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SEPTEMBER - OCTOBER 2013
The Global Engineering, Procurement and Construction (EPC) market has had a five year roller coaster ride. Asia, Africa and South America have been performing moderately well in this period, while Europe and North America have been just getting by. In spite of this, and for the first time since 2008, the Global EPC market is seeing green shoots / growth again. This would indicate that the financial, credit and banking storm is just about over; the Global EPC market is slowly but surely on the road to recovery, we think. Restrained growth is forecast for the Global Construction Industry in the 2nd half of 2013. The US “fiscal cliff” presents a major risk to the 2013 US construction industry as does the current “Euro” crisis in Spain, Italy, Greece and Portugal. Sustained construction development is the answer to growth in emerging EPC markets in South America, Africa and Asia. It is forecast that population growth in major cities in these regions will grow between 15% and 25% in the next ten years. Infrastructure - housing, schools; power related construction etc. will be plentiful and desperately needed in these regions.

THINGS WE WILL SEE IN THE SECOND HALF OF 2013
USA
USA Labor costs are increasing year to year by 1.8% to 2.7%. There is projected to be a shortage of skilled labor in the Gulf Coast States (Texas, Louisiana and Mississippi) in 4th Q of 2013, labor rates will increase at a higher rate in these states. USA Bulk Material (Concrete, Stone, Rebar, Cement and Bricks) costs are increasing year to year by 2.2% to 2.5%. Plywood and framing timber costs are increasing year to year by 5.75% to 8.75%, due to the resurgence in the housing market. Construction Unemployment is improving, it is now down to 9.8% going into the 2nd half of 2013, this will improve to 9.6% by years’ end 2013. Pipeline EPC companies are enjoying an excellent period of sustained growth as we move into the 2ndhalf of 2013. There is a growing number of large and mid-sized pipeline projects out to tender in the USA and Canada. This is due to growing natural-gas and oil production from shale plays in North Dakota, Ohio and Pennsylvania. The boosted use of gas for power generation at the expense of coal is the driver to this situation. The approval of the Keystone XL pipeline has still not happened, this construction would create more than 10,000 construction jobs and would generate more than $0.70 billion in payroll costs for these workers over a three year period. The USA stock market is reaching new all-time highs, commercial and residential construction is in a sustained growth mode (something that hasn’t been seen for more than five years). The US consumer is more optimistic, housing prices are increasing, this is assisting the growth we are experiencing going into 2014.

Africa
Countries that should see significant 2nd half 2013 CAPEX investments include Angola, Nigeria, Equatorial Guinea and Ghana. The majority of this spending will be on oil, gas and mining projects. Africa’s developing solar and wind-energy sector offers stability with a prospect to drive the continents economy to major GDP growth by the year 2025. Libya is still struggling to get back to normal after many years of instability, look for some major oil, gas, and pipeline and infrastructure projects hopefully to be released in the 2nd half of 2013. South Africa’s President Jacob Zuma has laid out plans for $450 billion 15 year spending plan aimed at new roads, bridges, ports, telecommunications and power facilities. South Africa has a number of significant power and oil related projects in the drawing boards as we transition into 2014. Nigeria will see major construction growth with (4) new Greenfield petro-chemical projects that will cost between $10 and $20 billion in the next five years. East and West African Gas, Oil and Metals Resources will experience sizeable growth in the 2nd half of 2013; this will mean significant engineering and construction activity in this region.

GDP

INFLATION

UNEMPLOYMENT

USA CAN BRA GBR GER FRA RUS JAP CHN IND

2.1 2.0 2.5 0.7 0.6 0.3 2.9 1.7 7.6 5.8

2.2 1.5 5.9 2.6 2.2 1.4 7.1 0.2 3.4 9.0
$90 - $105

7.5 7.0 5.7 7.7 6.8 10.8 5.9 4.2 4.2 9.8

Russia
Russia will continue to experience a thriving energy and infrastructure (roads, airports and railroads) market in the 2nd half of 2013. The Russian construction market is set to grow between 5% and 6% in 2013 from 2012 levels, the Russian Government is primed to invest more than $200 billion on infrastructure related projects. The World Cup and the Winter Olympics are to be held in Russia in the next six years, commercial construction related to stadiums and hotels will be a big recipient of these future investments. Oil and gas related construction activity will continue at a decent pace in the 2nd half of 2013. Russia continues to be a major producer and exporter of oil and gas.

