Pole position. Steve Skinner looks at the resilience of the Polish market.
24 November 2009
Poland represents Europe's construction hot spot at present as infrastructure projects, many linked to the 2012 UEFA European Football Championship, mean construction output has remained positive throughout the past 12 months. What's more, this positive growth is expected to continue into 2010 and 2011.
According to latest Eurostat figures, a comparison of the second quarter of 2009 against that of 2008 shows that Polish construction output grew +0,5%, while between June and July of this year that accelerated to +5,2%.
The only other country in Europe as a whole to show positive growth was Germany, where output grew +1,9% from July 2008 to July 2009. That said, from June to July this year output fell back to record a -2,3% decline.
Elsewhere, the construction industry in Central and Eastern Europe (CEE) has suffered declines. Eurostat's second quarter 2009 figures compared to the same period in 2008 show that Lithuania suffered the most with a drop in construction output of -48%. Slovenia saw a decline of -19%, Romania -15,5%, Bulgaria -10,8% and Slovakia -5,4%.
Meanwhile, Estonia, Latvia and Hungary saw declines in output of -31,3%, -29,8% and -4,5% respectively comparing the first quarter of 2009 with that of 2008 (no second quarter figures were available).
There is however, reason for optimism in Romania and Bulgaria as May to June 2009 figures show growth of +9,3% and +1,5% respectively.
Strength
Anna Gaspar, managing director of Hungarian construction market research organisation Buildecon told CE, "Our latest research shows the CEE region will be one of the strongest in 2010 and 2011 with construction output in the Czech Republic, Hungary, Poland and Slovakia growing +6,1% through to 2011, up to € 87 billion from € 82 billion in 2008."
"Despite a small -0,4% drop in the Eastern Eight countries of Bulgaria, Croatia, Romania, Russia, Serbia, Slovenia, Turkey and Ukraine, we still forecast that construction output in 2011 will be over € 207 billion, which means the combined output for the region will be approaching € 300 billion."
In context, the 15 largest Western European countries will have an expected construction output of € 1,3 trillion in 2011, down from € 1,45 trillion in 2007.
While Western Europe is a larger market, the gap to the CEE region is closing. Buildecon forecasts that by 2011 the CEE market including the Eastern Eight will be almost a quarter the size of that in Western Europe, which represents a significant advance.
Music
Strabag, one of the largest contractors in the region, believes that despite temporary declines in construction activity across much of CEE, the need is there and construction potential is tremendous.
Christian Ebner, Secretary General at Strabag, told CE, "At the end of the day, we should not forget that all the countries in the CEE region have needs, and their markets are not going down to nothing, they're going down by -5 or -6% and they will come back again.
"After every road has been paved, there are still so many water treatment plants that need to be built and so much soil regeneration to be done that we'll be busy in the region for the next 50 years."
In June this year a Strabag led consortium was awarded the largest construction and concession contract in the company's history, in the shape of a 106 km long section of the A2 motorway between Nowy Tomysl in Western Poland and Swiecko on the German border.
The consortium reached final close for the € 1,6 billion project (of which € 1,3 billion will be used for construction) in the last week of August and work on site is already underway according to Mr Ebner.
"This project shows that, even during difficult times, a good project with professional partners is capable of arranging a high level of finance," said Dr Hans Peter Haselsteiner, CEO of Strabag. "This order cements our position as the number one in road construction in Poland."
The concession, operated by Strabag, will run through 2037 and means Poland now represents Strabag's second most important market after Germany.
Mr Ebner told CE, "For the next five years Poland will keep us so busy that we will not have much capacity available for other projects anyway. Poland really is where the music's playing!"
Such sentiment is supported by market research organisation PMR, which forecasts in its ‘Road construction is turning the corner' report that road construction output in Poland will grow by +13% each year between now and 2012 and that by Euro 2012, some 1000 km of additional national roads and motorways will have been constructed.
In the company's ‘PLN 95 bn to be spent on projects related to Euro 2012 in Poland' report, author Bartlomiej Sosna estimates that investment projects in Poland related to Euro 2012 will total € 21 billion, with 52% (€ 10,9 billion) assigned to road transport projects including work on the A1, A2 and A3 motorways and the S3 and S7 expressways.
Railway transport will benefit from € 6,7 billion of investment, while the stadiums themselves will account for € 1,4 billion.
"Organisation of Euro 2012 and the enormous amount of EU funds are the best things that could happen to the Polish construction industry," said Mr Sosna. "If just 80% of the planned projects reach fruition, they will amount to € 16,5 billion, which matches the construction output recorded in 2008.
"Over the next three years, projects related to the championships will come to the construction industry's aid and they will provide a stimulus for the industry going forwards," he said.
Following a visit to Poland and Ukraine earlier this year, UEFA President Michel Platini said, "We have seen progress over the last few months but we must remind both countries that there is still a huge amount of work to be undertaken.
"There are numerous infrastructure issues that urgently need to be resolved in Ukraine to convince the UEFA Executive Committee that the candidate venues can be appointed as host cities," he said.
UEFA said it will visit both countries again in December to review progress, and depending on its findings, some games may be rescheduled to be played at alternative stadiums.
Belarus
While Poland clearly leads the way in construction activity on the back of its Euro 2012 commitments, Belarus too is enjoying sustained growth, with PMR's Robert Obetkon confirming that in the first half of this year construction output increased by +25%.
Mr Obetkon said, "Construction activity is concentrated in Minsk and the Minsk province and this is reflected by a +12% growth in residential construction." Major infrastructure projects are also attributing to the growth with the € 1 billion Zelva coal power plant and a € 3,4 billion nuclear power plant both under construction, alongside the € 3 billion Minsk City project.
Outlook
While there has been a decline in construction activity across much of CEE, PMR Research believes Poland and Belarus have achieved considerable success in tackling the impact of the global downturn.
The Euro 2012 Championships will continue to have a positive impact through 2010 and 2011, particularly in Poland, while according to PMR Research, EU-funded investments over the coming years will prevent most of the region's construction markets from descending into an abyss.
Strabag's Mr Ebner concluded, "I believe environmental technology is the most important topic. Even non-EU countries have a strong environmental desire and this will be a key driver in the future of construction in CEE."
