Emerging markets economies increasingly vulnerable

13 April 2016 Consultancy.uk

Following the slowdown in China and geopolitics around oil, commodity prices have slumped and are expecting to stay low. At the same time, strong growth in the US has seen the Federal Reserve increase rates, pushing up the dollar. Low returns on exports and higher costs to service foreign debt, a new report finds, are making the economies of emerging markets increasly vulnerable.

Stimulating the pieces
The economies of the developed world have undergone considerable upheaval as a result of the 2008 financial crisis. Following the sub-prime mortgage meltdown and the resultant bailing out of too big to fail financial institutions, many of the world’s developed country found themselves in strong recessions, with high levels of unemployment.

central bank negative rates

In recent years, a number of policy initiatives have been introduced to increase the availability of money to spur economic growth. Large quantitative easing programmes have been launched by the ECB and the US Federal Reserve. In addition, interest rates are sitting at historic lows, with the ECB setting negative interest rates to encourage banks to put their money to use. While Europe is continuing to stimulate its economy through low rates, the US, in response to improving GDP and employment figures, has started rising interest rates as it begins to wind down stimulus programmes.

The policy interventions have managed to stabilise headline GDP growth within developed economies. Across the Eurozone as a whole, growth of 1.6% is projected for the coming year, and, when looking more specifically at individual countries, GDP growth in the UK is projected to be around 2.2% in 2016, while Germany and France will see growth of 1.3% and 1.8% respectively for 2016.

emerging economy growth is slowing

Emerging slowdown
While emerging market growth took hits during the economic crisis, they quickly rebounded and provided for a large part of global growth. Yet, as US and Europe get back on their feet, with improving public finance and employment figures as well as headline GDP growth, emerging market players are finding themselves in some strife.

China in particular has fallen from an average growth rate of 9.4% annual increase over the past three decades to 6.9% last year, with the continuation of the slowdown expected to see growth slow to 6.5% this year and average 5.7% between 2018 and 2022.

Many other emerging economies too, fell considerable in 2015 against the medium term average. Brazil and Russia, in particular, have found themselves in a period of contraction; with a drop against the medium-term average of more than 6% apiece. Turkey and China have both fallen by almost 2%, while India found itself in the enviable spot of slight (1%) growth on its medium-term growth.

Brazilian fiscal weakness and decreased commodity prices

Commodity falls
The causes of economic mire in Russia are relatively well understood, and include sanctions levelled at it as well as a massive reduction in commodity prices, including oil. Commodity prices, following the slowdown in China, have plummeted during 2015. A number of projections created last year, regarding the long term commodity price outlook, were quickly shown to be incorrect, with the latest projection seeing only modest price growth into 2021. Oil in particular, according to the IMF projections, will stay at an average $46/bbl. Which, if correct, will put a persistent strain on the economies and public finances of major oil exporters. 

In Brazil, considerable headwinds are faced by the country as inflation and unemployment are significantly eating into consumers’ ability to sustain the continued growth of the country, while exports and commodity prices further squeeze government finances. The budget surplus that the country has had for more than a decade, up until 2013, has now fallen below the line. This year's GDP is projected to see the economy contract by -3.6%.

emerging market risk profile

Emerging vulnerability
The consultancy also considers the relative risk profile of a range of countries based on their foreign debt, currency movements and current account balances. The country with the highest risk profile is Turkey, which has debts in foreign currencies at 53% of GDP, while its own currency has weakened considerably against foreign currencies – making it harder to service foreign debts. Its current account balance has hit -4.5%. Malaysia is in a similar position, although its current account balance remains positive at 2.2%. Chile, too, is in a highly vulnerable position, facing high foreign debt and a decreased value of its currency.

Medium vulnerable countries include Peru, Mexico, Russia and India. These countries have smaller amounts of foreign debts as a % of GDP, at around 30%, although many have seen their currencies drop considerable in recent months. Low risk countries include China, which has low foreign debt levels and a strong currency, and the Philippines, which too remains in a relatively robust position.

According to the researchers, vulnerability is likely to only last across the short term for many emerging economies, stating: “Overall though, the short term economic outlook for the emerging economies has deteriorated even though many retain considerable long-term potential. We therefore, recommend that our clients stress test their business plans against a lower than baseline growth scenario for major emerging markets over the next few years.”

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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.”