Builders in Romania look forward to large EU-funded projects

2010-05-18

Romania's construction industry was more severely affected than any other in Central Europe by the global downturn in 2009. Whereas in the first half of 2010 no improvement on the market is expected, builders hope that toward the end of the year several large projects will be launched, and that these will eventually prompt the recovery of the entire industry.

Last year, Romania's construction industry contracted by 15.1%, after the steep growth figures of 33.6% and 26% in 2007 and 2008 respectively. One of the reasons for the poor performance of the industry last year was the fact that the overall economic deterioration was coupled with a continuous political crisis, which resulted in virtually no progress in infrastructure development, despite the substantial EU funds available. In contrast to other countries in the region, in which civil engineering served to counterbalance the reduction in the number of new buildings, in Romania a sharp reduction of more than 12% was also witnessed in infrastructure construction.
All three major subdivisions of the construction market suffered as a result of the overall downturn.



Non-residential construction developed at a rapid rate between 2006 and 2008 against a background of a scarcity of industrial and warehousing space and modern office premises. At the same time, the construction of modern retail outlets, which were tentatively introduced in the early years of the decade, started to gather pace, in response to increases in consumer spending. With consumer confidence battered by the crisis and consumption declining steadily during the course of 2009, developers froze most of their plans during the year, and this led to a reduction in non-residential construction in Romania, the largest subdivision in terms of revenues as a proportion of total construction output.
Infrastructure construction, the share of which was expected to increase as a proportion of total construction output in Romania, was falling short of expectations even before the crisis. This area of the industry suffered as a result of the government’s lack of experience of large civil engineering projects, in addition to numerous court cases and political clashes over such projects. Ongoing problems with funding also continue to be an obstacle. This was one of the reasons for the recent withdrawal of the Vinci-Aktor consortium from the €2bn motorway contract, which was to have become Romania’s largest public-private partnership.
Residential construction, a market which also had substantial growth potential because of the poor state of housing facilities in Romania, saw its growth stop in 2009 against a background of consumer insecurity and dwindling purchasing power.
In the medium and long term, however, Romania remains one of the most promising construction markets in Europe. The per capita area of residential and commercial properties is relatively modest in comparison with those of other EU member states, and the country’s infrastructure is underdeveloped and in need of sizeable investment. Substantial funds from the EU are available for this purpose, but the Romanian government has to learn how to use them effectively. This process took several years in the countries which entered the EU in 2004, and a similar development should be expected in Romania.
The article was based on the „Construction sector in Romania 2010 – Development forecasts for 2010-2012” report published by PMR Publications in April 2010.

Robert Obetkon
Senior Construction Analyst
PMR Publications