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Thursday, April 16, 2009

The Ukraine Construction: Sharp Fall

With kind permission from CEEC Research, I've posted a brief report regarding Ukrainian construction market

Prague, 3rd April 2009

Total decrease in construction industry in Ukraine

The Ukraine construction sector is experiencing significant and unexpected changes. For the year 2009, 73% of construction companies expect Ukraine construction industry to decrease. These facts are brought by the CEEC Research, whose general partner is KPMG Czech Republic. The research results also show that the first signs of the decline started to appear at the beginning of 2008, nevertheless the companies did not perceive it as the start of a potentially broader and longer crisis. Now the economic crisis fully influences the sector in question. All interviewed companies feel itself limited in their business – mostly by insufficient financial resources as well as a poor demand and a tough competition. Due to mentioned problems the usage of capacities of construction firms decreased by 50 %.

Are there any positive signs for the future? What are the basic issues which will mainly influence the existence of the construction industry in Ukraine? What are the major factors limiting companies growth? How are new business contracts acquired? What is the experience of companies with tenders? Which information sources do the Ukraine construction companies use? These and other important findings are provided by the Ukraine Construction Qualitative Study.

Highlights from the Ukraine Construction Qualitative study:

  • 73 % of the respondents expect the sector to decrease in 2009 (from the 2008 basis, which was already a 16% decrease on the 2007 results). ). If we look on a more detailed level, the reality could be even worse (36% of respondents expect a decline of more than 20%).For the 2010-2011 period, the expectations are a bit more optimistic: in average respondents expect the sector to grow by 3 %.
  • 100 % of the interviewed companies experienced limitations to their business. It means a significant increase from the previous years – only 64% in 2007 and 82% of companies in 2008.
  • The most frequently mentioned limiting factor was insufficient financial resources (68 %, 22 % in 2007), followed by tough competition (increased from 15% in 2007 to 68% in 2009) and high material costs (which have doubled from 33% in 2007 to 66% in 2009).
  • Companies have also decreased their employment of foreign workers on their projects from 16% to 7% 2008/2009.
  • The Internet is used by 100 % of the interviewed construction companies, 89 % of companies use internet for information search, 50 % for company presentatin and about half of the companies use the Internet as an information source for potential new business deals
  • Long-term contacts were rated as the main source of information (91 %), followed by meetings and presentations and the Intenet.
  • The most often used sources of new deals/contracts for construction companies are preferred partnering agreements (frame contracts), long term contacts/networking (personal contacts) and tenders.
  • Companies were asked: “Have you ever been asked for a bribe during the selection process/tender? 19% of respondents replied that they have never been asked for a bribe and the same share of companies replied “yes”. Nevertheless there was a great increase in “no comment” answers.
  • Construction companies provided the tenders with one of the lowest transparency rating in the CEE region (only 3.2 points out of 10max, even lower than in Moscow with 3,9 points), which indicates that the transparency level is very limited. 25% of companies shows that public tenders are completely non transparent.
  • 59 % of construction companies assess their risk management as intermediate; 5 % as advanced (decrease from 13 % in 2008), 33 % as basic and 3 % as low level.
  • Only 29 % of the construction companies have never breached their risk management policy. The majority confirmed that they breach their risk policy to secure a new contract either rarely (34 %) or exceptionally (26 %); 11 % of firms do so often (increase from 2 % in 2008).
  • The most often used methods for the selection of suppliers are preferred partnering agreements (which have further increased their share from 68% in 2008 to 83% in 2009), followed by long-term contacts/networking (60 %) and also recommendation (growing from 2007 until 2009 – 49 %).
  • Key criteria during the supplier selection process are: price, mentioned by 74 % of the construction companies, experience of the supplier (68 %) and applied technologies (60 %).
  • In the long-term, companies predict that the major factors impacting their business development will be mainly: financial situation of their company (increased from 63% in 2008 to 73% in 2009).
  • The key investment areas for 2008-09 will be project management processes (increased from 38% in 2008 to 51% in 2009), the construction mechanization (top priority last year) has slightly decreased its share in the respondents’ samples.

The Ukraine Construction Qualitative Study is the first succefull report published by the CEEC Research in 2009. The interviews with construction companies operating in this region were performed in the Q1 2009 and provide findings based on 47 face-to-face structured interviews with the representatives of the local construction companies.

The analysis results provide interesting insight into the current construction situation which is visibly impacted by the financial crisis. The report is focused on the three key areas which are crucial for the qualitative analysis of the sector. These three areas are: companies’ expectations for the sector development, used sources of information about new business opportunities and last but not least applied methods for acquiring new business deals.

The full version of The Ukraine Construction Qualitative Study can be downloaded on the CEEC Research web site: www.CEEConstruction.Eu free of charge. At the same place you can find all details about the methodology, targets of the research and also qualitative reports of the other nine researched countries. The Central and Eastern European Construction (CEEC) Research project was conducted in partnership with KPMG in the Czech Republic.