ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG

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1 A-1103 WIEN, POSTFACH 91 TEL FAX ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG 55 th Euroconstruct Conference The Outlook for the European Construction Sector Summary Report 6-7 June 2003

2 Euroconstruct June 2003 All rights reserved 740, Download 590

3 Hungarian Euroconstruct Partner Austrian Euroconstruct Partner 55 th Euroconstruct Conference Budapest, Hungary The Outlook for the European Construction Sector Summary Report June 6 th and 7 th 2003

4 All Summary Reports has been written and prepared by the organisation from the country reports of the 19 member institutes. The report has been edited and formatted by: Build&Econ Building Economy Consulting Office Ltd. WIFO Austrian Institute of Economic Research Cseresznye utca 54. Arsenal Objekt 20 Budapest 1112 P.O. Box 91 Hungary A-1103 Vienna Austria Tel.: Tel.: Fax: Fax: Euroconstruct June 2003 All rights reserved Reproduction or passing-on of the whole or parts of the report is strictly forbidden without prior written authority from Build&Econ or the Austrian Institute of Economic Research, acting on behalf of the group. II

5 Conference Programme Thursday, 5 June 19.30: Welcome drink on the Danube River, boat RÁKÓCZI LÁNCHÍD - Bridge, Roosevelt Square Friday, 6 June 2003 First day of the conference Registration GLOBAL CONSTRUCTION TRENDS Chair: Mrs Margarete Czerny, WIFO, Austria, Euroconstruct 9.00 Opening: E. Straub, President of Matáv, Hungarian Telecommunication 9.10 Global Economic Outlook and Challenges for Europe - The EU Perspective, G.M. Busch, European Commission, Brussels - The Accession Countries Perspective, A. Inotai, World Economic Research Hungary 9.45 Housing Markets Trends and Future Challenges: M. Czerny, WIFO, Austria Long - term Housing Policy of Hungary: J. Hegedus, Adviser to the Prime Ministers' Office Council Hungary Coffee-break Infrastructure Huge Tasks Facing the New EU members: P. Pajakkala, VTT, Finland, Non-residential Construction Prospects in East and West: A. Pandolfi, CRESME, Italy Costruction Markets, Outlook in West and East: A. Gaspar Build & Econ, Hungary Lunch WHAT AFTER EU ACCESSION? FINANCING PROJECTS WESTERN AND EASTERN EXPERIENCE, INVESTMENT OPPORTUNITIES Chair: Volker Russig, IFO, Germany, Euroconstruct Keynote speech: Financing Projects Long-term Investment in Transition Countries J. Bleckenwegner, S. Richards, European Investment Bank Main Contributors: Investment Opportunities, Experiences and Co-operation Incentives RUSSIA G. Toldi, Transelektro ROMANIA M. Negulici, ARACO, Romanian Contractors Association SOUTH EAST EUROPE: CROATIA, SERBIA, BULGARIA G. Tabakov, Bulgaria JAPAN H.Suzuki, Research Institute for Construction and Economy, Japan Coffee-break III

6 15.45 Keynote speech: EU-Structural Programmes for Eastern Europe after Accession 2004 T. Kozek, Undersecretary of State, Minister for European Affairs, Poland Contributors: National Development Plans Investment Opportunities for East and West: National Development Plans: POLAND, HUNGARY, CZECH REPUBLIC, SLOVAKIA, SPAIN, IRELAND, PORTUGAL Euroconstruct members Discussion Closing of the first day Evening Reception at the City Hall of Budapest Transfer from the Conference by Bus Long-term Development of the Hungarian Capital Budapest P. Vajda, Deputy-Mayor of Budapest Saturday, 7 June 2003 Second day of the conference CONSTRUCTION SECTOR APPROACH Chair: J. Nagy, ÉVOSZ National Federation of Hungarian Contractors 9.00 Keynote speech: Construction Industry & Suppliers: Trends, Markets, Prospects - EU Action Plan for Competitiveness of the Construction Industry - J.A. Campos, European Commission Construction Unit - DG Enterprise, Brussels - Eastern Experience and Outlook before Accession J. Nagy, ÉVOSZ, Hungary - Western Experience after Accession: Spain as a Receiver of EU-Structural Funds Maria Carme Maltas I Freixas, Estrategia I Formacio, Spain Main Contributors: International experiences: Competitiveness, Co-operation and Domestic Market Protection - Contractors, Suppliers, Building Material Producers: FŐBER, KÉSZ, LINDAB BUTLER, SKANSKA, RAAB KARCHER TÜZÉP, WIENERBERGER, ZÁÉV Discussion Summarising conclusions - End of the Conference Coffeee break Technical tour Budapest Construction Sites (Bus Tour Starting from the Conference Centre) Closing lunch Hotel Gellért Program IV

