CHALLENGES IN THE CONSTRUCTION INDUSTRY IN THE STATE OF EMERGENCY
Jelena Jolović, project menadžer, Novaston Project Management
The Serbian construction industry saw a considerable increase last year and in early 2020, both in residential construction and in new office space. According to eKapija, the recently released Annual Financial Statements Bulletin reveals that the construction industry performed extremely well in 2019. The positive result of RSD 37.42 billion was increased by 49.2% compared with 2018, while the total number of 77.770 employees climbed year-on-year by 5.291.
In the first three months of this year, the Central Records of Integrated Procedures for Construction Permits processed a total of 25,410 received applications, which is 16.8% more than in the same time frame last year, when 21,760 applications had been sent in, the Serbian Business Registers Agency (SBRA) announced.
And then, the entire planet was hit by a pandemic, which has been gradually spreading since January, and in March at a stroke it closed the markets and the borders of both our and neighboring countries.
In our country, the state of emergency was introduced on March 15, and in its first two weeks we had to adapt to the new circumstances, as well as reorganize the workforce and resources. Key organizational issues were the first to appear — a workforce that mostly resides at different places from the place of employment, which meant that the movement restrictions and curfew completely eliminated some groups of people from the construction site. The weekend movement ban and the curfew starting at 5 pm every day made it impossible to work in two shifts, and construction sites nearly halved their output. The contractors were forced to find new workers as well as reduce the number of construction site employees in order to comply with the protection measures recommended by the Government at that time.
The second issue to come up was materials supply and problematic transportation. Shortly after the state of emergency was introduced, companies that had no supplies in stock were stranded without a significant portion of construction materials. Another equally important new circumstance was the protective equipment, which had to be procured immediately in order to comply with the recommendation issued by the Government and the healthcare organization — and protective equipment was hard to come by at that time owing to the high demand. However, all these issues, which cropped up in the first two weeks after the state of emergency was introduced, started to slowly stabilize at big construction sites by the fourth week. Employers were finding ways to overcome them, and now — one and a half months after the state of emergency was introduced — we can say that the circumstances have been accepted to some degree and that the organization has been adjusted to the situation.
It is important to note that from the very onset, the Serbian construction industry was supported by the government, which found ways to compromise and overcome the new situation in the easiest possible way. It was important for the construction industry to survive, and this was by and large achieved.
With a share of nearly 6% in GDP and last year’s 35% growth, the construction industry is one of the main drivers of economic growth, which is why it needs to be supported by special measures for overcoming the pandemic’s negative effects, noted NALED’s Property and Urbanism Alliance (source: NALED)
According to the data made available by ministries, for now there is no decrease in the number of construction permits issued compared with this time last year. What is more, according to NALED’s data, the first two months of 2020 already saw 2,700 issued permits — 29.1% more than in the same period last year. However, there is a slight downswing in investment values. In addition, the first two weeks of March saw a decline in real estate sales and office space rentals. Still, we will have the accurate information only after the state of emergency ends. The consequences of the downslide in supply and demand will be felt only next year, and full market normalization is expected in two years.
According to Provincial Prime Minister Igor Mirovic, the Government of Vojvodina has abandoned four infrastructure investments because of the coronavirus epidemic: reconstruction of facades in Subotica, reconstruction of the Theater Square in Novi Sad, reconstruction of transportation infrastructure in Pancevo and reconstruction of the City Stadium in Zrenjanin, he said, citing the coronavirus epidemic as the reason. “The coronavirus crisis has brought about certain issues in the economy and we are expecting to see a downswing in revenues. The budget will be reduced by 4.24 billion dinars or 5.43%. However, the investments we will give up on are few and far between. All other investments, especially those that have been started, will be brought to an end," said Mirović.
What is important now is that the government provide as much support as possible to the construction industry, as well as small and medium-sized enterprises, by simplifying the procedures for obtaining special permits, the quarantine measures for drivers bringing in goods from abroad, as well as the possibility of extending working hours at the construction site and simplifying the procurement of materials and mandatory protective equipment. Banks should be encouraged to continue project financing and lending without interruption, so that we avoid feeling the downturn even more over the next year, when the real consequences will actually come forth. The idea should be that the workforce prompted to return to its home country be empowered and drawn to stay in the local market. It would also be useful to enable deferred payment for materials, protective equipment, and energy product procurement, as well as regular execution of payment transactions for all those active in ongoing construction projects.
In addition to the potential measures that would mitigate the effects of the pandemic, it is difficult to make any long-term projections. It remains to be seen how the new challenges will be dealt with in the future together with the government and the investors with a view to lessening the pandemic’s impact on the Serbian construction industry.
Infrastructure projects are moving forward also in the neighborhood. Croats and Turks have signed an important contract, expecting a kilometer of modern two-lane railway line a month, while seven stations and stops and seven bridges will be reconstructed, 25 kilometers of noise protection walls will be built... The situation is similar in Montenegro. The important capital investments of the Government of Montenegro are underway, despite the difficulties caused by the coronavirus pandemic. The Public Works Administration currently has about 20 active construction sites. In order to prevent the spread of the coronaviruses, construction site workers are complying with all recommendations and measures adopted by the authorities in recent days, including social distancing and protective equipment (masks, gloves). The COVID-19 pandemic has reached the Slovenian construction industry in a good shape. New construction contracts strengthened in H2 2019, resulting in some of the fastest growth of construction in early 2020 in the whole EU. The activity continued into March 2020 even though the lockdown measures were already implemented. However, a decline is expected as halting construction works are affecting the entire sector:
There are some disruptions in the supply of materials as some manufacturers have stopped production and others have reduced production.
Construction work is being done less intensively mainly because of measures to protect workers.
Some foreign contractors have problems mainly with the logistics of their workers on projects in Slovenia.
Yet, the construction industry has been relatively less affected than some other industries (like tourism) as most large projects continue even during the lockdown measures. The concern is the absence of real estate contracts as the risk of making long-term investment decisions has also increased.
Economic damage to construction segments will crucially depend on the duration of the crisis and the uncertainty it brings. According to some estimates, the short-term crisis is expected to result in a 5% drop in GDP. First indications that the return to the normal operation of the Slovenian economy is near were the announcements that several lockdown measures were to be relaxed by the end of April 2020. However, the actual fall of the economic activity will depend on the effectiveness of the state's actions, where Slovenian politicians have promised one of the largest stimulus packages in the EU – estimated at more than 6% of its GDP - but they will have to be implemented in an effective way.
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