The construction sector might ensure GDP growth by 4.5% in 2020 | FinReview
18 February 2020

The construction sector might ensure GDP growth by 4.5% in 2020

The amount of construction work in 2019 increased by 14%, it allowed construction companies receive 983.4 billion tenge, which is considered to be as a record profit over the past 10 years . The contribution of construction to the formation of GDP have reached 5.6%. At the same time, investment activity of the country, which has significantly strengthened recently due to the created infrastructure, can ensure the contribution of this sphere to economic growth by 6.2%.

The constructional sector in Kazakhstan remains both: as one of the most important sectors of the economy and as one of the most attractive investment areas. Constructional field occupies 5.6% in the structure of GDP and the amount of constructional work approximately increases by 10% annually.

At the end of 2019, completed constructional works in a country were completed in the worth of 4.4 trillion tenge, this has increased by 14% compared to 2018. Wherein, this development is observed in all core activities – the number of constructional works increased by 11.7% (up to 3.8 trillion KZT), growth capital repair rose by 20.6% (up to 336.9 billion tenge) and current repairs reached 19.6% (319.4 billion tenge).

As a consequence, constructional companies put 47.1 thousand projects into exploitation, which included 42.6 thousand residential buildings.

Construction of transmission devices (gas pipelines, oil pipelines, etc.) are considered as the most voluminous projects – the amount of work and services performed have reached to 1 trillion tenge. Also, construction and repair of roads, railways and landing strips at airfields are related to the large-scale projects. Their total value amounted 781.4 billion tenge.

Following, the volume of construction of residential buildings amount is up to 650.2 billion tenge, and industrial facilities reached 579 billion tenge.


The construction sector demonstrates the high financial stability of companies

88.3% of the funds (or 3.9 trillion tenge) which were allocated for the implementation of constructional works and services were formed from the enterprises own funds. The share of state participation in financing of construction amounted to 0.2% (or 6.9 billion tenge), and the remaining 11.6% of funds (or 510.8 billion tenge) were received from foreign enterprises.

Over the past 10 years this trend has persisted, and each year the share of equity increases. It is obvious that financing of projects at the expense of enterprises is an indicator of the development of the constructional business in the country and as a result of which a, financial stability of companies increased.


By the number of enterprises, the construction sector is second only to the trading sector

There are 446.7 thousand enterprises registered in Kazakhstan, 59.3 thousand of which are employed in the constructional sector. There are 38.5 thousand companies that are active.

Small companies with up to 50 employees are the basic part of constructional enterprises. The number of medium ones and large ones are 325, 149 respectively.

The largest concentration of construction firms is concentrated in the cities of Nur-Sultan (9.3 thousand enterprises) and Almaty (6.5 thousand), as well as in the Karaganda region (2,9 thousand), Shymkent (2.4 thousand) and Mangistau region (1.9 thousand).

The total volume of products sold by construction organizations increased by 18%, reaching a record high

Construction companies fixed record profits in 2019 against the backdrop of increased activity – over the nine months, enterprises received 983.4 billion tenge. This is the highest mark over the past ten years.

Productivity growth in the sector is also reflected in the growth of tax payments to the state budget. In 2019, the country’s budget received from taxes 9.7 trillion tenge, which is for 18% more than in 2018. At about 80% of payments were generated by 300 of the largest taxpayers in Kazakhstan. At the same time, main mass of the companies that were included in the list are employed in the mining industry, manufacturing, wholesale and retail trade and construction.

Constructional companies, is considered to be as the largest taxpayers, replenished the state budget in the amount of more than 180 billion tenge. At about 26% of payments were made by 10 largest constructional companies, such as BI Group, Bazis Construction, Unex Stroy, ASPMK-519, Montazhspetsstroy, etc.

Nevertheless, the profitability of production in construction remains at the level of 10-12%. For example, until 2012, the figure was 20 – 25%. The main reason for this is the increase in prices in the primary housing market, the greatest impulse of which falls during the period of exchange rate adjustment. So, over the past ten years, the cost of housing has been increasing annually by an average of 8%. At the end of 2019, the price for 1 square meters of new housing costed 293.5 thousand tenge.

For UN standards achieving, it is necessary to introduce at least 1 sq. m. of housing per year for per inhabitant of the country, but in Kazakhstan this figure is only 0.6 sq. m.

In 2019, the area of commissioned housing increased by 5% and reached 12.9 million square meters. m. Construction companies erected 42.6 thousand residential buildings or 115.8 thousand apartments.

However, the pace of construction in the country is insufficient to fully cover the needs of the population. According to UN social standards, each resident of the country should have at least 30 square meters of housing, and in Kazakhstan this figure is equal to only 22 square meters.

On the one hand, this trend reflects a negative picture for society, and on the other, it is an indicator that the potential of the construction sector is not fully disclosed. It is obvious that the acceleration of construction growth is hampered by a lack of financing for this sector.

This is how in 2019, investments in housing construction reached 1.4 trillion tenge. At the same time, the bulk of funds amounted to own assets of enterprises – 1.1 trillion tenge, which means that the constructional sector is limited by funding sources.

Indeed, the percentage of state financing has been only 17%, and foreign funds have had 7%. Moreover, the share participation of the population was 2 times higher than state financing of projects. As a result,  population’s resources laid down by  551.5 billion tenge and the state’s indicator was 247.3 billion tenge.


The investment infrastructure created in Kazakhstan may become a key impetus for the development of the construction sector

Over the past five years Kazakhstan’s investment policy has significantly strengthened investment climate in the country. For example, from 2018 to 2019, participating companies of the Astana International Financial Centre invested over 130 million US dollars in Kazakhstan. Moreover, through the Astana International Exchange, about 2.5 billion US dollars of portfolio investments were attracted to the national economy, including debt capital in the amount of more than 2 billion US dollars and equity capital in the amount of 216 million US dollars.

Investment flows also come through development institutions, such as quasi-public sector entities, representative offices of international financial organizations Kazakhstan Development Bank, KazakhExport, Kazyna Capital Management, Kazakhstan Project Preparation Fund, Astana Hub, Damu Fund, Qaztech Ventures et al.

Correspondingly, attraction of additional investment funds will stimulate the development of the constructional sector. So, with an increase of foreign direct investment by 1 percentage point the sector’s contribution to GDP growth will increase by 0.2 percentage points, and the effect of the growth of investments in housing construction will ensure a GDP growth for 0.1 percentage points. That is, in the case of an increase in investment flows into the sphere, for example, compared to the level of 2014, when the volume of FDI was 816 million US dollars, the contribution of construction to the formation of GDP will increase to 6.2%, which in turn will accelerate economic growth to level 4.5%.