7 CONTENTS 55 TH CONFERENCE SUMMARY REPORT EUROPEAN CONSTRUCTION GROUP 7 MEMBER INSTITUTES 9 GLOBAL ECONOMIC OUTLOOK AND CHALLENGES FOR EUROPE 37 THE EUROPEAN HOUSING MARKET 47 NON-RESIDENTIAL CONSTRUCTION 71 CIVIL ENGINEERING 91 CONSTRUCTION MARKETS TO FINANCING PROJECTS 149 NATIONAL DEVELOPMENT PLANS 177 EU-ACTION PLAN FOR COMPETITIVENESS IN THE CONSTRUCTION INDUSTRY 225 EASTERN EXPERIENCE AND OUTLOOK BEFORE ACCESSION 233 WESTERN EXPERIENCES AFTER ACCESSION 237 INTERNATIONAL EXPERIENCES: COMPETITIVENESS AND CO-OPERATION 245 V

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9 BUDAPEST, JUNE 2003 EUROPEAN CONSTRUCTION RESEARCH AND FORECASTING GROUP was set up in 1975 by a number of specialised research institutes and consulting organisations as a study group for construction analysis and forecasting. It has since expanded from the core group to include almost all Western European countries (the European Union and EFTA), as well as a number of Eastern European countries. At present, has member institutes in 19 European countries. 'S network also extends to the Baltic States (through our Finnish partner), Japan (Research Institute for Construction and Economy, RICE, Tokyo) and Korea (Construction & Economy Research Institute of Korea, CERIK, Seoul). The aim of is to provide decision-makers in the construction sector and related markets and in ministries, agencies and national and international associations with information, analyses and forecasts to enable them to plan their business more effectively. Construction markets are regional or even local. It is, therefore, a great advantage that the analyses and forecasts for these markets are prepared within the network by competent national institutes for their respective home markets. 'S research and advice focuses on: Short and medium-term forecasts for macro-economic and detailed construction trends in Europe Analyses of structural changes, business strategies and competition in the European and world-wide construction industry Market studies for industrial goods and services used by the building and infrastructure sectors. 'S research and forecasts are designed to meet the needs of many types of business including: - Construction contractors and developers; housing associations - Manufacturers and traders supplying construction materials, products, equipment and machines; architects - Banks, financial and credit institutions - Government departments and national agencies; industry associations - The Commission of the European Community and other European organisations. Each country member of has the project management resources to offer their customers turnkey studies of pan-european scope. They can guarantee: - Specific know-how and experience in database research and consulting - A consistent multinational approach - Expertise in project co-ordination and quality control - Reports in the languages of the customer's choice. 7

10 Twice a year, organises an international conference on: Short-term forecasts by the member institutes for the main market segments (housing, non-residential buildings, infrastructure and civil engineering, all subsectors with a breakdown in new work and renovation/modernisation activities) in nineteen European countries. A special issue selected for its medium-term impact on the construction industry (e.g. demographics, privatisation, lifestyles, technological change, internationalisation of strategies, changes in the demand and supply structure). Past and forthcoming conference venues: December 2000 Paris (France) June 2001 Copenhagen (Denmark) December 2001 Rome (Italy) June 2002 Dublin (Ireland) December 2002 Munich (Germany) June 2003 Budapest (Hungary) December 2003 Lisboa (Portugal) In addition, offers special studies for selected national and international clients based on well-founded knowledge of databases, methods, correlations and measures. For details, please contact the partner institute in your own country. 8

