ANALYSIS - Macedonian Construction Firms Weather Crisis, Eye Infrastructure Projects

“Even though the construction sector is the most successful in fighting the global crisis, some slowdown can be expected but no halt in business like the one that happened in other industries,” the president of the Construction Association with Macedonia's Chambers of Commerce, Sead Kocan, told SeeNews.

According to him, the Macedonian construction sector is stable, without excessive losses related to the global crisis. The reason why the sector has not suffered any major shocks is the lack of big foreign investments in it or a construction boom, which was the case in other countries in Southeast Europe, said Marija Petroska, an official from the Construction Association with the Economic Chamber of Macedonia.

Kocan, who owns construction firm Trans Met, said that Macedonian companies are not lacking orders but have to take into account the presence of foreign peers developing local projects. 

Currently, Croatia's Konstruktor, Slovenia's SCT, Austria’s Alpine Bau, Strabag and Porr are involved in construction projects in Macedonia, whilst Croatia's Ingra is present on the market as an owner of Macedonia’s Mavrovoinzenering DOO Skopje, Kocan said.

According to Marija Petroska, Macedonian construction firms are operating below capacity, using just 60 to 70 percent of their potential.

Petroska and Kocan agreed that the government’s plan for implementing various infrastructure projects will boost the sector.

According to the draft budget for next year, the government will increase capital expenditures to 22.5 billion denars ($538 million/365 million euro) from 19.2 billion denars in 2009, including 11.8 billion denars for construction works next year from 7.2 billion denars in 2009. The State Roads Agency will receive 4.3 billion denars next year.

In addition to infrastructure projects the government led by Prime Minister Nikola Gruevski has launched several major building ventures, including a national theater, a wax-figures museum, a constitutional court building, sports halls and residential buildings.

Petroska said that housing projects can help hire up to 80% of construction firms in Macedonia.

Macedonia's prospects to join the European Union will make the country more attractive for foreign investors, Kocan said.

"In the pre-accession period, the country must harmonize many technical details with the EU legislation, which in the construction sector refer to upgrading and building new roads, railways and air corridors," he said.

Macedonia was granted a European Union-candidate status in December 2005, but is still awaiting a date for the start of accession negotiations with the bloc. Earlier this month, the European Council delayed its decision for setting a date for the start of membership talks with Skopje until the first half of 2010.

Macedonia will spend 120 million euro ($177 million) to upgrade regional roads and to build new motorway sections through concession arrangements in the next few years as part of plans to bring its road infrastructure up to EU standards, the head of the State Roads Agency, Natasa Volkanovska, told SeeNews last year.

Petroska said that most road repairs are assigned to the biggest Macedonian construction companies: Granit, Beton Skopje AD, Mavrovo Inzenering and Ilinden AD Struga.

Granit AD Skopje said earlier it has signed two agreements with the State Roads Agency for road upgrades worth a combined 426.2 million denars.

Last year Macedonia signed a 70 million euro loan deal with the World Bank to finance upgrades of its regional and local roads. In January, the European Bank for Reconstruction and Development (EBRD) said it will lend 50 million euro to Macedonia for upgrading roads.

Macedonia can expect an additional 100-150 million euro from EBRD next year as financial support for infrastructure projects, the Macedonian Finance Ministry announced earlier. The crisis, however, has delayed some major projects like a 240 million euro investment of Turkish TAV in the modernization of the airports in Skopje and the lakeside resort town of Ohrid. The revamp of the airports is expected to start in March 2010.

Apparently unfazed by the crisis, some foreign investors are keen to implement their projects in Macedonia as planned. For example, Hungarian businessmen will launch the construction of a 18 million euro shopping centre in Tetovo, in northwestern Macedonia, at the beginning of next year.

Petroska said the construction sector is an engine of the economy which can spur growth in over 30 other branches such as metal, wood and chemical industries. Yet, she does not expect the share of construction industry in the country's GDP to increase this year or next.

Construction contributed 5.1% of Macedonia’s gross domestic product (GDP) in 2008, down from 5.9% in 2007.

The president of the Services Chamber with the Chambers of Commerce, Darko Velkov, said earlier that the construction sector has a great potential to develop as foreign majors have not entered the country yet.

Kocan said the construction sector in Macedonia faces the same problems as other industries: lack of credits, high interest rates, old machines and equipment. Official Macedonian statistics indicated the most constraining factors in the third quarter were lack of demand, shortage of equipment and increased costs.

Petroska noted that the business sentiment index in the construction sector fell in the third quarter due to lack of demand but also as result of coming winter, when construction activities are slowing down.

She expects Macedonian companies to return to foreign markets, where construction activities declined as a result of the crisis, including Bulgaria, Albania, Serbia, Montenegro and Croatia.

The business of Macedonian construction companies abroad was hardest hit in Russia and Slovenia, while Montenegro, Albania and Kosovo emerged as new markets for them, Kocan said. Macedonian companies are also present in Ukraine and EU member states.

The value of construction works completed by Macedonian companies outside the country fell by 2.3% on the year to some 2.3 billion denars through September, the Statistics Office said. The value of new contracts for construction projects abroad signed by Macedonian companies over the same period was 3.07 billion denars, 39.8% down from a year earlier.

Despite the overall decrease, the value of  construction works completed by Macedonian companies abroad in the first nine months of the year increased in Croatia (+14.5%), Albania (+64.9%) and Ukraine (+30.6%), while in Russia it fell by 97%.

(1 euro = 61.6243 Macedonian denars)