THE GRAND CONSTRUCTION

The construction boom was sort of a catalyst leading Azerbaijan to be the most powerful players in the region in terms of the production of building materials. The local companies were able to organize the production of wide range of building materials. Currently, almost 77% of the total volume of raw materials for the construction sector are produced domestically by private businesses. Over the past decade, this segment has achieved growth of more than 2.5 times, and the number of companies involved has increased almost 12 times.

“The construction sector is one of the fastest growing areas of the national economy, and despite the strengthening of the global economic crisis and its negative impact on our country, the construction sector continues to grow”, says Elkhan Asadov, Deputy Chairman of the State Agency for Construction Safety under the Ministry of Emergency Situations, at the opening ceremony of the International Construction Exhibition BakuBuild 2016”. He later added: “Despite the global crisis, the volume of public investment in the economy as a whole has not reduced. Rather it increased in some areas. Considering this factor, we can count on the progressive development of the country's construction sector in the future”.

The results of the 22th exhibition BakuBuild held in Baku once again have confirmed the high level of development in domestic construction sector and the commitment of local companies to expand international cooperation. According to organizers of event, Iteca Caspian, the exhibition had 298 companies this year attending from 26 countries of the world. The national pavilions were presented by Italy, Iran, UAE, and a collective stand of French companies. According to tradition, a large number of Turkish manufacturers have also attended the exhibition.

However, the most encouraging evidence of maintaining positive trends in the industry was the participation of almost a hundred of Azerbaijani companies in the forum. The local manufacturers of construction materials, distributors, construction and engineering firms have represented 50% of the exhibitors.

“In recent years, the production of construction materials in Azerbaijan has witnessed a large number of domestic and foreign investments. Eventually, this has increased the level of self-sufficiency of the country in construction materials significantly. The forums of BakuBuild demonstrate this trend accordingly», says Niyazi Safarov, the Deputy Minister of Economy of Azerbaijan, who took part in the opening ceremony of the exhibition.

Meanwhile, the observed drop in world oil prices and the devaluation of the national currency resulted in certain reduction of construction works in the country, which was visible in the volumes of production of construction materials. According to the State Statistics Committee, more than 1,205,000 sq. meters of housing were commissioned during the first nine months of 2016, which is 9.2% less than in the same period of 2015. An even greater decline was observed in the production of construction materials. For example, the produced materials amounted to 251.6 million Manats in January-September 2016, which is 16.2% less compared to the same period of the last year.

Nevertheless, the government is extremely interested in supporting the construction sector – one of the most important sectors of the economy, which involves a large amount of manpower. Today, the Azerbaijani government implements an array of anti-crisis measures aimed at supporting the construction sector, as well as the measures to favour the export of construction materials. For example, such materials as bentonite, gypsum, cement, clinker, as well as items made of stone, plaster, cement, asbestos (slabs, bricks, building blocks) and ceramics are included in the list of goods subject to increased customs duties effective from November 1, 2016. These duties will be applicable at least for two years. According to the head of the State Customs Committee (SCC), Aydin Aliyev, the increase in customs duties on some imported goods will, firstly, lead to the increased production of domestic products.

Meanwhile, the experience of the global crisis 2008-2009 years has confirmed that the local construction, engineering and contracting companies have managed to overcome the recession largely due to the state support, which has ensured orders for the construction of infrastructure and social facilities.

Apparently, this experience will be used actively in the current period as well.

“The newly established State Agency for Housing has recently started operations: a major construction project is being implemented in Yasamal district of Baku, and the works on the construction of social housing have already started. This initiative not only has a great social significance, but, more importantly, will have a tangible impact on the construction sector, and in particular the production of construction materials. Our entrepreneurs must be prepared for the participation in social housing projects. In particular, it is necessary to ensure that all construction materials used in these projects are produced locally”, said the Azerbaijani President Ilham Aliyev, speaking at the recent convention of the Cabinet of Ministers dedicated to socio-economic development of the country during the three quarters of 2016.

The recent presidential decree, prohibiting the state agencies and organizations financed from the state budget the import of goods and services to support domestic procurement endeavours until January 1, 2018 pursues the same objective, that is the support of local producers, as well as encouraging the development of entrepreneurship in Azerbaijan, improvement of business and investment environment and competitiveness.

The local manufacturers can ensure the supply of necessary construction materials for social housing construction projects. Obviously, to some extent, the country has managed to achieve progress in restricting the import of construction materials: the local producers of cement and concrete products, gypsum-based dry mixes abundantly satisfy the needs of the market. The local production is sufficient to cover the needs of the sector in bricks, stones, asphalt, gravel, plaster facade, and partly in polymer pipes, fittings, etc. However, in some areas there is still a palpable dependence on imports.

“To ensure high quality of construction works, the sector still feels the need for good-quality and low-cost building materials produced locally. Such building materials yet are imported from abroad. This includes mainly facing, decorative, expanded clay, insulating materials, paints, etc. Without establishing local production of high-quality and low-cost construction materials, it will be difficult to ensure the development of construction sector in Azerbaijan”, said Elkhan Asadov.

This statement is fully grounded, as the local construction market is really experiencing pressure due to the rise in prices of imported construction materials, due to the weakening of the national currency - Manat.

So, during the current year, the prices of floor and roofing materials, drywall, fittings, plastic, wood and metal doors and windows went up by 40%. The wallpapers became more expensive by 15-20%.

It is obvious that the rise in prices for imported construction materials could serve as an incentive for businesses to market their production locally. This is quite a profitable investment, as under the current exchange rate, the difference between the price of imported and local construction materials often reaches 100%.

Also, before the global crisis eight years ago, the local construction companies were actively developing the construction sites across the post-Soviet area, winning various tenders for the construction of roads, ports, reconstruction or construction of administrative and residential buildings, etc. held in Kazakhstan, Ukraine, Georgia, and even Russia.

In similar circumstances, the local manufacturers of construction materials regain the intensity of foreign activities.

Incidentally, a new enterprise for the production of construction materials has been recently commissioned in Azerbaijan. On the other hand, there are initiatives to increase capitalization and the volumes of output in construction sphere. For example, Mətanət-A, one of the local manufactures of construction materials, has introduced five plants during the past few years. They produce dry building mixes, paints, concrete admixtures, gypsum blocks, and a special type gypsum called Ağdağ. About half of the manufactured products is exported to Russia, Kazakhstan, Turkmenistan, Georgia, Iran, and Ukraine. Yet another company opened in September 2016, an Azerbaijani-German joint venture for the production of facade products, Deutsche Fassaden Technologien (DFT) operating in the village of Balakhani, also has plans about exporting their products. A similar strategy to minimize the aftermath of demand reduction in the domestic market is shared by many other Azerbaijani producers of construction materials. One of them is Azbentonit, the construction unit under Gilan Holding, specializing in the production of elevators, insulation, and plastics, drywall, etc.  

It is likely that in the near future, the export of construction materials from Azerbaijan can become a self-sufficient and stable trend. This is even more likely if one considers that under present conditions affected by low oil prices, Azerbaijan, like its neighbors in the region, is forced to temporarily reduce the budget financing of major construction projects.