11 BUDAPEST, JUNE 2003 Member Institutes Conference Budapest, Hungary June,

12 1. Austria WIFO Österreichisches Institut für Wirtschaftsforschung 2. Belgium AQUIEC-VKEBI Association pour la Qualité des Indicateurs Économiques de la Construction 3. Czech Republic URS Praha Institute of Rationalisation of the Construction Industry 4. Denmark CIFS Copenhagen Institute for Futures Studies 5. Finland VTT Building Technology Construction and Facility Management Research 6. France BIPE BIPE Conseil 7. Germany ifo Institut für Wirtschaftsforschung 8. Hungary Build & Econ Building Economy, Art and Architecture Consulting Office 9. Ireland DKM DKM Economic Consultants 10. Italy CRESME Centro Ricerche Economiche e Soziologiche di Mercato nell'edilizia 11. Netherlands EIB Economisch Instituut voor de Bouwnijverheid 12. Norway Prognosesenteret PS Building and Construction AS Research 13. Poland PAB Polish Construction Research & Forecasting 14. Portugal ITIC Instituto Técnico Para a Indústria da Construção 15. Slovak Republic ÚEOS ÚEOS a.s. Komercia 10

13 BUDAPEST, JUNE Spain ITEC Institut de Tecnologia de la Construcció de Catalunya 17. Sweden Prognoscentret Prognosesenteret AB (Part of AB the Analysgruppen AS) 18. Switzerland KOF ETH Swiss Institute for Business Cycle Research, Swiss Federal Institute of Technology, Zurich 19. United Kingdom CFR Construction Forecasting and Research Limited 11

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15 BUDAPEST, JUNE 2003 The Leading Provider of Economic Analysis and Economic Policy Consulting in Austria WIFO analyses national and international economic trends and supplies short- to medium-term economic forecasts. Together with our studies on European integration, competitiveness and location of industries and services, these trends and forecasts provide the basis for economic policies and corporate strategies. Our activities increasingly include commissioned research and consulting for domestic and international decision-making bodies, the European Commission, OECD, major business and financial institutions. Modern empirical methods incorporating the most current data available and knowledge of the institutional and political structures - these are the factors that guarantee the quality of our work. The use of international networks as well as our independent and non-partisan approach gives particular weight to our findings. WIFO is organised as an association, with membership open to organisations and individuals. Contributions by economic policy institutions provide the foundation for basic research and access to the combined research resources of a pool of about 100 highly qualified staff. Our cooperation with sponsors and members is based on the principles of partnership, project orientation and interactive collaboration. As a member of ERECO (European Economic Research and Advisory Consortium), WIFO has partner institutes in Birmingham, Bologna, Cambridge, Madrid, Munich, Paris and Rotterdam. Main Research Fields Regional and Sector Analyses Macroeconomics Agriculture Perspectives of the Welfare State Industry, innovation and Reforms of the Public Sector Construction Sustainable Development Banking Knowledge-Based Economy Tourism, Trade and commerce Private and public services Euroconstruct contacts: Margarete Czerny: Margarete.Czerny@wifo.ac.at Monika Dusek: Monika.Dusek@wifo.ac.at 13

