Driver of global growth is shifting from developed to developing markets

23 February 2017 Consultancy.uk

In a new report from PwC, titled 'Winning in maturing markets', the consultancy firm explores how growth markets have been affected by a range of internal and external conditions, and the knock on effect this has had for growth in the near term. While considerable uncertainty reigns in the US, the current long-term prospect for growth market remains positive.

Internal pressures

The firm notes that key growth markets are facing a range of pressures from domestic factors. Across many of the markets, inflation has increased significantly, averaging between 3-5% since 2013, compared to the global average of 1.5%. Export dependent countries, such as those across Latin America, were particularly hard hit.

Commodity price indices

A range of factors have affected inflation levels, including severe weather events reducing crop yields, poor supply chain planning leading to waste and sharp currency depreciations. The consequences of inflation, the firm notes, are wide ranging, from lower domestic consumer consumption to market uncertainty and a flow on effect on production costs.

Changes in domestic policies from key global heavyweights, including China, Brazil and Russia, have had internal as well as global ramifications. China’s moves away from a focus on manufacturing towards services, while also looking to boost internal consumption and reign in investment led growth, has resulted in a lower demand for commodities, as well as lower growth. Brazil has fallen into crisis following the introduction of 'populist policies' that were mismanaged and a corruption scandal which together led to the impeachment of President Dilma Rousseff. Russia has continued to find itself in a period of low growth as lower commodity prices and international sanctions bite into key revenue streams, resulting in a 3.7% contraction in 2015; inflation hitting 15.5% in 2015; while capital investments felling 10% in 2015.

Capital flows to growth markets

External pressures

While internal pressures have affected China, Brazil and Russia, external factors too have had considerable impact on the respective economies. The drop in commodity prices have hit Russia and Brazil particularly hard, with the countries accounting for in excess of 40% of growth market commodity exports. The US becoming a major oil producer, as well as a wider trends in the oil space, have had further negative effects on growth economies more widely; furthermore, the effect on key growth markets from lower commodity prices have themselves had knock on effects on neighbouring economies, with the World Bank estimating that a 1 percentage point drop in growth in Brazil or Russia has a knock on effect of negative 0.5 percentage points to regional markets over a two year period.

The consultancy firm further notes that the US Federal Reserve's rates increase affected growth markets, making US equities more attractive for global investors; and, in light of regional instability, capital flowed from growth markets into the US. The movement of capital further boosted the strength of the US dollar, which created additional challenges for countries and companies with US-dollar debt, as well as wider impacts to regional currencies.

Share in quantum of GDP growth

Future growth prospects

While growth markets have been hit by both internal and external negative pressures on growth, the longer-term prospects remain relatively rosy – although current US political uncertainty means predictions remain difficult. Growth markets on average, have become the major drivers for global GDP growth since 2010, and will, according to the firm’s analysis, account for 62% of total global growth between 2011 and 2021. Even with the current tougher conditions, growth markets will still account for 53% of the global $5.3 trillion GDP growth for 2017, and, by 2021 the GDP growth of growth markets is projected to increase by a further almost $1 trillion on 2017, while developed markets are to see a small contraction in their total share of continued growth.

High and low risk developing economies

Risk markets

To better understand the current growth and debt levels for growth economies, the consultancy firm mapped government gross debt against GDP growth for 2016. The measures, the firm argues, provide insight into the relative risk profiles of the respective markets.

The analysis suggests that particularly the Latin American economies of Brazil and Argentina find themselves in potential strife, facing high debt and low growth – with Argentina also facing risks from high inflation. Angola and South Africa too find themselves in the uncomfortable position of high debt with low growth.

Egypt and India, among others, while highly indebted, continue to enjoy strong economic growth, while some countries that find themselves in contraction, such as Nigeria and Russia, do not face considerable pressures from their debt. The research notes a range of countries whose debt to GDP growth ratios remain relatively positive, including Iran, Turkey, Indonesia, Bangladesh, Thailand and China.

David Wijeratne, PwC’s Growth Markets Centre Leader, says, “As we enter 2017, it’s clear that growth markets are on the verge of a new era of leading global growth in which they are projected to enjoy almost two times the absolute growth in GDP as compared to developed markets by 2021, and account for 65% of global growth within the next five years. This will create significant opportunities for private sector players looking to create and deliver value to the billions of people expected to join the middle class in these markets.”

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Project management industry adds £156 billion of value to UK economy

15 April 2019 Consultancy.uk

Project management has grown into one of UK’s largest areas of business over the past decade, amid the increasing ‘projectification’ of work. With the gross value added to the UK economy by project management estimated to be £156 billion, this trend is likely to continue in the coming era.

