NEW TREND

Amidst the efforts of the government to support housing construction and stimulate exports in Azerbaijan, we can see an emerging trend for gradual increase in the production of building materials. The industry, which was developing dynamically during the construction boom in 2015-2017, goes through a dramatic decline in production due to limited financing and capital construction projects by the state and private sector. At the same time, a decrease in demand in the domestic market prompted manufacturers of building materials to export part of their production. This and other new trends in the construction industry were presented at the international construction exhibition BakuBuild Azerbaijan 2019 held in October.

Positive developments

"In recent years, the construction industry in Azerbaijan has developed rapidly. In 2013-2018, the production of building materials increased by more than 70%. Moreover, over 90% of domestic demand for cement and bricks is covered by domestic production. This is a good indicator showing high dynamics of growth in this priority area of ​​the economy. In the near future, Azerbaijan will ensure the production of most types of building materials independently," Niyazi Safarov, Deputy Minister of Economy of Azerbaijan, said at the opening of the anniversary exhibition BakuBuild Azerbaijan 2019.

Over the past years, Azerbaijan has indeed secured significant success in the production of construction materials. Today Azerbaijan is the first country of the South Caucasus in terms of production volumes and assortment. Currently, about 80% of the total volume of construction materials is produced by the private sector. Over the past twelve years, the sector has grown by 2.5 times, and the number of companies involved has increased by more than 12 times.

For a long period, the development of this business sector has been supported by the multibillion-dollar investments of the public and private sectors in road and other infrastructure projects, the construction of industrial and agricultural enterprises as part of industrial projects and regional socio-economic development programs. However, in the most difficult period of the global energy crisis (2015-2017), the volume of works in capital construction fell remarkably. Last year the segment declined by 9% with the same trend observed during the nine months of 2019 (6% decline). These circumstances had a negative impact on the dynamics of the production of construction materials initially oriented to the demand of the local market.

Although it was impossible to stop the general slowdown trend in the construction sector, there have been positive changes in the housing construction segment largely due to the implementation of the decree of the President of Azerbaijan Ilham Aliyev "On the simplification of the issuance of permits for the operation of certain multi-apartment buildings", dated February 19, 2019. The decree provided for the issuance of permits for the operation of multi-apartment residential buildings, in which all construction and installation works were completed before January 1, 2019 and where apartments already occupied by the residents are already available. These measures allowed to increase the total area of ​​housing commissioned in January-July 2019 to more than 3.4 million square meters, which is 3.1 times more than the same period last year.

This factor contributed to increase in the demand for repair works in apartment buildings and, as a result, an increase in sales of finishing and other building materials. In turn, as a result of two devaluations of the national currency, manat, the cost of Azerbaijani building materials decreased more than that of the imported materials, which also stimulated demand in the domestic market. Thanks to the introduction of export promotion mechanisms, the export of building materials has noticeably increased in recent years, hence encouraging local manufacturers to increase production volumes and expand the range of products.

New companies

Thanks to the comprehensive government measures, the production of construction materials in Azerbaijan has demonstrated steady growth dynamics for several years, significantly exceeding the pace of development in the construction sector. The same positive trend was observed in the current year. According to the State Statistics Committee, for three quarters of 2019, the production of construction materials in Azerbaijan reached ₼580.5 million, which is 4.2% higher than in 2018. The largest growth was recorded in the production of lime (33.5 thousand tons or 51.8% growth) and bricks (312.5 thousand cubic meters or 40.8% growth). Almost the same trend is observed for all other types of materials. No growth was recorded in cement production though (a little more than 2.5 million tons), almost like in the corresponding period of the last year. Positive dynamics are also visible in the production of plastic pipes, electric cables, paints and varnishes, silicate glue, some finishing materials, etc. The statistics show that the construction materials production sector in Azerbaijan has a high level of crisis resistance (in 2015-2019, no large industrial enterprises were suspended or closed), moreover, new capacities emerge in the country and the range of products is expanding.

According to N. Safarov, Azerbaijan pays great attention to the development of the construction sector. The government puts serious efforts to involve construction companies and manufacturers in the implementation of large infrastructure projects.

In particular, next year the construction of a sheet glass production plant AzerFloat CJSC will be completed in the Sumgait Chemical Industrial Park. With $82 million of investments put into this project so far, the project is one of the largest initiatives in the region. It is noteworthy that the new glass factory has a significant export potential, and its production capacity will be about 8 million square meters of transparent and tinted float glass annually. These volumes will completely cover the domestic demand for glass, and surpluses will be delivered to Georgia, the countries of Central Asia and, probably, to Russia.

N. Safarov also mentioned another new enterprise planned for the Hajigabul industrial quarter to produce equipment for the production of construction materials.

Commercial priorities of a number of large Azerbaijani enterprises for the production of construction materials are gradually changing, which will start exporting part of their production to overcome the narrowness of the domestic market. In particular, this trend has intensified in the cement market, where overproduction is observed in the post-crisis period. The total annual capacity of cement plants in Azerbaijan is 5.7 million tons, while the demand of the local market does not reach 3 million tons, which forces manufacturers to look for buyers abroad. The number of Azerbaijani companies involved in the production of construction materials now goes beyond the local market and thereby levelled negative processes through diversification of sales. It is possible to support the development of the sector, which, in addition to being an important component of the non-oil sector of Azerbaijan, is one of the key areas of the employment market.