16 AQUIEC-VKEBII ASSOCIATION POUR LA QUALITÉ DES INDICATEURS ÉCONOMIQUES DE LA CONSTRUCTION VERENIGING VOOR KWALITEITSVOLLE ECONOMISCHE BOUWINDICATOREN (ASSOCIATION FOR THE QUALITY OF THE ECONOMIC INDICATORS OF THE CONSTRUCTION INDUSTRY) Status The AQUIEC, Association for the Quality of the Economic Indicators of the Construction Industry, is an association of experts whose areas of expertise cover the economic and legislative environment that determines the development of the construction industry, as well as the specific characteristics of its various sub-sectors. Organisation The AQUIEC operates according to the same principle as the «Institut des Comptes Nationaux» (an official organisation that draws up the national accounts in Belgium), which means that it is a structure made up of a group of specialists who define a working framework, delegate the practical work, control and validate this work. The experts of the AQUIEC form a multidisciplinary team that includes economists, jurists and specialists in tax and social matters. Most of them are members of the highest authorities that oversee their areas of expertise: Central Economic Council, Supreme Statistical Council, Economic Club, Supreme Financial Council, Supreme Employment Council, etc. Activities The AQUIEC is active in each of the fields that make it possible to improve the economic information relating to the construction sector. As a general rule, it operates as a Forum, in which the experts coordinate the initiatives relating to the construction statistics: drawing up of statistics, quality control and analysis (of the current and forecast economic situation) and in which they exchange information that can prove useful for the objective achievement of these analyses. As far as the prospects are concerned, it also operates as a Scientific Council responsible for: defining the hypotheses selected for the drawing up of the «construction prospects»: macro-economic hypotheses and others (national insurance contributions, tax, policies likely to influence the construction industry, etc.); defining the working method, for checking the pertinence of the macroeconometric model that translates the selected hypotheses into «construction prospects» and for advising its managers on the improvements to be made to them; evaluating, in terms of coherence and probability, the prospects drawn up by the Construction Confederation (currently the only one able to carry out this work in Belgium) on the basis of the framework that it has defined (hypotheses and method); validating (after a possible correction) the prospects drawn up in this manner. Aquiec-Vkebi rue du Lombard 1000 Bruxelles Euroconstruct contact : Jean-Pierre Liebaert Tel Fax Jean-Pierre.Liebaert@cobonet.be 14

17 BUDAPEST, JUNE 2003 ÚRS Praha, a.s. Status ÚRS PRAHA, a.s. is an engineering and consulting company, incorporated in It is the successor of ÚRS PRAHA s.p. (Institute of Rationalisation in the Construction Industry, Prague), which was founded in ÚRS PRAHA is certified in accordance with CSN ISO 9001/2 Standard in the field of consulting activities and of development and implementation of software and databases, both for the construction industry. Activities The focus of our activities comprises complex services in the evaluation of construction executed for construction, planning and investment organisations, regional state bodies and construction authorities, court appraisers etc. This activity includes the publication and sale of expert texts, especially of construction price-lists, construction material price-lists, as well as databases in connection with a broad range of software for the assessment of construction projects and for company management. ÚRS PRAHA, a.s. provides expert appraisals for the assessment of construction projects, land and companies. Other significant business activities carried out by ÚRS include the preparation of extensive databases of economic data on companies and industrial branches, allowing it to process financial data of company groups in various industrial branches by region, size or specialisation. We use this information for the preparation of company financial analyses. We prepare for our customers expert and consulting services for the identification and classification of products, services and works (including repairs and maintenance), of tangible assets (especially in relation to the VAT and other tax laws, depreciation groups) and for the application of the Standard Production Classification in the construction industry. All these areas are significant for the evaluation of construction projects. One part of our consulting services involves instruction courses and training (including courses on the professional use of computer technology) and regular construction briefings in Prague, Brno, Hradec Králové and Ostrava. Since 2001, ÚRS PRAHA has incorporated a department of Regional Development and Housing which carries out studies about population, settlement structure and housing at state, regional and local levels, creates a Territorial Identification Register of administrative units and functions as the National Secretariat of the Interreg III B EU program. ÚRS PRAHA is a member of ICIS, which embraces 16 member organisations from four continents. ICIS's members are organisations which provide national master specification systems and cost information systems. ICIS members are neutral in status (i.e., not political), technically authoritative, and solidly rooted in the construction 15

