The future has never been as bright for Polish construction companies

Optimism abounds

Based on the research PMR conducted for its report, “Construction sector in Poland 2006 – Development forecasts for 2007-2009”, Polish construction companies are very optimistic about their present situation and future prospects. A decisive majority of firms operating in Poland provided positive assessments of the current market situation. Compared to a similar survey conducted by PMR in August 2005, market mood has significantly improved. Currently 73% of the surveyed companies believe the situation to be good, while a year ago, only 38% of respondents were as positive about the current situation on the construction market. Respondent’s predictions about the future are just as optimistic – more than a half of those surveyed expects things to improve in the next 12 months, and only 7% fears a downturn.

In the opinion of the interviewed managers, the steps the government takes to improve the situation in the construction industry should primarily concentrate on lowering taxes and labour costs and then on simplifying tender procedures and land development plans. Though the labour shortage is currently the industry’s biggest problem, only 6% of respondents believe that the Polish government can counteract this problem, by demanding that it arrest the westward exodus of Polish workers.

PMR also asked respondents to formulate forecasts for 2003, for the following indicators, to gauge the climate prevailing over the construction market:

• Construction and assembly output
  
• Cement production
  
• Number of issued construction permits
  
• Prices of building materials
  
• Workforce at construction firms
  
• Wages at construction firms.
  

According to the surveyed companies, all six indicators are set to rise. Respondents were most convinced of upcoming growth in: construction and assembly output (89%), prices of construction materials (82%) and wages paid to construction workers (81%). Workforce growth was forecast by the smallest percentage of respondents, only 48%, while 37% of those interviewed were of the opinion that the indicator would stay put.

Polish construction companies are in good standing, with bulky order portfolios

In the light of the research findings, it seems that Polish construction firms are in very good financial standing. Only 3% of respondents provided negative assessments of the current finances of their companies. For a fifth of the persons interviewed, the financial situation of their companies is “neither good nor bad”. Two-thirds of respondents also admitted that their companies are currently in better financial standing than a year earlier; more than three-quarters of the surveyed believe that their companies will be better off at the end of 2006 than they were at the end of December 2005.

Polish construction companies were also very positive about their order portfolios. A steep 85% of respondents provided positive assessments of the current number of orders. More than three-quarters expects the order portfolios to grow further in the upcoming 12 months.

PMR also asked what in the opinion of the respondents is key to achieving market success in the construction industry. Based on the provided responses, lasting relations with customers is one of the main factors assuring market success, as confirmed by 78% of the persons interviewed. Compared to the previous survey, lasting relations with subcontractors have significantly gained in importance (mentioned by 64% of respondents). Meanwhile, this year less emphasis was placed on business diversification – mentioned by 35% of respondents.

Firms fear labour shortages, overly complex legislation and high labour costs

When asked about key barriers to doing business on the Polish construction market, nearly two-thirds of respondents pointed towards labour shortages. Interestingly, in the survey conducted a year ago, this was not a key barrier, which means that the problem of a shortage of able bodied workers is rapidly becoming more acute. Furthermore, lack of workers will remain the industry’s key challenge in the next several years; it can be alleviated only if Poland opens its boarders to workers from the east and concurrently pays more to those working in construction. “It is highly likely that construction companies will not be able to rapidly increase their production capacity simply because they will not be able to find and hire new employees. In the longer term, the labour shortages may well lead to higher costs and greater subcontractor risk,” stated Szymon Jungiewicz, senior analyst at PMR.

Other barriers that respondents mentioned often, were: complicated and unstable regulations (48%), high labour costs (44%) and taxes (33%). Notably, in this latest survey, this year less persons cited payment bottlenecks as a key barrier to doing business on the construction market.

Suggestions for the government

In the opinion of the interviewed managers, the steps the government takes to improve the situation in the construction industry should primarily concentrate on lowering taxes and labour costs and then on simplifying tender procedures and land development plans. Though the labour shortage is currently the industry’s biggest problem, only 6% of respondents believe that the Polish government can counteract this problem, by demanding that it arrest the westward exodus of Polish workers.