FDI projected to return to pre-crisis levels by 2017

03 August 2015 Consultancy.uk

Foreign direct investment (FDI) totalled $1.26 trillion in 2014, well down on the 2007 peak of around $2 trillion, a report from A.T. Kearney shows. The consulting firm finds that while investment in developing markets has reached record levels, investors remain jittery from, amongst other, the macroeconomic situation of modest global growth. In the medium term, confidence that FDI will return to pre-crisis levels remains high, with 83% of respondents expecting to be back at pre-crises levels by 2017.

In its yearly analysis, run since 1998, A.T. Kearney’s ‘Foreign Direct Investment Confidence Index’, uses primary data from a proprietary survey administered to senior executives of the world’s leading corporations. In its 2015 edition ‘Connected Risks: Investing in a Divergent World’ the consulting firm explores the global value of FDI as well as current trends affecting investors’ future investment behaviour.

World FDI inflows

FDI flow
Optimism in the global economy remains lacklustre, with an expectation of a ‘new normal’ in terms of GDP growth at around 3-4% globally. Of the respondents, 15% say they are more optimistic than a year earlier and 46% say they are somewhat optimistic, the combined optimism of 61% is well down on 2014’s reported optimism for the future at 79%.

Following the economic crisis and recovery, FDI levels have fluctuated. The level of FDI in 2014 was down 8% to $1.26 trillion on a year earlier, and down from its $2 trillion peak in 2007. There has also been a change in trend, away from investment in developed economies (down 14%) toward an increase in developing economies – now at a new high of $700 billion, or 56% of the global share.

FDI inflows by region

Regionally, the drop in investment is particularly pronounced in the US, where there was a drop off from $302 billion to $139 billion. Europe however saw a relative increase in investment, almost back to its 2012 levels, up from $225 billion in 2013 to $305 billion in 2014. Developing Asia takes the biggest slice of investors’ money, up from $427 billion to $492 billion in 2014.

Return to pre-crisis level

Investor confidence
Investors continue to be less confident in their investment activity than before the crisis, with the absolute value of investments still well below the 2007 peak. There is however a continued upward trend in investment confidence. Of the companies surveyed, 19% say they are already investing at pre-crisis levels, while 18% expect to do so within the coming year. The biggest group of respondents (29%) say that in 2016 they will be investing again at pre-crisis levels, while 17% say it will take until 2018 or later. This represents a considerable softening of expectation from the previous survey, where 86% expected to reach pre-crisis levels by 2016 – now only 66%.

The biggest reasons for the low confidence in FDI comes from uncertainty in the macroeconomic situation, as cited by 42% of respondents, while a lower risk tolerance is indicated by 31% as an issue. The lack of quality targets is only an issue for 21% of respondents, while a lack of funds holds back 17% of respondents.

Reasons for not recovering

Wild Cards
In terms of ‘wild card’ events that could turn confidence further, around 45% of investors mention an increase in geopolitical tensions in the Americas and Europe. An economic crisis in emerging markets and developing markets is rated by investors at between 25-31% and a decrease in political tension in the Americas, Europe and Asia is seen a likely to occur by 16%, 11% and 15% respectively.

Wild cards

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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.”