Construction output growth in Kazakhstan exceeded 7% in 2016

More information on this topic is presented in the PMR report:

Home sales and construction activity in Kazakhstan continue to show strong growth, regardless of the muted economic growth in the last few years. According to official data, Kazakh construction output increased by 4.4% in 2015 and by 7.4% in 2016. However, the upward trend in the last few years was highly uneven and questionable, and official data suggest that it was supported exclusively by foreign companies.

Until 2015 business sentiment in construction had been largely stable, but in 2015 the industry’s business confidence index deteriorated notably. The negative sentiment emerged in Q3 2015 and accelerated in Q4 2015, when Kazakhstan moved to a free-floating currency implemented in August 2015. Nevertheless, the reintroduction of the policy rate in early February 2016 stabilised the money market, whereas exchange rates also steadied and began to appreciate as oil prices rose. The national currency’s gradual appreciation and the solid construction activity across the country have steadily boosted business sentiment in construction in recent quarters. In the last seven years, the two lowest readings of the business confidence index in construction were recorded in Q4 2015 and Q1 2016, with the figure of -27% and -15%. The highest reading was +2%, which was achieved in Q2 2012, and is only 1 p.p. higher than the figure observed in Q2 2017.

Last year, there were two drivers behind the estimated 7.4% year-on-year increase in construction output: the area of new construction, which expanded by 9%, and the area of minor repairs, where a 7.5% annual growth was observed. The subdivision of extensive renovation was decreased by more than 12%. Given that extensive renovation was responsible for only 5.6% of the country’s construction output last year, the significant negative performance of this subgroup in 2016 diminished the construction industry only modestly.

In recent years, the construction industry in Kazakhstan has been fuelled overwhelmingly by new construction projects, whereas initiatives involving extensive modernisation and repair have diminished in value. The share of new construction as a proportion of total output rose from 82.3% in 2012 to almost 90% last year. Until 2015, new construction projects had increasingly been rolled out by private Kazakh companies, whereas there had been a reduction in the exposure of foreign and state-owned companies. Since 2015 the market share of foreign contractors has increased notably, as the total value of new construction output generated by foreign contractors in 2015 rose by 63.5% in year-on-year comparison and further by more than 48% in 2016.

It is estimated that construction output generated by Kazakh private companies faded by about 6.6% in 2016, following a 5.9% reduction in 2015. Furthermore, output generated by state-owned companies also underwent two consecutive contractions: of 2.8% in 2015 and 7.7% in 2016. According to PMR, the positive trend in the last few years was apparently maintained chiefly by foreign companies, who observed an estimated 54% surge in construction output in 2016, following a 63% expansion a year before. However, these companies accounted for only 23% of the country’s construction output in 2015 and for 33% in 2016. The lion’s share of the output was largely related to the Kashagan project, to development of the Kazakh stretch of the Western Europe-Western China road corridor and to construction of the infrastructure for the EXPO-2017 World Fair. However, in 2017 all three projects will be completed.

The determination of Kazakhstan’s officials for innovation, investments and reforms, as well as massive reserves and the free-float regime have been sufficient to continue in 2016 with large-scale transport infrastructure projects envisaged in the “Nurly zhol” infrastructure development programme of Kazakhstan.

During the past two decades, the oil and gas industries have, along with the mining industry, been the fundamental drivers of Kazakhstan’s economic growth. Nevertheless, Kazakh officials have accepted that economic development based overwhelmingly on factor endowment is unsustainable in the long term and have launched a number of programmes in order to try to reduce the country’s dependence on the oil and gas and mining industries. Between 2015 and 2019 the second stage of the State Programme of Accelerated Industrial and Innovative Development will be implemented in Kazakhstan. Improving economic growth figures, a strong political commitment to modernisation and innovation and an improving global economy will encourage international investors to expand their presence in Kazakhstan. Without the government’s extensive involvement in the construction market, the condition of the industry would have been much worse. A great deal of effort is being exerted in order to simplify the procedures pertaining to the building process and also to update building norms and regulations. In the World Bank’s 2017 Doing Business report, Kazakhstan was in the 22nd place among 190 countries in terms of the simplicity of dealing with construction permits, up from the 100th place taken two years earlier. Overall, the report ranks Kazakhstan in 35th place among the 190 countries analysed in terms of the ease of doing business (a substantial improvement from 41st place in 2015 and 77th in 2014).

More information on this topic is presented in the PMR report:
Construction sector in Kazakhstan 2017. Market analysis and development forecasts for 2017-2022