Global infrastructure construction continues to be a key driver of overall construction industry activity, according to a report by GlobalData.

Governments worldwide have been investing in projects to generate economic growth momentum, and helping to offset weakness in other construction sectors, notably residential buildings which has been hit hard by the recent hikes in interest rates.

Although high interest rates, along with high construction costs, labor shortages and fiscal challenges, present downside risks to growth in investment, infrastructure construction (which includes roads, railways, power and electricity, water and sewerage, and other infrastructure such airports and ports) is set to expand by 10.7 per cent in real terms in 2023, following average annual growth of 4.3 per cent in the past five years. In the coming five years, infrastructure construction will grow at an annual average rate of over 5 per cent.

US and China

The positive outlook reflects major spending plans in key economies, notably the US and China. In the US, infrastructure activity (including energy and utilities) was weak in 2022, but infrastructure growth will pick up as the Infrastructure Investment and Jobs Act (IIJA) comes to fruition. Funds from the IIJA will be spent over the next ten years, including $550bn in new spending over the next five years. Of the total, $284bn will be spent on improving the transportation network and the remaining $266bn on improving core infrastructure. Some of the major allocations over the next five years include $110bn for roads and bridges, $66bn for railways, $73bn for power grids, $65bn for broadband infrastructure, and $55bn for drinking water projects, among others.

Although China’s construction industry is being severely impacted by the financial crisis in the real estate sector, the government is investing heavily in infrastructure to drive the economy. The growth of the construction industry will, however, be supported by a substantial increase in public investment in the infrastructure and energy and utilities construction sectors.

As part of the 2023 Annual Budget passed in March 2023, the government allocated CNY61.9bn ($9.2bn) in transport investment, including CNY17.8bn ($2.6bn) for road and water transport works, CNY39.9bn ($5.9bn) for railway transport and CNY3.2bn ($474.4m) for air transport, among others. The growth in the construction industry will also be supported by greater investment and development by regional governments. In April 2023, Shaanxi Province announced that it is processing infrastructure developments this year with a total of 587 basic construction projects totalling CNY225.7bn ($33.5bn), with an annual planned investment of CNY58.8bn ($8.7bn). Of that total, 496 are government investment projects, including 18 preliminary projects and 478 construction projects totalling CNY40.7bn ($6bn).

India investments

Infrastructure investment across other parts of Asia Pacific is also growing fast, driven by the need to invest in improved infrastructure and greater capacity given population growth and increasing urbanisation in emerging nations. In India, for example, in August 2023, the Cabinet Committee on Economic Affairs approved seven railway projects with an investment of INR325bn ($4.1bn) to construct a 2,339km rail network.

The road network has also been expanding; according to the Ministry of Road Transport and Highways of India, the length of the road network has increased by 59 per cent since 2014, rising from 91,287km in 2013-14 to 145,240km in 2022-23. In Indonesia, in the 2023 state budget, the government allocated IDR392 trillion ($25.8bn) for infrastructure spending in 2023, up 7.8 per cent from the 2022 budget allocation of IDR363.8 trillion ($23.8bn). The government is focusing on completing strategic priority infrastructure projects before the end of President Jokowi’s term in 2024. Further investment as part of the National Medium-Term Development Plan (RPJMN), under which the government plans to develop 5,000km of new toll road, 3,000km of new national road, 38,726m of bridges, and 31,053m of flyovers and underpasses by 2024, will also drive growth in the infrastructure construction sector.

There will also be relatively fast growth in Sub-Saharan Africa, a region that has significant infrastructure needs. In Nigeria, in the latest budget, the government allocated NGN803bn ($1.6bn) to the Ministry of Works & Infrastructure for the construction and rehabilitation of roads and railway projects, and for the construction and renovation of various bridges in every geo-political zone of the country. In August 2023, the Niger State Government signed a contract with a private consultancy firm, BENIJ Nigeria Limited, to provide consultancy services for construction of 556km of roads across 25 local councils of the state. Growth in the infrastructure sector is also being supported by investments as part of the National Development Plan 2021–25. The plan is to increase the length of the total paved network, increase the country’s cargo handling capacity and aviation passenger traffic and increase the percentage of the road network under scheduled maintenance and repair, among others. The estimated public investment to achieve these goals is NGN7.7 trillion ($185.4bn) from 2021 to 2025. When considering infrastructure construction output as a percentage of GDP, many of the highest spending markets are in Sub-Saharan Africa, notably Ethiopia, Tanzania, Zambia and Nigeria, all of which have relatively poor-quality infrastructure. China has suffered substantial losses on the loans it granted to multiple countries, and it has become evident that several countries in the region, including Angola and Ethiopia, may struggle to repay the debt they owe China.

