacted by the pandemic. In Brazil construction work for the most part did not stop, however each region dealt with the crisis in different ways.
Look for South America’s construction sector to struggle for the 4th Q of 2021. The COVID-19 virus will reduce future CAPEX spending for the foreseeable future, conceivably going well into 2022 and beyond. Many countries in South America lack intensive care units / isolation wards or adequate numbers trained specialist healthcare workers & advanced medical equipment & supplies to fight off the pandemic.
The jury is still out on the global economic impact of the COVID-19 Pandemic, possibly six months from now we will have a clearer understanding of how we get past this event & how it impacts the construction sectors of all the South American countries.
The Middle East is showing some improvement with mitigating the COVID virus, however it continues to be a significant problem.
The long-drawn-out & fragmented rollout of vaccination programs is a serious challenge in many Middle Eastern countries that could take another 3 to 6 months to see positive results.
The UAE has seen 743,000 + confirmed COVID infections resulting in close to 2,087 people having perished from the virus. Construction in the UAE is showing signs of improvement.
COVID cases in Saudi Arabia have risen to more than 400 a day for the first time since October 2020. Absence of social distancing & wearing face masks are thought to be the main reasons. Saudi Arabia has seen more than 547,000 COVID cases that have unfortunately resulted in close to 8,700 casualties.
The pandemic has caused uncertainty in the Middle East economies, construction has seen labor shortages & travel restrictions on 3rd world construction labor resources.
The impact of the pandemic in the Middle East will still be around for the next 3 to 6 months. The Middle East construction sector is still dealing with the aftereffects of COVID-19 and is currently trying to lessen the problem.
A few countries continued construction activity, while others either completely or partially closed down. Long lead equipment, bulk material delays, and worker testing is still a challenge. Construction activities in most of the Middle-Eastern countries are starting to gradually move forward again as we transition into the 4th Q of 2021.
Taking on new personnel / staff & construction workers from other countries remains a major challenge in many countries. Some countries are requesting workers from other countries to be quarantined for 14 days, yet the cost and logistics of this is significant. Delays in procurement / buyout of materials and equipment from countries such as China, Italy, France, and the USA and the associated costs of mitigating these delays persists in being a problem. Extremely exacting safety measures have been introduced which will increase costs and negatively impact construction productivity. Many migrant construction workers returned to their home countries and are experiencing difficulties in returning back to the Middle East.
The rising price & demand for oil could turn out to be a great boost for Middle East countries that could benefit future Oil & Gas construction projects.
The pandemic has the potential for all Middle-East future or current ongoing construction projects to be delayed or worst case postponed. The economic impact and fallout of the Coronavirus still needs TBD as we transition into the 4th Q of 2021.
Qatar, Jordan, Kuwait, Libya, the UAE & including Saudi Arabia are all in the same boat as many other countries, these countries are pronouncing new hygiene & travel restrictions, procedures & protocols as the number of Coronavirus infections keeps ramping up.
However, there is light at the end of the COVID tunnel. We are starting to see signs that the COVID-19 epidemic is starting to weaken in some Middle East countries.
International bidding to procure construction materials has sent the cost of imported lumber, plywood, copper, rebar and other materials skyrocketing in both Australia and New Zealand.
Contractors are experiencing material shortages, delivery times on construction materials have increased from a normal 2 to 4 weeks to 4 to 10 weeks to arrive at site and even longer in some cases.
Australia & New Zealand ,because of their remote location, have weathered the COVID pandemic remarkably well.
Australia’s economic relationship with China has seriously cooled down in the last 6 months, this issue is related to China’s South China Sea territorial claims that Australia is criticizing. This dispute will impact Australian mineral exports and could impact future mining related projects.
The recently announced AUKUSA nuclear submarine deal has upset China. While it’s early days for the AUKUS program, the pact will bring a number of key technological benefits to Australia.
We do expect a gradual & steady economic upturn as we transition into 4th Q 2021 and the number of COVID-19 confirmed cases starts to significantly decline & travel restrictions are lifted.
Australia is experiencing a housing / apartment / home remodeling surge similar to what the USA and Canada is undergoing.
