In our 20th CEO Survey, PwC interviewed 256 capital projects and infrastructure (CP&I) executives in 59 countries to get their insights on the economy, the impact of globalisation and technological advances. Some of their views are highly consistent with the overall findings, but CP&I CEOs also differ in what they view as threats to the industry, which territories will be most important for growth, how technology will affect jobs, and which areas have benefitted – and might continue to benefit – from globalisation.
CP&I CEOs are slightly more optimistic about worldwide economic growth over the next twelve months compared with all global CEOs (32% vs 29%), encouraged perhaps by signals from new political leaders in the UK, the US and possibly Europe, who want to increase infrastructure spending and use it as tool to spread the wealth among their people.
To capitalise on these potential new opportunities, CP&I CEOs are focusing more effort on strengthening skills to navigate risks and regulations, compared with all global CEOs surveyed (7% versus 2%). They also want to step up funding growth (7% for CP&I versus 4% survey-wide), knowing that investors are increasingly turning to infrastructure as an alternative asset. In fact, unlisted funds had over $373 billion of assets under management at the end of June 2016, up from $24 billion in 2005, according to the 2016 Preqin Global Infrastructure Report.
While the majority of CEOs are planning to increase profitability through organic growth (79% survey-wide and 73% of CP&I), CP&I CEOs are focusing almost as much on cost reduction (69% versus 62% of all global CEOs). This is not surprising given the recent turmoil in key infrastructure sectors like oil and gas.
Indeed, 31% of CP&I CEOs say they are extremely concerned about volatile energy costs and 32% are extremely concerned about volatile commodity prices, making those the top two business threats for the CP&I industry. By contrast, global CEOs are most worried about availability of key skills (31%) and speed of technological change (29%), and only moderately concerned about volatile commodity prices (20%) and energy costs (16%).
Interestingly, CP&I CEOs also seem to see commodity-rich countries as more important for their organisations’ growth over the next 12 months, perhaps because many of these countries’ leaders see infrastructure as a way to maintain growth, support vulnerable sectors of the population, and eventually transition away from commodity-dependent growth models.
For example, while all global CEOs agree that the US and China are the top two most important countries for growth, CP&I CEOs ranked Russia third (tied with the UK), compared with most global CEOs who chose Germany. CP&I CEOs also ranked other commodity-rich countries like Mexico, Brazil and Indonesia slightly higher than all global CEOs.
Technology can help drive efficiency and open up opportunities for companies, but will technological advances also lead to job elimination? For now, CP&I CEOs say no. While 23% of CP&I CEOs indicate that they plan to decrease headcount this year, only 10% of those think the decrease will come largely as a result of automation and technology. (This is a striking contrast to the 16% of all CEOs who plan to decrease headcount, of which 25% think automation will be the cause to a large extent).
In fact, the CP&I industry today uses innovative technology mostly to complement human effort: Drones are deployed to collect information to help planners create blueprints, and 3D printing of buildings and replacement parts boost efficiency for the labour-intensive trades of builders, electricians and plumbers, for example.
More importantly, CP&I CEO’s are finally catching on to the idea that technology is a disruptor: 97% of CP&I CEOs expect technology to change competition in their industry over the next five years. Gone are the days when CP&I professionals could assume an infrastructure asset would last 30 years or more. Instead, they must look at challenges and opportunities – “What will happen to my electricity transmission company’s investment if smart batteries and rooftop solar panels cut usage?” “Are we ready for rapid build-out of high-speed national communications infrastructure as the Internet of Things (IoT) grows?”) – to ensure their infrastructure investments will remain relevant in the future.
The vast majority of CEOs believe that globalisation has helped to free flows of money, people, goods and information; facilitate universal connectivity; create a skilled workforce – and little else. CP&I CEOs take a slightly different view though, at least in one area; namely, climate change.
This makes sense when you consider CP&I CEOs rank climate change among the top five threats to their organisations’ growth. Just think, for example, what climate change might do to infrastructure built close to sea level and to hydroelectric plants that depend on rainfall.
No wonder then 70% of CP&I CEOs credit globalisation for helping to avert climate change and resource scarcity (versus 64% survey-wide.) Global initiatives like the 2015 Paris climate agreement and The UN’s 2016 Habitat III conference have been instrumental in setting the agenda for tackling climate change and achieving sustainable development.
The Chinese economy continues to undergo complex structural reforms to ensure balanced and steady development and growth. Business outlook for executives in China appears quite positive. To achieve this growth, numerous challenges combined with global economic uncertainty have to be overcome. Intense industry competition, the pace of technological development, changes in consumer spending and behaviour, difficulty with recruiting employees with advanced skills and lack of trust in business were cited as main threats to growth prospects.
Business leaders today have a great opportunity and responsibility to lead through the disruptions by demonstrating purpose and increasing trust. Find out more from our China report: Leading through disruption.
Head of China Corporate Finance, Inbound/Outbound Leader, Belt & Road Leader, PwC Hong Kong
Tel: + (21) 2323 2609
Partner, PwC Hong Kong
Tel: + (10) 6533 2552