Construction markets in CIS countries recovering after downturn

2010-08-25

The construction industries of the three largest former Soviet Union countries are still in the red but are showing some signs of recovery. Whereas Russia and Kazakhstan may even experience moderate growth this year, Ukraine will probably not follow in their footsteps until 2011.

The Russian construction industry bottomed out in mid-2009 and has been reviving slowly ever since. In H1 2010, the industry was still declining in year-on-year terms, albeit at a much more moderate rate than a year before. With an increasing number of residential and non-residential projects resumed after having been put on hold in 2008 and early 2009, and many new projects being announced, we expect the Russian construction market to return to growth in the next few months. The regions which are pulling the construction market into recovery include the Krasnodar and Primorsky territories, which have been growing by about 20% so far this year. Extensive development projects are being implemented in these areas. Sochi, Vladivostok and the surrounding areas have been turned into huge construction sites, as both cities will serve as hosts for major international events: the 2014 Olympics and the 2012 APEC Summit. These developments include sports facilities, conference venues and hotels, along with residential, retail and numerous infrastructure projects designed to transport guests and visitors to and from event venues. In the next few years the very substantial spending envisaged for roads, bridges, airports, railways and ports will provide a major boost for the civil engineering market and for the construction industry as a whole.


Source: Rosstat, 2010

In Kazakhstan, the slump in the construction market last year was not as dramatic as it was in the other two countries discussed, despite the sharp decline, in excess of 10%, in H1 2009. In the current year, the domestic construction market was still shrinking, but the outlook is, by and large, positive. As in Russia, this is mostly because of infrastructure development, as building construction remains subdued. So far this year there has been a reduction in real terms in investment in residential construction in comparison with H1 2009, despite the support provided by the government for this subdivision of the market. Non-residential construction across the country has also not yet recovered, as developers are waiting for demand for commercial property to pick up.
For 2010-2014, the Kazakh government has rolled out an extensive Transport Infrastructure Development Programme, which envisages infrastructure spending of $16.7bn. Between 2010 and 2012 alone, Kazakhstan will spend $9.3bn on road construction projects. The most extensive project to be implemented for this purpose is the Western China-Western Europe highway, the Kazakh section of which will be 2,787 km long and will cost $5.6bn.

Source: Agency of Statistics of the Republic of Kazakhstan, 2010

Last year, the monetary value of completed construction projects in Ukraine was halved. This was one of the steepest declines in construction anywhere in the world. In H1 2010, the industry has continued to shrink at a rapid pace, albeit more slowly than a year before.
The Ukrainian construction industry is, at present, focusing on the completion of projects, such as stadiums, airports, roads and hotels, associated with the Euro 2012 Football Championship. After the UEFA’s December 2009 decision to confirm Kyiv, Donetsk, Lviv and Kharkiv as host cities, investors and property developers can be certain that their projects are free of the risk that some Ukrainian cities will be deprived of the honour of organising the event. Construction work associated with Euro 2012 will also receive a boost because the new president, Viktor Yanukovych, and the new prime minister, Mykola Azarov, will want to prove their commitment to carry out proper preparations for the most significant event in Ukraine’s modern history. In 2010, construction work on many Euro 2012 projects will already be in full swing, but certain problems with funding, particularly in the private sector, will persist. We therefore expect that 2011 will be the peak year in terms of the construction of Euro 2012 facilities, and that these projects will continue until the start of the tournament. Recovery in the Ukrainian construction industry is, therefore, not expected to be seen before next year, but pre-crisis construction output levels may be seen again in the next five years.

Source: State Committee of Statistics of Ukraine, 2010


The article was based on the „Construction sector in CIS countries. Russia, Ukraine, Kazakhstan – Development forecasts for 2010-2012” report published by PMR Publications in July 2010.

Robert Obetkon
Senior Construction Market Analyst
PMR Publications