The volume of construction work shrank by 5% in the first quarter compared with the first quarter of 2012, even though the construction market put at EUR9 billion to EUR10 billion a year should contribute to Romania’s economic rebound through infrastructure investments.
The decline was precisely due to infrastructure works, which saw a 12% decline compared with an increase of 21% in residential construction and 5% in non-residential (office, retail and industrial) construction.
“Construction work will decline this year. There are no signs to show it will pick up. This doesn’t make any sense. The growth trend could have come from infrastructure (…),” said Razvan Niculescu-Aron, first vice-president of the Association of Construction Companies (PSC) of Romania. “The government is more than cautious about starting work, nobody is taking the bull by the horns.”
The drop in infrastructure investments is surprising considering the weather was much better in January and February 2013 than in January and February 2012, which showed in the increase in residential construction. The explanation is that the government did not get a single euro more of the EU infrastructure funds (the so-called SOP-T program) in the first quarter.
“We noticed a 10%-12% decline in construction work in the first quarter out there in the field. The weather was better than last year but there were no funds for investment,” said Florea Diaconu, a businessman who owns construction company Delta ACM 93, which posted EUR110 million revenue last year.
“The government paid debt and has not yet started financing to continue work or begin new projects.”
The construction decline does not have to do with the economy but with the public policies of the government. While total public sector spending rose 4.4% in the first quarter, and revenue by only 3%, the investments (capital expenditures) fell 7.5%.
The non-repayable EU funds (included in the government’s total investments) did not have any contribution, at all. Not a single cent has been taken from the EU via the SOP-T (Sectoral Operational Program – Transport) since last fall. The government did not allocate any of its own funds, either. Payments to beneficiaries through the SOP-T stood at 1.8 billion lei (EUR416 million) on November 30, 2012 and by April 20, 2013 nothing had changed.
The decline in infrastructure work can be seen out there in the field in the progress highway construction sites have made.
They only progressed 3% to 4% on average in the first quarter, even though many of them were supposed to be done by April. The completion was pushed back by several months at least, which means it is not yet certain whether the highways will be inaugurated this year or will be possible to finance.
Most of the highways under construction are part of the European Corridor IV, therefore paid for with EU funds. The EU funds are pre-suspended and the government is waiting for the European Commission to make a decision on resuming payments.
First quarter consolidated budget statistics show that government spending on the programs backed by non-repayable EU funds fell 45% in the first quarter to RON1.9 billion and the amount received from Brussels for the payments made and for pre-financing dropped 33.8% to RON1 billion.
This means the entire government investment spending (capital and EU fund expenditures) accounts for merely RON5.4 billion (0.9% of GDP), RON1.8 billion below the first quarter of 2012.
The construction market has shrunk by about 40% in the almost five years of crisis, to EUR9 billion to EUR10 billion a year. Resumption of public investment two years ago made many companies in the construction business more optimistic about the rebound of their industry. However, investment was frozen again in 2012, and a number of companies went insolvent or bankrupt. Both small and large companies were affected, even big names like Romstrade and Confort.
“If we can’t sign [contracts] in the spring, we’ll be witnessing completely unwanted things in the fall. We’ll be seeing companies going out of business, insolvencies and bankruptcies will continue. The work volume is dwindling and is one of the last warning signs. We will stop our engines and this will make a horizontal impact, too, creating a disaster in other industries,” said Niculescu-Aron.
(English version by Loredana Fratila-Cristescu)