Silk Road revamp creates potential for Chinese expansion

15 June 2017 Consultancy.uk

China is set to invest trillions into regional economies as it seeks to improve its trade corridors, transform is economy and improve its cultural connection with its neighbours. The investment is largely set to revitalise the ancient Silk Road between China and the West. Investment last year totalled around $186 billion, representing around 2% of global investment demand from developing countries over the next decade.

In a new report from PwC, titled ‘Repaving the ancient Silk Routes’, the planned Belt & Road (B&R) investments are considered in light of planning as well as wider investment outlook and potential for businesses across the Silk Road region of China.

The Silk Road dates back more than 2000 years, when Chinese regional emperor Han Wudi incorporated its construction into plans to connect the region with the western empires and city states. The road was broadly successful, creating a corridor of information and trade between the provinces.

In 2013 President Xi Jinping announced plans to invest trillions in a revitalisation of the ground connection between China and regional and cross continental countries. The plan, called the ‘belt and road’ project, involves up to $4 trillion in investment over the coming decades, with up to 65 countries connected to China’s economic network through rail and other land transport options. The aim of the project, among others, is to improve international trade flows – as well as longer-term cultural and economic influence.

Goals for B&R project

The B&R project has a number of primary and strategic goals for China. Key among them is to increase exports and facilitate trade, while addressing the country’s surplus in industrial capacity and enhancing its geopolitical sphere of influence across the region. The country also has a number of strategic goals, some of which correspond to its primary goals. These include the establishment of a global infrastructure capacity, internationalised and diversified currency risks as well as continue the country’s wider economic reform policy – which sees it move away from focus on manufacturing.

Developing market infrastructure demand

Demand for investment in infrastructure projects across developing countries between 2015 and 2025 is estimated to come in at around $10 trillion. Investment from China in B&R countries is set to hit a total of around $4 trillion of that during the project as a whole.

In 2016 Chinese organisations invested a total of around $186 billion into B&R countries. Policy banks invested the biggest segment at $110 billion, followed by Chinese commercial banks at $67 billion. The Silk Road fund contributed around $6 billion while multilateral banks accounted for $3 billion.

Belt and road projects averaged around $600 million each in the categories of construction, energy & utilities and transport – all up from the previous year – while social projects increased from around $100 million each to close to $200 million.

New Eurasian land bridge

The project has various extensions. One of the major extensions is a railway connection between China and Europe, the plan for which was released in October last year. The connection, which passes through Kazakhstan and Russia, before entering Poland and Germany, saw the first train bring various goods, from homeware to clothes and socks, to western Europe, while heading east are precursor materials, and a range of foodstuffs.

The new connection plan included a link between Zhejiang in eastern China to Barking, East London, and saw the time for goods crossing the regions fall to 18 days, having been transported 12,000 km, a distance around half that of other options – while at the same time providing access to a range of stops along the way.

Region-wide investment

Regional connections

Another area of major investment comes closer to home, with various projects aimed at extending regional corridors, with plans for ten cross national highways and a high-speed railway included in the scheme. The rail project, with a $23 billion investment price tag, connects China with Singapore and travels through various countries in between. The railway project, which currently passes through five countries, is planned to be completed by 2026. Various agreements have been signed with regional players joined forces with China to develop the project.

Chinese Pakistan economic corridor

One of the larger projects in the B&R project more widely is a $46 billion investment in Pakistan. The investment includes both energy and transportation development across the region. In total $34 billion is to be invested in energy, including various energy projects that will add around 1 GW of capacity in the form of fossil, as well as renewables to the grid in Pakistan.

In addition around $12 billion will be invested in various transportation projects, including 2,000 miles of railway that connects Kashgar to Gwadar, various new highways, a fibre optic network, as well as airport upgrades and port upgrades.

Commenting on the potential of the project for global businesses David Wijeratne, PwC’s Growth Markets Centre Leader, noted that the B&R initiative had already seen multiple stories of successful partnerships resulting in mutual benefits. However, Wijeratne also warned that, "companies need to fully understand the potential risks of infrastructure projects, especially those unique to B&R in order to prepare for success. Acknowledging that B&R projects are different, companies can enhance their chances of success by taking proactive actions."

Related: R&D and innovation spend increasingly moving to China (Strategy& study).

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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.”