Construction and Engineering encompasses the design, planning and construction of structures that vary from residential buildings to undersea pipelines.
General construction includes the construction of residential, commercial, institutional and industrial buildings, the design of which is generally led by architects.
Engineered construction is involved with structures that are designed by engineers rather than architects, where functionality often takes precedence over aesthetic appearance.
In both sectors of the construction industry, structures tend to be custom designed to fit a unique design brief or functional specification, and opportunities to replicate designs are the exception. This contrasts markedly with most manufacturing industries where mass production of standard designs allows process optimisation and minimal production cost to be achieved.
In terms of expenditure, employment and energy consumption, construction and engineering ranks among the world’s largest industries and is estimated to consume 50% of global resources annually. This industry is sometimes considered an indicator of economic performance, when comparing different countries.
The construction industry is of great strategic importance by virtue of the very significant impact it has on the world’s economic stability.
Types of contractors
The Specialty Trade Contractors sub-sector comprises establishments whose primary activity is performing specific activities (for example, pouring concrete, site preparation, plumbing, painting, and electrical work) involved in building construction, but that are not responsible for the entire project.
The work performed may include new work, additions, alterations, maintenance, and repairs. There are substantial differences in types of equipment, workforce skills, and other inputs required by specialty trade contractors who commonly provide both the parts and labour required to complete their work. This sector is also characterised by a large number of self-employed workers and relatively small organisations.
World economic recession
Most construction projects are entirely dependent on the availability of significant financial resources. Historically, the construction of public facilities such as transport infrastructure, water supply and recycling systems, healthcare and educational buildings were financed by governments or local authorities, usually by the issue of bonds and also from tax revenue.
In many countries it is now more popular for infrastructure projects to be financed and owned by private consortia and leased by municipalities or government departments.
Commercial and industrial projects have long been financed by loans provided by banks and other financial institutions. The 2008/2009 economic recession was precipitated primarily by the collapse of banking institutions and a resulting scarcity of credit finance.
The size and scale of large construction projects means that contracts often extend over periods of more than a year and this effectively protected the industry from the rapid decline in demand experienced by other industries like mining. In addition, many governments intervened to stimulate their weakening economies by investing in infrastructure projects.
While more volatile industries are now experiencing demand recovery and anticipate reaching 2007 output levels in 2010, an oversupply of newly constructed commercial and residential property exists in many western countries. For this reason construction is expected to decline even further in the US and Western Europe during 2010.
Asia’s growth dominates
The growth in China’s share of global construction since the early 1990s has been nothing short of astounding. Driven by rapid industrial and commercial development and the resulting urbanisation, investment in infrastructure, as well as commercial and residential property, grew to represent 10% of global construction spending by 2007.
Between 2001 and 2008 construction spending was boosted significantly by investments made in preparation for the 2008 Summer Olympic Games totalling US$70bn, and included commercial projects, venues, industrial parks, urban transport systems, a new airport and other infrastructure networks. Expenditure by China’s construction sector grew at a real rate of 16% between 1998 and 2008.
Having surpassed that of Japan by around 2008, it is estimated that the size of China’s construction industry will exceed that of the US by the end of 2010 – when it will account for 14% of the global industry.
US – The hardest hit
The steepest declines in expenditure by the construction industry worldwide were in the US, starting in 2007 and falling for four consecutive years. The total value of construction start-ups reportedly contracted by almost 40% according to a report by McGraw Hill Construction.
A two-year stimulus package of $787bn provided by the American Recovery and Reinvestment Act has been slow to impact on the construction industry, although funds for infrastructure projects have been assigned.
The fact that the US’ financial woes originated in the sub-prime mortgage sector of the banking industry is evidenced by the very significant reduction in expenditure on residential construction. The effect of infrastructure investment to support the construction industry is also apparent from the increase in Institutional Buildings and Public Works.
New millenium priorities
Since the advent of the twenty first century, three issues have emerged as priorities, namely: Energy Scarcity, Environmental Sustainability and Population Growth.
Ironically, those countries that have relatively low population growth tend to be the most concerned about environmental conservation and are investing in alternative energy systems, but have experienced the greatest rate of decline in construction activity.
Conversely, the driving force of human ambition released from poverty by industrial development and striving to achieve higher living standards, is the engine of economic growth in the emerging countries of Asia, Africa and South America.
Resilient domestic markets boosted by growing levels of disposable income and sustained by rapid urbanisation have already recovered from the recession – and construction activity is accelerating.