Light at the end of tunnel for the Russian construction industry
According to the “Construction sector in Russia 2009 – Development forecasts for 2009-2012” report recently published by PMR, a research and consulting company, the situation on the Russian construction market began to deteriorate in the second half of 2008 and the slowdown deepened towards the end of the year. Yet thanks to healthy growth figures posted in H1, growth figures for the entire year remained strong. “Without the buffer of a strong first six months, 2009 has witnessed a fully fledged construction crisis, with output, employment and other key indicators for the industry falling sharply.”, according to Robert Obetkon, a Senior Construction Analyst at PMR and the author of the report. In rouble terms and at the time of publication, the Russian construction industry contracted by 18.4% in the first three quarters of 2009. In dollar terms, however, and due to the depreciation of the rouble, the value of the industry plummeted to just $81bn for the period Q1-Q3 2009 – down from $129bn in the same period one year earlier.
Residential construction figures indicate that this segment has thus far not been dramatically affected by the economic crisis. After a 6.5% growth last year, the number of housing units built in Russia underwent a slight decrease during the first nine months of the year. The total floor space of apartments completed (up 4.6% last year) fell by 0.6% in Q1-Q3 2009. However, the decline in housing construction levels is expected to intensify in the upcoming months as hardly any new residential projects are being commenced.
“While residential and non-residential construction activity will remain relatively subdued at least for the next year due to ongoing difficulties in securing financing, most construction contracts will be related to infrastructure development projects.”, says Robert Obetkon. These will serve to boost the overall level of construction activity in the country.
Increased capital expenditure on road and railway construction, as well as airport expansion, will be driven by the federal programme aimed at modernising the country's transport system between 2010 and 2015. This programme will require a total investment of $420bn, of which $147bn will be sourced from the federal coffers. Assuming a conservative scenario whereby only 10% of the programme will be implemented, this will equate to a $7bn annual boost in construction activity each year through to 2015. With the federal budget deficit expected to be 3-7% of GDP over the next three years, much of the funding for Russia's infrastructure projects will have to be provided by private investors through schemes such as public-private partnerships and other non-budgetary sources, which will thus increase in importance.
The projects that will provide a boost to the construction industry in the upcoming years include the first public-private partnership (PPP) projects, signed in 2009. These include the $1.5bn contract for the construction of the first section of a toll motorway between Moscow and St. Petersburg, and the $2.1bn contract for the upgrade of Pulkovo Airport. The PPP scheme in Russia demonstrates great potential: 20% of infrastructure development and modernisation projects planned for the next ten years in Russia are to be financed through PPPs.
Apart from transport infrastructure, substantial investment is also planned in the energy sector. The main projects include the $1.2bn reconstruction of the Sayano-Shushenskaya Hydroelectric Power Plant and the construction of several nuclear power plants. Other major infrastructure projects planned in Russia include the new spaceport, Vostochny Cosmodrome, the construction of which should commence in 2011 and is expected to cost $12.5bn.
An additional boost in infrastructure spending will be provided by the $1bn infrastructure investment fund established jointly in July 2009 by Vnesheconombank, Renaissance Capital Group, the European Bank for Reconstruction and Development (EBRD), the International Finance Corporation (a part of the World Bank), the Development Bank of Kazakhstan, and the international investment company, the Macquarie Group. The fund will invest in the development of Russia's transport infrastructure, power engineering, municipal services, airports, ports, roads, etc.
Russia’s preparations for the Sochi 2014 Winter Olympics and the APEC Summit to be held in Vladivostok in 2012 are also serving to support the country’s construction industry. The total investment related to these two events may well eventually exceed $20bn, of which the lion’s share will be spent on the construction and modernisation of civil engineering structures, such as roads, railways, tunnels, airport facilities and power infrastructure, as well as sports venues (predominately stadiums).
This press release is based on information contained in the latest PMR report entitled “Construction sector in Russia 2009 – Development forecasts for 2009-2012”.
You are welcome to contact the author of the report:
Robert Obetkon, Senior Construction Analyst
tel. /48/ 12 618 90 56
For more information on the report please contact:
tel. /48/ 12 618 90 00
PMR Publications (www.pmrpublications.com) is a division of PMR, a company providing market information, advice and services to international businesses interested in Central and Eastern European countries and other emerging markets. PMR key areas of operation include market research (through PMR Research), consultancy (through PMR Consulting) and business publications (through PMR Publications). With over 13 years of experience, highly skilled international staff and coverage of over 20 countries, PMR is one of the largest companies of its type in the region.
ul. Supniewskiego 9, 31-527 Krakow, Poland
tel. /48/ 12 618 90 00, fax /48/ 12 618 90 08
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