Real Estate & Construction
By TBY | Kazakhstan | Jun 19, 2015
Crucially connected to many other sectors of Kazakhstan’s economy, the construction and construction materials sectors consist mainly of construction companies, cement factories, and factories producing other building materials such as steel and aluminum. A number of major construction projects are underway, and this is keeping demand strong within the sector.
In 2013, the construction industry’s output increased by 3.1% in real terms to $15.1 billion. Kazakhstani-owned private companies accounted for 79.6% of all construction output in the country, followed by foreign concerns, which accounted for 19.5% of the sector’s overall output. State-owned enterprises accounted for only about 1% of total construction output, but as a number of high profile construction and infrastructure projects are rolled out, all boats in the sector are expected to rise. According to the Astana Times, between 2015-2017, 26 new construction projects specifically laid out for Expo 2017 will be completed. The Expo 2017 exhibition area will cover 240,000 sqm, on which 26 different facilities are being built, including themed display pavilions, residential complexes, a school, a hotel, meeting halls, a conference and press center, an expo administrative office, an exposition plaza, and an art center. Support facilities such as hotels, offices, warehouses, accommodation, and places for social gatherings that are planned across 750,000 sqm will be built solely for the exhibition. Kazakhstan has also allocated $14.6 billion for housing construction as part of the Affordable Housing 2020 program, which was launched in 2013. The government is using the Affordable Housing 2020 program to support manufacturers of domestic construction materials and this is effecting the production and sale of construction materials.
Moreover Kazakhstan’s 2020 Transit Plan seeks to develop all modes of transportation by 2020. In total, 30,000km of roads, 8,202km of railways and 302 railway stations will be built or renovated. The program includes a number of other measures aimed at the development of transport infrastructure. This massive growth in construction is promoted by the government’s infrastructural improvement policies and designed to create the best method for diversifying the national economy and developing sectors that are not related to oil production. Rail and roadways have been rapidly expanded and modernized since 2010. By 2014, Kazakhstan had invested approximately $19 billion for developing transport infrastructure. This spending comes at the right time, as infrastructure in Kazakhstan is widely seen to be in need of improvement and updating. In the World Economic Forum’s 2013 Global Competitiveness Report, Kazakhstan placed 64th among 148 countries in terms of the quality of overall infrastructure. In terms of the quality of roads the country was in 117th place and in air transport infrastructure it in 89th place; and by the quality of port infrastructure it was in 135th place. Only in respect of the quality of railway infrastructure, was it placed in a higher position: 27th. According to the US—Kazakhstan Business Association, infrastructural investment requirements through to 2030 are expected to total more than $25 billion, and of this, 40% will be needed for railway transportation improvements, 23% for highways and motor transport, and 12% for the air and water transport systems. All of which is good news for the domestic construction industry.
According to Business Monitor International, there are some potential challenges that the Kazakhstani construction sector is facing, which stem from sluggish economic growth due to falling oil revenues, a weakened Russian ruble and a devaluated tenge; these conditions will have particularly serious implications for the construction of both residential and non-residential units. Many analysts have highlighted the downside of construction industry forecasts due to the February 2014 currency devaluation. While the devaluation did provide a boost to net exports of cement and other building materials, it had adverse effects on consumption levels. Thus, the demand for housing, commercial construction, and industrial construction are predicted to remain subdued over the short term. However, preparations for the 2017 World Expo and associated government funding programs are boosting investment and keeping consumption healthy, especially when compared to other periods of uncertainty in Kazakhstan’s recent history. Vadim Kulik, the CEO of the United Cement Group, has told TBY that, “Currently, yearly cement consumption is 7.8 million tons per year, and this number is growing by 10% to 15% per year. At this stage, there is no deficit in terms of supply. However, there was a deficit in the early 1990s, when the country won its independence, but now supply and demand are completely matched.” So when looked at over the course of Kazakhstan’s development in the past two decades, the signs of growth in construction are undeniably positive.
Kazakhstan is also seeking to become a preeminent steel producing nation across the whole of the Central Asian region. If it is successful, this is a role that could generate even more markets for its steel products as far south as Iran and the Gulf Arab nations, and across the Caspian Sea into the Caucasus. Pushing ahead with plans to double its steel production in the next five years, the government has reached an agreement with the Luxembourg based ArcelorMittal company to nearly double steel output in Kazakhstan in 2015, with the help of a $500 million investment. This European steel manufacturer operates ArcelorMittal Temirtau as its local subsidiary in Kazakhstan’s northeastern city of Temirtau. It wants to fund a major modernization program to boost production to full annual capacity of 6.6 million tons of steel by 2015. Although it is a laudable goal, it does fall short of the 11 million ton production goal for the country set by President Nazarbayev in June 2010. This is noteworthy, as developing a serious and regionally competitive steelmaking industry is seen by Kazakhstan’s leaders as an essential component of their 20-year industrial development plan up to 2030. Yet with serious plans for development and focused work by both the government and private sector, the construction sector looks to be laying the foundations for a healthy and productive future.
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