Welcome to the first of Building’s special market reports
This regular series of in-depth studies aims to bring you expert analysis of the latest trends in key sectors for the industry, as well as the latest information on available work and how to win it.
This first report focuses on infrastructure – a sector that is forecast to grow 30% by 2013 in the UK alone. Whether it’s waste, energy or transport, the sector looks set to offer a haven for construction companies throughout the recession. As our market analysis, provided by Davis Langdon and the Construction Products Association, shows, many infrastructure markets are expected to exceed even that growth level, with rail, for example, forecast to grow by nearly 150% by 2013.
The sector’s strength, fairly obviously, lies in the day-to-day necessity of its schemes. With a population and an energy problem growing at an equal rate, whichever party is in power after next year’s election will need to find a way to keep the lights on and the country moving. But the problem is that many of the schemes that would best position the country for the future also account for a big slice of government spending – and it’s hard to justify even the most vital long-term infrastructure project when you’re trying to woo an electorate that is more concerned with cuts to pensions and benefits.
For this reason, some of the most critical infrastructure projects, including the £16bn Crossrail scheme, remain under threat. One of the big arguments for saving the scheme is the amount of public money that will already have been spent on it by the time of the next election. Terry Morgan, the scheme’s chairman, said recently that as much as £3bn would have been committed to the project by the spring (we show on page 12 where this money will have gone and what is still up for grabs). This is against an estimated saving of £500m per year if it is shelved.
Even in the current climate, this short-term gain doesn’t quite add up.
The problem also applies to other major infrastructure projects – for those schemes that are deemed necessary, a delay next year could mean a more costly burden for the government in the future. Take nuclear energy, for example – experts are already warning that any slippage might see RWE and E.ON abandon the UK market to invest in their native Germany, potentially leaving the UK having to offer incentives to other investors to take their place.
Of course, it’s not going to be easy to maintain capital spend, and to do so would require government to rely even more heavily on private investment than it has done up to now. This presents its own difficulties, with banks now far more cautious about lending to even government-backed projects. But as KPMG’s Jeremy Barker explains on page 20, most banks are likely to return to the market in the medium term – alongside other less traditional investors such as pension and insurance funds. The problem for those running projects will be the competition to attract this money, from both within the UK and overseas. Which is why the case for committing to Britain’s infrastructure needs to be made sooner rather than later.
Sarah Richardson, assistant editor, Building
Market Report - Infrastructure
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Infrastructure: The long game