POLAND The recent financial data published by construction companies, and most of all by those listed on the Warsaw Stock Exchange, show that we can start thinking about the beginning of the end of the crisis. However, there are also other figures that might put a damper on this optimism. Orders from state institutions can have a positive influence on the order portfolios of builders. The budgeted expenditure on infrastructure is to amount to app. PLN 500 bln by 2020, according to Deloitte’s estimates. These funds should help the construction industry to exit the crisis, argues the consultancy. The growth in public-private partnership projects is another lifeline for the sector. The growing number of tender procedures organised by the General Directorate of National Roads and Motorways (GDDKiA) will also have a positive influence.
Only for the chosen ones
Public procurement is a godsend in these difficult times for construction companies – but perhaps only for the larger ones. But after all the perturbation caused by such contracts over the last few years as well as a few related bankruptcy cases, construction companies might now be more cautious in biting off more than they can chew in terms of large infrastructural projects. The health of construction companies, particularly the largest ones listed on the WSE, is some indication that the strength of the sector has been improving of late. According to the data of the Polish Central Statistical Office (GUS), construction and assembly output in the January–July 2014 period increased by over 7 pct y-o-y compared to a reduction of 17.7 pct a year earlier. The sales of construction companies listed on the WSE also grew in H1 (by 6 pct) compared to the same period last year. This is encouraging, however, as Wojciech Trojanowski, a board member at Strabag, points out: “You need to consider the fact that we had a mild winter this year, whereas the previous year it lasted until April, which meant a long dead period for the construction industry.” Nevertheless, Deloitte’s analysts forecast further growth in assembly and construction output by the end of 2014, as well as improved growth dynamics compared to the whole of 2013. What else is there that points to a modest improvement in the market? One factor that does is certainly the higher demand for building materials in 2014 compared to the previous year. “Deloitte’s data on the production of ready-mixed concrete is a good gauge of the present health of the sector, because such material cannot be stored and is only manufactured to order,” explains Wojciech Trojanowski of Strabag. Production in Q2 2014 was as much as 5.3 mln cubic metres – 7 pct higher than the same period in 2013. There was also an improvement in terms of the bankruptcies of construction companies. “We are no longer seeing such spectacular bankruptcies as in previous years, although some do still happen,” admits Maciej Krokosiński, the manager of Deloitte’s audit department. In H1 of this year 84 construction companies went bust. For comparison, in H1 2013 there were 106 such companies (according to Coface’s data).
Turning the corner
The improvement in the situation is also having a positive effect on the performance of construction companies on the stock exchange. “We still cannot say that the crisis is over. So far all we can say is that construction companies have got through the worst of it and can probably look to the future with some optimism,” added Maciej Krokosiński. The health of the construction sector is closely related to the overall economic climate in the country. The current forecasts for economic growth in Poland are good, even though we have to factor in the situation beyond our eastern border. But still it is EU funds that are the real driver of the construction output. “It has not been specified yet, but in 2014-2020 Poland could obtain as much as EUR 30 bln for infrastructural projects,” claims Jarosław Dąbrowski, the director of Deloitte’s financial consultancy department. He goes on to add that infrastructural projects make up a third of our construction market. Unfortunately, according to the representatives of construction firms, the differing risks related to the implementation of contracts in the public sector are still a barrier in terms of the growth of the Polish construction sector. Jarosław Dąbrowski believes that it is necessary for the price criterion not to be the dominant factor in tenders because this stipulation harms firms and projects alike. The residential, office and industrial construction markets in Poland are each of a similar size. And this state of affairs is not something that depends on negotiations in Brussels, but on the general economic climate and incentives from the government, such as affordable mortgage schemes. “The future of the construction sector in Poland through public-private partnerships should have been an established fact by now, in terms of light rail projects and those for hospitals and car parks. But in Poland these are still small and less significant projects,” complains Jarosław Dąbrowski. One barrier in the way of a broader application of the PPP formula is the current lack of knowledge and experience on the public sector’s side and the difficulties involved in combining PPPs with EU funds.
