Construction companies look forward to 2.7 percent growth this year

Photo: Aktron, CC BY 3.0

Construction companies are often regarded as a litmus test of the local economy. But in the Czech case the test comes up somewhat short. While many sectors, especially manufacturing, have been booming, the construction sector has struggled to equal or even get close to the halcyon days of its fastest growth in 2008.

Photo: Aktron,  CC BY 3.0
One of the problems is that construction does not follow the usual cyclical developments of the rest of the economy. The current framework for the sector means that government tenders account for around half of the orders that usually come to companies, for the big players that proportion can even rise to 60 percent. So, the government pump priming of the economy is one big factor in how much work will be in the pipeline.

Then, another factor should be pencilled in, the timeline for drawing the next slice of European funds. And in the Czechs case, whatever the projected funding in the pipeline, add some brakes or lack of pressure for the complicated and long winded building permits process and problems getting the building plots or changes to the land development plans desired.

This year, according to the latest survey by CEEC Research drawn from consultations with business leaders in the sector, the construction sector should expand by 2.7 percent. That rate of growth in general accelerates for companies reliant on the private sector and slows down considerably for those whose output is dependent on state tenders. Companies reliant on large infrastructure projects are looking to 2018 rather than this year for a considerable rise in turnover.

For the first four months of the year the signs of upcoming public tenders are at least encouraging. Following last year’s fall off in orders, the throughput of tenders between January and April is around half as much again as over the same period in 2016. In cash terms, the total of new tenders comes to 35 billion crowns, a rise of almost 86 percent compared with a year earlier.

The flip side of the company complaints about the delays and lack of predictability of state tenders, is the fact that Czech construction companies as a whole are currently working at around 92 percent of their full capacity, according to CEEC figures, and have almost eight months of work in the pipeline. Those involved in office, industrial, or housing construction probably are likely operating at even higher intensity and saying that they cannot find the qualified workers to boost output.

One looming shadow over the Czech construction sector that was raised at an industry gathering in Prague on June 12 was where will future funding come from after 2020 when the expected European funds start to dry up as the country further catches up with the EU average. So called Public-Private-Partnerships (PPP) are often mooted as one solution, although experience suggests that poorly framed they can be a lot more costly and protracted than when the state pilots projects on its own.