Despite the huge success of project management in recent years, until now there has been relatively little data available on the size of project activity. As a result, there has been a great deal of debate on things like the number of people involved in the sector, the number of projects, and how it contributes to economic output. Due to this need for clarity, APM, the UK’s professional body for project management (the largest organisation of its kind in Europe, with 28,000 individual members) commissioned economists from PwC to shed light on the industry's economic impact.

The research concluded that the profession makes a more significant contribution to the UK economy than the financial services sector. 2.13 million full-time equivalent workers (FTEs) were employed in the UK project management sector, generating £156.5 billion of annual gross value added (GVA). In comparison, the financial services sector contributes £115 billion, and the construction industry adds £113 billion.

Gross value added to UK economy

Commenting on the discovery, Debbie Dore, Chief Executive of APM said, “Project management runs as a ‘golden thread’ through businesses, helping to develop new services, driving strategic change and sector-wide reform.”

Who is a ‘project manager’?

To reach these estimates, PwC’s researchers used detailed models to map out the value of project management activity. They ultimately defined relevant ‘projects’ as “temporary, non-routine endeavours or rolling programmes of change designed to produce a distinct product, service or end result… [with] a defined beginning and end, a specific scope, a ring-fenced budget, [and] an identified and potentially dedicated team with a project manager in charge.”

Building on this, they then went on to define what the act of project management actually is. The job consists of applying “processes, methods, knowledge, skills and experience” so that clients can meet their objectives and bring about planned outputs or outcomes. The analysts added that this includes “initiating the project, planning, executing, controlling, quality assuring and closing the work of an identified and dedicated team according to a specified budget and timeframe.”

Importantly, it should be noted that the profession is not exclusive to only roles explicitly labelled as ‘project manager’, but to any role where specialist project management skills are used. This means that across sectors these roles can have very different titles, from the self-explanatory contract managers of procurement, or the campaign managers of advertising, to the likes of festival co-ordinators in the events sector, and many more. The roles in question also span all strategic levels of the profession, from strategic to tactical and operational positions.

Gross value added of project management profession

From a sector perspective, the financial and professional services, construction and healthcare industries make up almost two-thirds of the total project management GVA. At the same time, understandably, the UK Government has a huge project portfolio, which further drives the size of the GVA the sector contributes, thanks to megaprojects like HS2 and Crossrail.

Commenting on this to the report’s authors, Oliver Dowden, Minister for Implementation remarked, “Project delivery is at the heart of all Government activity, whether it’s building roads and rail, strengthening our armed forces, modernising IT or transforming the way government provides public services to citizens. Getting these projects right is essential if we are to ensure that we build a country that works for everyone.”

Throughout 2019, 26 major government projects were delivered, representing a fifth of the overall Government Major Projects Portfolio (GMPP) of 133 projects. According to the IPA annual report 2017-18, these represented a whole life cost of £423 billion. In addition to this were a plethora of smaller scale projects, and those in early development.

Elsewhere, with the increasing digitalisation of the economy impacting entities of all shapes and sizes, IT and digital transformations tended to dominate the projects of the UK scene alongside new product development projects, with a respective 55% and 46% of organisations in the research sample having undertaken these types of project in the past year. At the same time, this varied across sectors, and unsurprisingly, in the construction and local government sectors, fixed capital projects were the main project type undertaken.

Outlook

Looking to the future, 40% of business leaders expect project management will grow in the coming years due to the increased use of projects – or the ‘projectification’ of the UK. In a trend that has been witnessed elsewhere, organisations have to rapidly and continuously change in the digital age of business, driving the need for project management.

Outlook for project management services

An increased focus on value over cost – especially in the construction sector – and a forecast increase in the number of international projects are predicted to be key drivers of growth, according to the expert contributors. However, this will not happen in the absence of challenges; more than half of organisations expressed concern over the perceived impact of political uncertainty in the UK. Skills and capability shortages were also cited as a potential barrier by a third of organisations.

With regard to budgets, meanwhile, a third of those surveyed by PwC said they expect the size of project budgets will increase in the coming three years, while 40% anticipate a growth in project size. As the profession continues to mature, and as the recognition of the importance of good project management grows, it is expected that a greater proportion of project work will gain more distinct attribution to the profession itself, giving more recognition and appreciation to the role of the project manager.

Speaking on the findings of the study, Sandie Grimshaw, a Partner at PwC, concluded, “The project management profession is relatively new compared to some other professions, such as lawyers, teachers and doctors. However, as project management is a core competence vital to organisations in the UK, the profession is critical and will continue to grow in stature.”