In the aftermath of the crisis, the construction sector in Kazakhstan has become a government priority. While incomplete residential projects are being finished with money from the state budget, infrastructure development and social spending across the country is creating momentum in the construction industry for contractors and building materials manufacturers alike.
The residential segment was the most severely affected by the economic crisis. The share of residential construction in the total volume of construction output in Kazakhstan fell from 19% in 2007 to 6% in 2009, when the total value of investment in residential construction decreased by 41%. Although 2010 witnessed mild improvements, housing construction value in 2010 was still about 60% lower than 2007 levels, when the market reached its peak. Since then the state has increased support to the construction sector, and, coupled with increased volumes of loans, the overall climate in the industry is improving.
Since 2011, a new residential construction program has been in force to prevent rapid price increases as demand recovers against shrunken supply. The housing development program 2011-2014 plans to commission 6 million sqm of residential space annually. Government support for the residential sector is made up of three schemes including the construction of affordable housing by local authorities, the allocation of funds to second-tier banks to stimulate financing and mortgage lending, and the construction of utility infrastructure. Additionally, the Affordable Housing 2020 program seeks to reconstitute the mortgage mechanisms and facilitate large-scale rental housing schemes, with a view to expediting market recovery and promoting affordable housing. To this end, an annual budget of $236 million has been allocated from 2014 to 2020 to build up to 4,000 apartments per year.
Government support for the construction sector is generating positive returns, which will go a long way to solving the problems of troubled developments, mostly residential, in 2012. In January-February 2012, the total volume of residential construction in Kazakhstan increased by 30% as compared to the same period in 2011. The largest shares of residential space were commissioned in Astana (28%), Almaty (18%), and Almaty province (15%). Investments in residential construction in Astana during the first two months of 2012 totaled KZT4.5 billion, which corresponds to a 76% increase from the same period in the previous year.
In addition to its support for the residential segment, government involvement in the construction of infrastructure is also creating momentum in the construction sector. “We have completed eight or nine state-led projects, a number of which are of national importance, such as a metro station and sports palace,” Dastan Urakov, President of MAG, told TBY.“There is interest in building a sports palace in a different region as well.” Yet, a sustainable construction sector requires an active private sector involvement. “In Kazakhstan the sector is typically driven by big infrastructure projects financed by the government,” said Roman Kempe, General Manager of Heidelberg Cement Central Asia.“What this country needs is, in my opinion, more development from the private sector side, which we currently do not see much of, although the current trend looks set to continue.”
The total production capacity in the cement industry currently stands at 8 million tons, which is anticipated to increase up to 12.6 million-13 million tons in the near future with the coming online of various projects. Current market demand is estimated at 6.2 million tons and that is expected to increase to 6.7 million tons in 2012. The sector has not, however, been able to achieve smooth sailing over recent years. Demand picked up in the early 2000s following a drop off in the late 1990s due to the Russian economic crisis, and continued on a slow upward trend until 2008, when, as a result of the global financial crisis, prices fell from $90 to $57 per ton. Consequently, two cement plants shut down in the country, with companies still in operation decreasing production and imports. This situation was widely felt in other segments of the construction materials sector, and led the companies to adopt new strategies to mitigate the crisis’ effects.“We shifted our focus from big projects and construction companies to the daily market; to the people who want to change the windows in their homes,” Fatih Uzunoğlu, CEO of Galaksi Group, told TBY. “Another issue is that Almaty and Astana are very competitive markets and every foreign company is focused on the two cities,” he added, offering impetus to local companies to get out into less competitive markets.
Although Kazakhstan’s construction materials manufacturing base meets the industry’s needs to a considerable extent, the country still relies on imports to fully function. More than 85% of glass, ceramics, and linoleum used in the construction industry are imported. Furthermore, more than half of all reinforcing steel and paints are supplied from abroad, while 65% of cement comes from domestic producers.
Construction materials production in Kazakhstan is a priority area for the further development of the industry, as well as key to improving safety and the quality of construction products and to relieve import dependency.
In the first four months of 2012, the volume of the construction industry grew by 12% compared to the same period in 2011, manufacturing building materials worth $504 million. The biggest growth was observed in the Zhambyl, Kostanay, and Aktobe regions, according to the Ministry of Industry and New Technologies.
The Ministry also notes that more than 1,200 enterprises are working in Kazakhstan in the production of construction materials. In the 2010-2011 period, 85 projects worth $796 million were launched in the industry. In the coming two years the Ministry intends to launch 35 more projects worth $1.4 billion. The target is to supply 80% of Kazakhstan’s construction material needs from domestic manufacturers. In this regard, several niche projects have been identified, such as the flat-glass industry in the Kyzylorda region, ceramic production in the Aktobe region, and basalt fiber production in the Pavlodar region. “We have observed that imports are decreasing, and in 2011 they were 40% lower than in the previous year. In my opinion, this trend will continue,” Roman Kempe, General Manager of Heidelberg Cement, told TBY, adding, “production capacity will increase competition and decrease the need to resort to imports. It is positive for the country to produce locally and sell domestically.” In the coming years the biggest demand for construction materials is expected to come from the state’s residential and infrastructure projects. Approximately 63 million sqm of housing will be commissioned by 2020 in the framework of the government’s affordable housing program. Moreover, the “Ak Bulak” program, which will extend centralized access to drinking water, and the housing and utilities sector modernization program along with large transportation infrastructure projects such as the Western China-Western Europe highway will increase the demand for construction materials. Furthermore, the development of box-frame and panel housing technologies in the construction industry are on the table in order to reduce construction costs by 30%, as a part of the “Productivity 2020” program.
© The Business Year