Construction on the rise

  • 1998-11-26
  • Sandra L. Medearis
RIGA - Contractors say the building business is booming in Latvia and only going to get better - perhaps reaching 400 million lats (about $690 million) in revenue for 1998.

Increasingly bigger projects are bringing new materials, technology, and more money, said Ervins Butkovics, marketing director for construction general contractors Kalnozols and Partners.

"There is an increasing trend for big construction projects," Butkovics said. "This is a good wave, and inside the industry we are in a good sector."

Kalnozols, celebrating its 10th anniversary this week, and half a dozen other companies are Latvian pioneers in several new techniques, including concrete monolithic construction.

Concrete monolithic construction? This new method allows more versatility in design than in the Soviet-built concrete buildings in Plavnieki and other outlying areas of Riga. Construction using wooden forms with steel bar reinforcement, called slab form work, has developed in Latvia over the past three or so years. Companies build the forms or rent them, decreasing the amount of trees that go into the burgeoning industry, Butkovics said.

A large project, Valdemara Center, springing up at the corner of Elizabetes Street and Valdemara Boulevard displays the faster, more cost-effective, stronger form work wall construction.

Working with construction giant Skanska, Kalnozols erected these walls in two-and-a-half weeks, Butkovics said.

Such projects are typical of those to come, Airnars Kozlovskis, head of the Latvian Builders Association said.

The shift has been to large projects, currently three multi-storied parking garages in Riga and construction of Riga port.

Over the next year there will be the money vault building for the Bank of Latvia worth 22 million lats and later on, a bridge tunnel across the Daugava," he said. "Construction has gone from filling stations to office buildings and trade centers."

Kalnozols and other large companies will have a piece of the action. Butkovics expects his company's contracted amounts to increase by almost 100 percent from 1.8 million lats to 3.5 million lats in 1998, and the others among the top 10 construction companies to have similar success.

Latvia has about 1,300 licensed companies, most of them small outfits concerned with subcontracting. The 19 largest companies contracted jobs worth over 1 billion lats in 1997. Skonto Buve topped the list with 8.5 million lats. Excluding civil construction (utilities and hydro project builders), the five largest companies are Re & Re, Velve, BKD, PolarBEK Latvija Celtnieciba and Kalnozols.

State statistics say that the construction industry is showing steady growth in projects involving construction and renovation of housing, buildings and infrastructure like ports, dams, bridges, roads and tunnels. Industry revenues have increased by 68 million lats over the past three years, growing from 210.1 million lats in 1995 to 278.1 million lats in 1997. Adjusted for price increases, this is an annual growth range from 5.3 percent in 1996 to 8.2 percent in 1997. The trend continues in 1998 with an increase of 12.7 percent year on year for the first quarter.

Not much of this success will have to be shared with public and foreign competitors. With privatization complete, private Latvian companies dominate construction sites with public municipal and state organizations breaking ground on only 2 percent of projects in 1997.

Foreign companies are swinging the hammer in the Latvian market, but only for a 15 percent share, even though the entry is easy. Latvian law allows foreign firms on the job site with only a 100-lat building permit and a locally licensed contractor.

The heaviest construction occurred in Riga, producing about 58 percent of revenues, followed by Ventspils with 10 percent of the market share and Riga district with 6.2 percent. The lion's share of the market is reconstruction and renovation of buildings, with housing from scratch taking only about 10 percent and decreasing. The output of house construction has fallen from 808,000 square meters in 1992 down to 228,000 in 1997.

Many apartment buildings went up during the Soviet controlled economy when there was a labor force coming in from the U.S.S.R. Incomplete buildings at the time Latvia regained independence have been completed over the past five years. Otherwise, there has been little additional demand for housing because Latvia's population has not grown, Kozlovskis said.

Today, Latvians have an average of 21.5 square meters of floor space per person, compared to about 50 to 70 square meters in EU countries.

Kozlovskis expects the demand for single dwellings to grow when mortgage lending becomes widely available.

Financing is presenting a problem for small and medium sized companies, because in order take part in bidding jobs, companies have to have letters from banks guaranteeing financing. Only companies which have collateral of 10 to 20 percent of the job's cost can get letters. Local companies are surmounting the problem by creating limited partnerships for certain high volume projects. Local developers usually finance construction work on a pay-as-you-go-basis. Foreign investors like to pay after the job is done. In these cases, construction companies can take their contracts to the bank for short-term loans.

Some buildings, such as those for processing, packing and bottling that were intended as a springboard to Russia's market, have been put on hold, but Kozlovskis expects foreign investment to increase.

"Investors have realized that construction in Latvia will continue. They see one company investing, then another and realize that it is safe. Others will follow," he said.