Value of construction work in Ukraine halved in 2009

2010-01-25



The construction market in Ukraine has been severely affected by the global economic crisis. After several years of growth in the industry, the decline which started at the beginning of 2008 intensified during 2009 and lead to a year-on-year reduction in the industry of more than 48%, with growth observed only in one region of the country. Forecasts for 2010 are pessimistic, predicting that last year’s trends will continue on the market and that the situation will not improve in the near future.

In 2009 construction and assembly work in Ukraine was worth UAH 37.9bn (€3.3bn), reflecting a year on year reduction of 48.2%, according to State Statistics Committee of Ukraine (the Ukrstat). This shows a significant decline in the construction industry in comparison with the previous year, when the year-on-year fall had already reached 15.8%. The crisis in the industry is much more visible when viewed against the period 2003-2007, which was characterised mainly by double-figure growth rates.
The downward trend started in May 2008 and led to a reduction in the value of construction work for 2008 overall, with the value finally dropping in 2009 to the 2006 level of UAH 38bn. In such a situation a return to pre-crisis figures will take several years. However, this is not likely to begin in the next few months, as deterioration is expected to continue during that time.



The decline observed in 2009 involved construction work of all kinds. The most significant fall pertained to finishing works: a 67.2% reduction. Work on the construction of buildings and structures declined by 48.6%. Building work which involved the installation of services and work pertaining to the preparation of land for development declined at similar rates – 44.9% and 41.4% respectively. At the same time, work on new construction, reconstruction and technical re-equipment accounted for 79.2% of the total value of construction work in the country, with the figures for overhaul and maintenance standing at 14.7% and 6.1%.

Construction work was worth less in all regions of Ukraine in 2009 with the exception of the Rovno Province, where the growth figure was 9.8%. The most significant fall was recorded in the Volyn (-63.9%), Ivano-Frankovsk (-59.6%) and Cherkassy (-57.4%) provinces. At the opposite end of the scale were the Poltava and Zhytomir provinces, where the value of construction work tumbled by 31.6% and 33.1% respectively. In the national capital, Kiev, the reduction was 6 p.p. worse than the year-on-year figure for the country as a whole. However, the value of construction work completed in the city accounted for a quarter of the total value of construction work in Ukraine.



Katarzyna Koprowska
Business Editor


In 2010 the construction industry in Ukraine will remain under the sway of those factors which influenced it last year. This pertains mainly to problems with the funding of construction projects, which, because of the high capital intensity of construction activity, remains the key factor for the industry. It is unlikely that mortgage lending will be resumed on a scale which will significantly galvanise the reduced effective demand on the property market and therefore have a positive effect on the construction industry. Companies will still have limited access to bank loans and other kinds of external financing. The level of interest of foreign investors in the implementation of construction projects in Ukraine in 2010 will still be very low.
These factors will result in low figures for both the value of construction work and the volume of objects commissioned in 2010. The completion of construction projects started during the pre-crisis period will be postponed. The launch of a new construction project will be a very rare event.
In such circumstances, much could depend on the willingness of the Ukrainian Government to become an active player on the market, for example through state contracts for the construction of infrastructure objects as part of the preparation for the EURO-2012 tournament. However, the unapproved state budget for 2010 and problems with budget replenishment call into question the government’s ability to have a significant impact on the construction industry this year.

Roman Smakovskiy
Senior Financial Analyst, Credit-Rating (Ukraine)