January 24, 2019

Small companies drive growth of Polish exports of construction services

Small companies drive growth of Polish exports of construction services

Construction and assembly output generated by Polish construction companies in foreign markets has hit an all-time high of €1.55 billion, but this is still below the potential of domestic contractors. Importantly, a considerable change to the structure of companies engaged in foreign orders took place in recent years – the centre of gravity has shifted from the biggest construction groups to smaller companies with a specialised focus.

Exports of construction services rise to all-time high

The latest report by research company Spectis, entitled “Construction companies in Poland 2018-2022 – Comparative analysis and profiles of 40 leading contractors”, finds that exports generated by domestic construction companies surged in 2016 and 2017 (up by 19 percent and 16 percent, year on year), topping PLN 6.5 billion (€1.55 billion) in 2017, after a spell of stable exports in 2011-2015. As a result, the share of export sales in construction and assembly output generated by companies with more than nine workers rose to 7%, which was the best result in more than a decade.

Germany remains the most important overseas market for Polish contractors as it contributes a whopping 50 percent of all foreign contracts secured by the companies. The other major markets showing substantial growth include Belgium and Sweden.

Largest contractors left gasping for breath

Interestingly, the uptick in revenue from exports registered in both 2016 and 2017 was not due to the largest construction enterprises but rather to stepped-up foreign efforts by small contractors. Less than half of the 40 largest construction companies covered in the report conduct export activities on a regular basis. That so few companies are engaged in overseas operations is partly caused by the fact that a large portion of the leading contractors are Polish divisions of international firms which, it is often the case, conduct activities in the countries neighbouring Poland through separate companies managed by their headquarters.

As a result, a large proportion of foreign operations conducted by the top 40 construction companies is represented by 10 construction groups, most of which are not the biggest exporters of construction services anymore, which they used to be. Many of these companies have seen substantial declines in exports in recent years. This is what happened to such companies as Polimex-Mostostal, Rafako, Budimex or Mostostal Warszawa.

Chance for deeper breath after 2020

Despite frequent press reports that the largest construction companies need to look for new overseas markets, the contractors have not had too many notable achievements in foreign markets as of late. Moreover, venturing out into foreign lands often turns out an unsuccessful attempt while putting a financial burden on earnings generated in the domestic market. However, there is a significant group of contractors which do not give up on their plans to expand into foreign countries. Towards the end of 2017, Mirbud announced its intention to branch out to Ukraine, while Erbud completed an acquisition in Germany in the spring of 2018. Additionally, the Polish division of Porr declared its intention to continue involvement in bridge construction in Norway. Rafako, a member of the PBG group, which launched the construction of an LNG storage facility in Finland, hopes to secure more orders of this kind in other countries, too.

Moreover, thanks to foreign contracts completed in the past years, Polish companies have a potential to quickly rebuild their export activities using credentials they already have. While the companies cannot complain about a shortage of orders in the domestic market, an opportunity to secure additional contracts abroad can be worth its weight in gold in view of a slowdown in the construction industry expected after 2020. The major market players faced a similar scenario already in the years of 2012 and 2013, which were marked by a downturn following a period of heated preparation for Euro 2012 when foreign orders accounted for more than one-fifth of total revenue.

The largest overseas contracts currently being carried out by domestic contractors include: two coal-fired on the Lombok island in Indonesia (handled by the PT Rekayasa Industri/Rafako consortium, the net value of around €200m), the installation of electric systems at the Olkiluoto 3 nuclear power plant in Finland (Elektrobudowa; €180m), a waste incineration facility in Vilnius, Lithuania (Budimex, Steinmüller Babcock Environment, UAB Kauno dujotiekio statyba; €179m), a biomass-fuelled cogeneration unit in Vilnius, Lithuania (Rafako; €150m), a fuel storage terminal in Rashaant, Mongolia (a consortium consisting of Rafako and Gmax Group; €48m), a retail and recreation complex in Kiev, Ukraine (Unibep; €36m), transmission grid power optimisation in north-eastern Lithuania (Trakcja PRKiI, Kauno tiltai; €24m) and an LNG terminal in Hamina in Finland (Rafako; €14m).

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