FLOWETH THE CEMENT

Kazakhstan 2014 | REAL ESTATE & CONSTRUCTION | REVIEW: CONSTRUCTION

The economy in Kazakhstan is continuing to grow, which is both a result and a driver of the construction sector. As the industry continues to mature, it is likely to attract more foreign investment.

The construction sector in Kazakhstan has a significant influence on the national economy. Its vast supply of construction materials put Kazakhstan in an enviable position that few other emerging markets enjoy. And with only half the resource fields currently being exploited, there is a lot more potential left in the market as both the private and public sectors increase investments.

MATERIALS

Invest in Kazakhstan identified three main areas to develop for the industry to remain competitive and experience continued growth. The first requires a way to increase the value-added in construction. The country must also improve the rate of domestically produced construction materials, and finally it must increase labor productivity. Still, the main area of attractiveness for most investors involved in the construction industry in Kazakhstan is in the raw materials sector. For some products, such as reinforced concrete products, thermal insulating materials, dry mixes, and dry wall, over 93% of the materials consumed are produced domestically. However, in other materials, such ceramics, and linoleum, almost all of it is imported, 100%, 97%, and 85%, respectively. If the construction industry is able to reduce the amount of imports, while also increasing its domestic production, the cost for contractors and companies will fall.

The country is making progress in achieving those three main targets and is moving toward a more competitive market. Between 2008 and 2013, the production of construction materials in Kazakhstan increased by 180% in nominal terms according to the Prime Minister of Kazakhstan, Karim Massimov. The production of non-metallic, building materials also increased significantly in value-added terms by 30.6% between 2008 and 2012; however, the building materials sector is still dominated by low-value products. In terms of cement, the country production increased by 5.9 times and surpassed 5.5 million tons in 2013 compared to six years before. Kazakh Enterprises, one of the main cement producers in the country, pumped over 7 million tons of cement onto the market in 2013. Another materials sector to experience steady growth has been the plastic pipes and fittings segment. In 2013, over 115,000 tons of plastic pipes and fittings were produced, a 1.9 fold increase in comparison to 2008. The share of total domestically produced building materials on the market in 2013 increased to 72% compared to 58% in 2008. In addition to the progress made in the building materials sector, worker productivity has also experienced a boost. In 2008, the average laborer working in the production of building materials produced approximately $17,000 worth of products in the first nine months of 2008; however, between January and September 2013 this increased $39,000 worth of products.

PROJECTS

According to Kazakhstan's Statistics Agency, total investment in fixed capital in Kazakhstan is on the rise, totaling $29 billion in 2012, $32.6 billion in 2013, and in the first four months of 2014 reached $7.1 billion, which puts it ahead of the two previous years at the same point in time. Investments in the construction of housing alone is also increasing, from $216 million in 2012, to $258 million in 2013, to $85 million in the first four months of 2014.

One of the largest real estate projects to be announced in June 2013 is the joint venture between Abu Dhabi-based Arabtec and Aldar Properties. The $1.1 billion project, called Abu Dhabi Plaza, is currently under construction and should be completed by 2017. The mixed-used development will have a floor area of 550,000 sqm, with 107,000 sqm of office space, 566 luxury apartments, a five-star hotel, a retail mall, and a car park for 4,000 cars. The project will consist of five towers in total, with the tallest having 88 floors and reach 382 meters into the sky, which will make it the tallest building in Central Asia. Once finished, it is hoped that Abu Dhabi Plaza will attract a whole host of tourists to the country, especially from the Middle East.

In November 2013, another significant project was announced to develop the Tengiz oilfield. Kentz Kazakhstan signed a five-year, multi-discipline contract for its construction services by Tengizchevroil (TCO) to support the development of the field. Kentz will provide structural, mechanical, and piping services, pipeline repairs, and construction services.

Kazakhstan also has numerous projects underway to help develop its building materials sector. In April 2014, a $16.2 million project was announced in the Akmola region for a ceramic brick factory. The project was taken on by Murat Sabazganovich Aibassov, and construction begins in 2015. The project should be fully completed by 2025 when the factory will have a capacity of 18 million ceramic bricks per year. The project will employ 65 workers during the construction stage and 100 once the factory is operational. In May 2014, another project was announced to build a polymer pipe factory in Kyzlorda. Construction will begin in 2014 and will be completed a year later in 2015. The $15.5 million factory will eventually have a capacity of 45,000 meters of polymer piping per year.

As the country's economy and population continues to grow, the construction market is maturing in line. The domestic production of construction materials is making Kazakhstan more attractive to foreign investors who are changing the skylines of the nation's major cities.