Europe
The European domestic economies persist in remaining sluggish, low growth and high unemployment remain in effect in Spain, France, Ireland, Italy and the UK. In Germany, the largest economy in the Euro Zone, weaker growth seems to be happening as we move into the 4th Q of 2013. Many experts see this as a result of competition from South Korea, Japan, China and the USA, and we now forecast GDP growth at just 0.4% to 0.7% in the 2nd half of 2013 for Germany. The “Euro” problem seems set to continue and put a damper on European construction activity at least for the first half of 2014. The future view for the European construction industry is that it will see slow growth for the remainder of 2013. Scandinavia and some Eastern European countries. i.e. Poland, Hungary and Bulgaria will experience better construction industry growth than their western neighbors. The UK construction industry is expected to see flat or minimal growth in the 2nd half of 2013. The fastest growing countries in Europe are in Eastern Europe

South America
Brazil has become a country overwhelmed by strikes, protests and demonstrations in the last two months over stadium and transportation project investments, the protesters believe these investments should be focused on public housing, schools and hospitals, not on World Cup and Olympic Games facilities. Commercial and office related construction is on the upswing throughout Latin America. Shopping malls expansion has been growing in mid-sized cities in Argentina, Brazil, Chile, and Colombia. Look for this trend to continue in the 2nd half of 2013. South American construction markets in Mexico, Colombia, Peru, Chile and Brazil will experience solid growth in 2013 / 2014. There are numerous roads, bridges and commercial buildings, including housing units that will be started in the 2nd half of 2013. In addition, considerable CAPEX funds will be invested in Oil, Gas and Mineral projects in this period. Various refinery expansions / upgrades (including: Ethylene, PP, PE and offshore projects) are planned in Brazil, Colombia, Peru, Venezuela, and Ecuador and are forecast to commence in the second half of 2013. Gas and LNG prospects proliferate in Latin America, Venezuela, Columbia, Peru, Argentina, and of course, Brazil (which has some huge projects that will commence in the 2nd half of 2013).

Asia
The Asian construction markets are expected to display healthy construction spending growth in the 2nd half of 2013. China’s huge high-speed rail expansion will cost between $10 and $25 billion in the next five years. China is experiencing slower growth as we move into the 2nd half of 2013; the current forecast is 6.9% to 7.4% GDP. An immense problem that is facing China is the housing and commercial office space bubble, there are literally tens of thousands of empty homes and office facilities, waiting to find buyers, experts think it could be on the same scale that the USA experienced, this situation has still to play out, needless to say this could seriously impact future global construction growth in the 2nd half of 2013 and beyond. The Japanese construction market is set to improve significantly now that Prime Minister Abe controls both Houses of Parliament. Look for him to institute major infrastructure expenditures in the 3rd and 4th Quarters of 2013. Japan is forecast to experience significant increases in construction spending in the next three to five years, spurred on by new Prime Minister Abe and his pro-growth platform. Chinese and Indian Engineering and Construction worker wage rates are forecast to continue to climb between 6% and 9% in 2013. India will continue to see significant growth the 2nd half of 2013 the current forecast is above 7% GDP. India is facing a chronic shortage of engineers, this could stymie future growth plans if this problem is not dealt with in the next three or five years. South Korean EPC firms continue to aggressively market and successfully complete large EPC projects around the world, Japanese, European and USA companies are feeling the effects of this dynamic new player.

Middle East
There are rumours that the 2022 World Cup Soccer tournament may be cancelled, this is yet to be confirmed. Qatar is forecast to spend more $10 billion on transportation, roads and power facilities in advance of this tournament. Oil crude prices are bouncing around the $100 a barrel mark, this is good news for Middle East countries such as Saudi Arabia, Kuwait, Iran and Qatar, and we will continue to see above average level of construction activity in the 2nd half of 2013. Saudi Arabia, the major construction market in the Middle East, is projected to be the frontrunner in the projected growth. The U.A.E. is expected to see some substantial growth in the 2nd half of 2013, industrial and commercial construction projects will drive this growth.

Forecast Cost per barrel of crude oil

Forecast Euro / US $ Exchange Rate

1.25 - 1.30

Forecast Copper cost per pound

$3.23 - $3.48

Australia
Construction related expenditures in Australia are projected to start to slow down in the 4th Q of 2013. The Australian Mining, Oil and Gas sector continues to be a strong market as we move into 2014 (a major slowdown in China, is a potential problem, that could cause problems). Off-shore-platforms; minerals and related mining projects appear to be ample at present. The rest of the construction industry, i.e. commercial and publically funded work is expected to perform reasonably well in the 3rd and 4th Q2013, compared to two years back.

US Construction Material Inflation (Basket of 10 construction materials)

2.1% - 2.6%

Information Sources: • Government Information Agencies • International Development Banks • Various Country Trade Agencies • Various Architects and Engineers • E.U. Commission Reports • Compass International