2011 was better, but with no larger projects, builders ponder export markets

  • 2012-02-08
  • By Linas Jegelevicius

GONE: Adakras Sestakauskas says much of the workforce left during the crisis, impacting the current recovery.

KLAIPEDA - Thirty-six-year old Vidmantas Kaseta, father of an 8-year-old daughter and 4-year-old son, until recently used to say he cannot imagine his life without his kids and his wife. But with the economic crisis thinning the family budget, and no extra jobs to supplement his main income, he found himself away from the family, in Denmark, which, wage-wise, he says is a dream for every Lithuanian mason and plasterer as hundreds of them toil in the small Danish town that has become a temporary home for Kaseta.

“Before picking up at the end of 2010, the construction business had been impacted by the downturn the hardest. Many construction companies have gone bankrupt while others had to restructure themselves, laying off half of their workforce. And many builders have just left the country for Norway and the UK,” says Adakras Sestakauskas, president of Lithuania’s Builder Association (LBA).

With feeble signs of recovery glimmering, he says some construction companies struggle to find skilled builders, masons and plasterers. “In order to lure back home the builders who went abroad for search of a better life, big investments have to be done into the construction sector and, sure, there has to be a clear trend of recovery,” the LBA president says. “However, 2011 gave us certain hopes but no guarantees,” he adds.
The construction market is a reflection of our economy, he stresses. If the economy spirals downward, it will drag down the construction market as well. And vice versa, the president says.

He says EU-financed construction and reconstruction projects have been a real salvation for many builders. “Construction works won in public tenders made up roughly 80 percent of all the 2011 workload for many builders. Since most budgetary establishments are still under austerity, the only way for them to finance their projects are through the EU allocations,” the association head noted to The Baltic Times.
According to him, environment management and water treatment projects are on top of the list of builders’ most popular work, followed by renovation of public buildings.

The LBA president notes that many companies are plagued with a shortage of cash flow, and the plight has been worsened by the demise of Snoras bank. “With no current assets available and with no possibility to use your frozen account in the bank, some builders were simply doomed,” Sestakauskas suggested.
Laid off, or exhausted by the uncertainties in the sector, many builders decide to try their luck in foreign markets. Pay-wise, British or Norwegian employers can offer at least a four-fold bigger salary than an average Lithuanian construction company. This is the difference for most emigres.  However, with the eurodebt crisis shaking up many Western and Southern economies, especially Spain and Ireland, until recently the most popular destinations of Lithuanian emigres, sees the construction sector also offf the skids, and even local builders getting sacked.

“Simply speaking, it becomes harder even for very skilled Lithuanian builders to get a desired job on a construction site abroad,” Algimantas Matulevicius, a construction company owner, said to The Baltic Times.
Nevertheless, most builders agree that 2011 was rather good, especially its first three quarters, with the construction sector growing mostly during them. But if you were to speak to the builders, you would definitely hear them adding another sentence to this: “The year was good compared to the disastrous 2010.”

The optimism lasting to the middle of 2011, with the eurodebt crisis exacerbating, dimmed in 2011’s last quarter. “If I could speak imaginatively, our builders were like in a big swamp or a hollow in 2010. Last year, our turnover grew several times, compared to 2010, but the rise was mostly due to the good performance in the first half-year,” says Matulevicius

During the best times in the past, he says, his 30-worker company was set with work for two or three years ahead, but now the company lives day-to-day. “I do not expect any miracles this year. The year should be more or less similar to the last year. And, sure, let’s see how the macroeconomic situation will play out. I do not hope to earn a lot. We will [reach] balance at best,” Matulevicius said.

Arvydas Avulis, owner and director of Hanner, a big construction company, says the enterprise worked steadily and profitably last year. However, there is nothing to rejoice about, he adds.
“Generally, the construction market is still very sluggish. Only the segment of residential apartment construction is more active. However, it also started to skid at the end of the year. In other segments, like office, warehouse and logistics, demand for new constructions is minimal, or it is absent,” Avulis said to IQ.lt.

Last year Hanner completed the fourth-stage construction of a series of apartment blocks in the settlement of Bajoru Kalvos, a new Vilnius neighborhood. It also finished building a 40,000 square meter logistics center in Saint Petersburg and a 136-apartment residential building in Odessa. “I do not believe we will see a turning-point in the sector in 2012. There is no demand for new investments in the market. Despite the plight, we have taken on several building projects, and I hope there will be a few more projects,” the Hanner director suggests.

