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1803 - Shimizu News Story

¥773 -9.0  -1.2%

Last Trade - 07/08/20

Sector
Industrials
Size
Large Cap
Market Cap £4.25bn
Enterprise Value £4.70bn
Revenue £11.54bn
Position in Universe 204th / 3862

Japan's ageing, labour-starved construction industry gives economy a capex boost

Tue 5th November, 2019 6:05am
* Construction firms are investing in AI and robots
    * Sector's +7.7% Apr-Jun spending jump outpaced overall
+1.9% gain
    * Automation comes in face of construction workers' ageing

    By Daniel Leussink and Izumi Nakagawa
    TOKYO, Nov 5 (Reuters) - As Japan's construction firms are
squeezed by the tightest labour market since the 1970s and a
rapidly ageing population, they are pouring investment into
technology - and providing unexpected support to an economy
reeling from the bitter U.S.-China trade war.
    The industry sees artificial intelligence and robots - which
can that scurry around building sites day and night, preparing
equipment and moving materials for the next day's construction -
as a way to future-proof and close the labour gap.
    But a side effect is that one of Japan's least-productive
sectors is bolstering capital expenditure even as the world's
third-largest economy flirts with recession amid a global growth
slowdown.
    Construction company Shimizu Corp  1803.T , which spent
about 3 billion yen ($27.7 million) for robots over three years,
is a case in point.
    Equipped with state-of-the-art AI, cameras and sensors, the
machines handle everything from transporting building materials
and welding steel to installing ceilings.
    For now, Shimizu estimates the labour savings from the
robots in its construction work to be 1.1%, far off the land
ministry's goal of a 20% productivity boost for the sector by
the middle of next decade.
    But the company hopes to eventually automate three-fourths
of its work as it expands the range of tasks robots perform,
said Masahiro Indo, general manager of its construction
technology division.
    "When it's hot, workers need to take breaks and drink water.
Robots don't need that as they don't get tired, so that's good,"
he said. "Once the robots become smarter, we are looking to
increase the range of work."
    
    MORE PROJECTS
    Construction work has blossomed in Japan under Prime
Minister Shinzo Abe's "Abenomics" stimulus and an infrastructure
boom ahead of the 2020 Tokyo Olympic Games.
    The government is also spending heavily on disaster relief
as the country recovers from a slew of typhoons and flooding.
    Capital expenditure in the sector rose 7.7% in the
April-June quarter - far above the 1.9% gain for all industries
- after a 15.3% jump in the previous quarter, government data
showed.
    That has moderated the pain of a 6.9% fall in manufacturers'
spending.
    Construction firms plan to boost research and development
spending by 15.5% in the fiscal year ending in March 2020,
faster than the previous year's 13.8% gain and 7.7% rise in the
year before that. 
    It was the highest among all sectors, which overall plans to
increase such spending by just 3.3%, the Bank of Japan's
quarterly "tankan" survey for September showed. (Click here for
an interactive graphic of the growth of the construction
sectors' R&D spending: https://tmsnrt.rs/34kYKNo)
    Year-on-year, total capital expenditure in Japan rose for
the 10th straight quarter in the April-June period, helping
gross domestic product (GDP) expand an annualised 1.3%.
    "Construction projects need a long time to complete. That
means once investment starts, the impact lasts for a long time,"
said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan
Stanley Securities.
    "While the short-term boost could be small, construction
investment tends to offer long-term support to the economy."
    
    AGEING WORKERS
    The pain of a small labour pool is made worse by an ageing
population. Japanese aged 60 or older now make up about a fourth
of the construction industry's skilled workers, while those
under 30 are just over a tenth of the total, down from about a
fifth in the late 1990s.
    That means all companies are fighting for workers as the
jobless rate hovers at more than two-decade low of 2.2% and the
number of job openings for every applicant is near its highest
point in 45 years. (Click here for an interactive graphic of
skilled construction sector workers grouped by age: https://tmsnrt.rs/36rHubs)
    There were 5.1 million construction workers in Japan as of
end-August, a 27% decline from 20 years ago.
    Battling such headwinds while enhancing productivity are
crucial, particularly for huge infrastructure projects such as
overhauling the area around one of the busiest train stations in
Tokyo.
    The renovation of the Tokyo Metro Ginza Line's station in
shopping hub Shibuya, handled by Tokyu Construction Co  1720.T 
and other firms is complex and includes moving an entire train
platform.
    In the past, that involved stopping train operations on
weekends and intense training for workers on the project.
    Now, a three-dimensional simulation of the process is shared
among the workers, allowing them to identify potential problems
with construction in advance.
    The computer model reduced personnel expenses for that part
of the project by about 60%, said Fumihiro Ojima, group leader
of the ICT project group in the company's civil engineering
division.
    "We could do things in the simulation model that are
impossible in reality, such as removing a building and looking
at it" from another angle, he said.
    But such changes also bring challenges, such as requiring
older workers to adjust to new technology.
    "Workers will need to improve their skills," said Kentaro
Arita, senior economist at Mizuho Research Institute. "But
that's a high hurdle, and a full-fledged shift could be stalled
if that can't be done."
    
    ($1 = 108.1700 yen)

 (Reporting by Daniel Leussink and Izumi Nakagawa. Editing by
Gerry Doyle)
 ((leika.kihara@thomsonreuters.com; +813-6441-1828; Reuters
Messaging: leika.kihara.reuters.com@reuters.net))
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