COVID-19 has hindered CAPEX spending and delayed current construction projects in both countries. Australia and New Zealand, in their two centuries of existence, have never ever experienced an economic tsunami / earthquake of this scale. The Government of New Zealand is preparing to invest considerable funds on infrastructure / public works projects to minimize current and future unemployment.
| Countries | 4th Q 2021 % GDP Growth | 4th Q 2021 Inflation % | 4th Q 2021 Unemployment % | Comments on Construction in 4th Q of 2021
Future Spending Activity |
| USA | 5.4 | 4.9 | 5.4 | Escalated construction materials prices is a major problem, brought on by pent up demand after the Covid slowdown and the current USA housing boom. Oil & Gas Owners / Operating Companies are taking a second look at their 2022 CAPEX budgets, with the recent strong rise in oil prices. A number of CAPEX related Petro-Chemical, Energy & Power projects could move forward in the 4th Q of 2021. The US construction sector tries to come to terms with the pandemic & the new normal. |
| CANADA | 4.1 | 3.5 | 7.5 | The construction sector is starting to see an improvement as we transition into the 4th Q of 2021, look for the effects of COVID-19 to start to recede. Continuing higher oil prices will positively impact Canada’s oil patch. New RFQ’s / Bidding opportunities on commercial type projects should present themselves as we move further into 2021. |
| BRAZIL | 4.7 | 8.9 | 14.6 | Brazil continues to struggle with COVID related deaths each day, with more than 21 million confirmed COVID cases & over 590,000 deaths, Brazil accounts for 25% of the world’s daily COVID-19 fatalities, many experts warn the worst may lie ahead. |
| UNITED KINGDOM | 3.6 | 2.1 | 4.7 | BREXIT terms & conditions remain a problem. Once the COVID-19 pandemic is resolved, in say 3 to 6 months, the UK economy & construction sector could be set for a growth spurt. The pound sterling is starting to strengthen against the US Dollar. |
| GERMANY | 2.9 | 3.2 | 3.7 | The drawn-out & disorganized rollout of vaccinations is a serious problem in Germany. German economic & construction activity once the COVID-19 virus is alleviated is expected to improve, however this might take another 6 to 9 months. A lot of industry experts believe BREXIT will not be a good outcome for the German economy & construction sector, time will tell. |
| FRANCE | 3.3 | 1.2 | 7.4 | The protracted & confused rollout of COVID vaccinations is a serious problem in France. France has struggled with high unemployment since 2008. COVID-19 is an additional challenge. The full scale of the economic impact of the deadly COVID-19 on France is still TBD. This virus couldn’t have come at a worse time as France has struggled economically for the last 10 years. Engineering & Architectural firms are reporting a significant fall off of RFQ’s / new orders as we move into the 4th Q of 2021. |
| RUSSIA | 2.4 | 6.1 | 4.8 | Russia announced in August 2020 that it had produced a COVID-19 vaccine (Sputnik COVID-19 vaccine), which went into full production in September 2020. Russia is starting to see a 2nd wave of COVID-19 cases, it is currently reporting over 7.3 million confirmed cases & close 200,000 deaths. Russia has closed its borders to foreigners in recent weeks. The recent rise in oil prices is good news for the Russian construction sector. |
| JAPAN | 2.2 | 0.6 | 2.9 | Japan has withstood the COVID-19 reasonably well. The Japanese economy & construction sector is still underperforming. |
| CHINA | 5.7 | 1.1 | 5.1 | China’s economy and construction sector has recovered quickly, painstaking lockdowns and population tracing policies checked the spread of the COVID-19 virus. The Chinese economy & construction sectors are starting to see decent growth again. The consequences of the global economic impact of the deadly Coronavirus Pandemic is still TBD. Many US / European & Japanese manufacturing companies have plans to relocate their production facilities out of China, stay tuned. |
| INDIA | 5.8 | 5.5 | 7.1 | India has seen 33.6 million confirmed cases of COVID and is reporting 446,000 deaths, however this number appears to significantly understate. Unfortunately the Indian economy has started to slow down rather rapidly in the last 3 months as a result of the COVID pandemic lockdowns. Infrastructure construction is the only good thing to report on at this time. The potential of border hostilities with China is a major concern. India continues to purchase advanced fighter jets & weapon systems, which is not a good sign. India has been hard hit with COVID-19 resulting in many deaths. Prime Minister Narendra Modi has earmarked a $2 + billion fund to mitigate the effects of the Coronavirus Pandemic on the Indian population & industry. India now ranks # 5 in the economy league table, larger than both the UK & France, where will it be in the next 10 years? |
Compass International is considered by many to be the global leader in providing construction cost data. We partner with many of our clients to train their staff on Conceptual & Detailed Estimating methods, Validate Estimates, and to Turnaround problem CAPEX projects.
Eliminate the risk of cost overruns with Compass International’s researched and current US & International construction cost data.
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To contact the Author of this newsletter or to enquire about our (8) Publications & Cost saving services, contact John G. McConville CCP – in USA call (609) 577 4505 or contact me on [email protected]
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