Middle East

In the Middle East and North Africa (Mena), revenue surpluses for the oil and gas rich nations are providing scope for the acceleration in investments across the construction industry as these countries continue to pursue aggressive diversification projects. The government in Saudi Arabia is committed to major transport projects to stimulate the economy, not least with ongoing investment to improve transport links under metro systems and rapid transport projects. There will also be significant investment relating to Saudi Arabia’s giga-projects, including Neom.

In May 2023, Webuild, in collaboration with Shibh Al Jazira Contracting Company (Sajco), signed a $2bn contract for the construction of the Connector South rail line to link the industrial city of Oxagon with The Line development, spanning a 57km high-speed railway line along the north Red Sea coasts in the Neom region. Under the Saudi Vision 2030, the government has set ambitious targets for renewable energy capacity, aiming to increase it from 4.9GW in 2021 to 27.3GW by 2024 and 58.7GW by 2030. Of the total, 40GW will be generated through solar PV, 16GW through wind power, and 2.7GW by wind and concentrated solar power (CSP) by 2030. Additionally, the country has committed to becoming carbon neutral by 2060 and generating 50 per cent of its energy from renewable sources by 2030. Across the Mena region, Qatar and the UAE stand out as having relatively high levels of infrastructure construction output as a percentage of GDP and also having relatively high-quality infrastructure.

Across Europe significant government spending backed by EU funding under the EUR750bn Recovery and Resilience Facility (RRF) will support construction works in infrastructure and energy and utilities. Other funding programs will also provide support. For example, in June 2023, Poland received PLN4.4bn ($906.8m) in funding from the EU's Connecting Europe Facility (CEF) for Transport, which is the funding instrument to support investments in building new transport infrastructure in Europe or rehabilitating and upgrading the existing one. The funding for Poland will support 11 transport infrastructure projects, including three railroad projects, three multilateral projects, two maritime projects, two Polish-Ukrainian railroad and road projects, and the Rail Baltica project that connects Poland with the Baltic countries. However, progress on key projects across Europe could be impacted by elevated materials prices, rising labour costs and skill shortages, and high borrowing costs. These challenges have already begun to impact project viability, notably with the UK government cancelling the Birmingham to Manchester section of the High-Speed 2 project, part of its flagship ‘Levelling-up’ commitment, in October 2023 as costs spiralled.

Latin America

In Latin America, although higher commodity prices provide scope for optimism, especially for resource-oriented exporters, investment in infrastructure will be hampered by high levels of public debt, supply chain disruptions, rising inflation, and growing political and social tensions. In Brazil, In August 2023, the Brazilian president announced an investment of BRL349bn ($64.4bn) on transport infrastructure, as part of the Growth Acceleration Program (PAC). Under this program, the government plans to implement major transport infrastructure projects such as Macae Airport Expansion and Modernization project, the 1500km Brazilian East West Railway project, and the High-Speed Railway System project. The Brazilian government is expected to allocate BRL70bn ($13.7bn) to the transport ministry during the four-year term of Luiz Inácio Lula da Silva, which ends in December 2026. Over the long term, the infrastructure sector’s growth will be supported by the government’s target to increase the share of rail in the total freight transported from 21.7 per cent in 2017 to 35 per cent by 2035.

Meanwhile, in Mexico, infrastructure construction is expected to grow sharply in 2023, reflecting the surge in activity as President Andrés Manuel López Obradorto seeks to complete major infrastructure projects, including several ongoing highway projects, by the end of his term. In August 2023, the 169km Mitla-Tehuantepec II highway worth MXN32.1bn ($1.6bn) had reached 88 per cent completion. The 96.7km Acayucan-La Ventosa highway having with an investment of MXN5.4bn ($262.6m) had reached 93 per cent completion. Although the sector’s output value will drop back, it will remain relatively high and will continue to be supported by investments in road and railway infrastructure projects.