He notes that several projects were launched just because the developers wanted the investments into the lots to pay off. This is likely to increase competition and reduce profitability at the end of the day. “With the eurodebt crisis lingering, construction markets abroad, like in Lithuania, are rather stagnant,” he says. “I reckon it would be smart for investors to look at other markets, which possibly may produce a larger profit today,” says Avulis.

This year, his company is likely to continue the second-stage construction work on the logistics center in Saint Petersburg. “This is still in question, however. We will have the order in our pocket if the signing of rental agreements with potential leaseholders of the new warehouses will go well,” Avulis says.
He admits the enterprise is, nevertheless, looking for new markets, especially linked with exports, but the eurozone troubles raise his anxiety. “In comparison, domestic consumption is rather low; therefore, the best way to expand markets is binding the business with exports. We have come up with a list of concrete enterprises we want to invest into; however, due to the instability in the eurozone and a dimmer economic outlook, we are postponing the investment for a half-year,” the Hanner head admitted.

The collapse of Snoras bank has shaken up a dozen construction companies which had their accounts in the troubled bank. One of the companies, Taurage regioniniai keliai (Taurage district Regional Roads), a major regional enterprise renovating and maintaining state-level roads, has seen its funds frozen in the aftermath of the bank demise. “Frankly, we had quite a lot of money in the Snoras account, and no one can tell us when and how much money the enterprise will be able to recover. Obviously, due to the deposit insurance limit of 100,000 euros, we cannot expect to retrieve the whole amount,” Vytautas Poveilaika, the company director, says.

Other builders are also eyeing foreign markets, especially in these times of lingering uncertainty. Eikos Statyba carried out several building projects during the crisis in Poland, building stadiums in Gdansk and Warsaw. However, now the company director general, Rytis Ivanauskas, says Poland has lost its lure due to the low zloty and high competition in the market. “It just does not pay to work in Poland,” says the director.

Euromoney, an international capital and finance markets publication, acknowledged Eika as the best real estate development company in Lithuania for 2011 in the international awards of real estate. “In order to make inroads into the market and attract the client, you have to offer really low prices, for which large capital is necessary. Unfortunately, we do not possess this currently; therefore, we are starting to focus on the Lithuanian market now. Besides, it costs a lot to send your workers over the border, even to Poland,” Ivanauskas asserts.

Dalius Gesevicius, head of Penevezio statybos trestas (Panevezys Construction Trust), says the enterprise saw a larger turnover last year. The company carried out several projects in Kaliningrad district in 2011. “Most of the works were in the public sector, with a prevalence of work in the engineering sector and in laying heating pipelines. We did miss large projects last year,” Gesevicius emphasizes.

Vytas Zabilius, director general of Ober-Haus, the largest real estate company in the Baltics, says he lays out two scenarios for the year. “If the European Union harnesses the eurodebt crisis, all will start doing better, Lithuania included. We should see an insignificant growth then. In case of the other scenario, things will worsen in the entire Europe, and Lithuania will be not an exception,” Zabulis said to Ekonomika.lt.

Unlike the Lithuanian capital, which sees a certain enlivenment in the residential real estate sector, the provinces largely rely on EU-sponsored construction projects. Virginijus Rimsa, director of Rokiskio apdaila, says these kinds of projects are “crucial” for most provincial builders. “If not for them, we would be in trouble,” says Rimsa.
He notes that the 2008 crisis has crawled into Rokiskis district more belatedly than in the rest of the country. “Now it is late to leave us. Despite the gloomy prospects in the market generally, large city builders generally do better. Not us. I can just hope better times are around the corner,” says the Rokiskio apdaila director.

Executive director of the LBA, Vaidotas Sarka, says that overdue payments are among the biggest problems construction companies are plagued with. “Because of that builders are forced to finance ongoing projects themselves. Some construction companies get paid for completed work only after a year, or even later. Sure, it is very discouraging for most,” he says.

In terms of capacity and turnover, the LBA director puts the national construction business on the level of 2005-2006. “Despite all the difficulties, the sector should be settling on a more stable path of growth this year. The traditional approach to the business may not suffice any more, however.  The builders have to look for new business niches and perspectives. Construction exports, especially, have not yet been fully explored by most Lithuanian builders,” Sarka notes.