18 industry. URS PRAHA is also a member of. We are registered as a consulting firm in the PHARE Program in Brussels. Significant customers of ÚRS PRAHA include ministries and local authorities, principally the Ministry of Industry and Trade. ÚRS PRAHA produces surveys dealing with the development of the construction sector and studies dealing with industrial policy. ÚRS PRAHA has extended its consulting services for foreign business entities entering the Czech market and for co-operation with international groups of experts. More information available at Contact us at our headquarters: ÚRS PRAHA, a.s., Pražská 1279/18, Praha 15 Hostivař Phone: central ** Fax: ** , ** urs@urspraha.cz 16

19 BUDAPEST, JUNE 2003 The Copenhagen Institute for Futures Studies Creating visions of the future The Copenhagen Institute for Futures Studies is an independent research organisation, founded It functions as consultant and source of inspiration to corporations, government bodies, and other elements of society in Western Europe and North America. The CIFS creates visions of the future, tailor-made to the need of clients in relation to corporate development, product development, etc. supported by a staff of 41. The range of products and services is large, ranging from presentations to tailormade studies in fields like strategic development, product development, scenario building, and futures awareness in general. Tailor-made studies are based on a dialogue with the client, combining the specific knowledge of the client with the methods as well as the broad perspective of the CIFS. Specific to the construction sector, the institute runs programmes on The Home and Family of the Future, The Office of the Future, and Creating Long-term Value in Construction, besides the activities and programmes covering a wide range of Transportation issues. Other fields of study include the future of work, of organisations and the value chain, of the information economy and the transformations it brings to western culture ("the dream society"), of marketing, consumption, leisure and lifestyles, of values, politics, and media, of e-business and of physical products - Designing for the Future. The CIFS offers a comprehensive membership programme. The membership base of about 130 organisations include leading corporations, government ministries, and a diverse grouping of public and private organisations from Western Europe and the USA. International memberships are highly tailor-made to the needs of the client. Working languages include English, German, French, Danish and Swedish. More information is available at or contact us directly: The Copenhagen Institute for Futures Studies Nr. Farimagsgade 65 DK-1364 Copenhagen K Tel (+45) Fax (+45) cifs@cifs.dk Euroconstruct contacts: Anders Bjerre. anders.bjerre@cifs.dk Søren Jensen. soren.jensen@cifs.dk 17

20 VTT Technical Research Centre of Finland (VTT) is the largest R&D institute in the Nordic countries. The Institute VTT Building and Transport is one of VTT's 6 research institutes. "VTT as the technology leader brings success to Finland." VTT's activities of the Business and Process Management Research are: - analyses and prognoses of business environment: business cycles, market outlooks - business and technology strategy consulting - development of technology based new business concepts - construction process re-engineering, design and planning methods and tools, productivity, costs and quality, advanced site technology - real estate and facility management, technology and economy, condition monitoring technology VTT's Group for Business Intelligence in Construction and Property works intensively in the building market and demand forecast sector in close contact with the contractors, material producers, trade, authorities, organizations and building magazines in Finland. Demand forecasts are done for almost all important sectors, materials and employment in construction. On base of the geo-economic situation and co-operation, the construction sector development in Russia, especially in St. Petersburg and Moscow, in the Baltic countries and in the whole Baltic RIM area has became more important within the activities. STATUS VTT is a government, non profit, independent and impartial organization. FINANCING More than 3/4 of operating expenditures are covered by contract research mainly from the private sector. STAFF VTT Building and Transport has a total staff of 450 persons, of those 60 persons in Business and Process Management Research. Most of the research scientists have a degree in construction economics. CONTACT PERSONS Mr. Pekka Pajakkala, Research Manager (Pekka.Pajakkala@vtt.fi), Mr. Erkki Lehtinen, Chief Research Scientist (Erkki.Lehtinen@vtt.fi) VTT technical research centre of finland VTT BUILDING AND TRANSPORT Hermiankatu 8 G, Tampere P.O. Box 1802, FIN VTT, Finland Tel Fax name.surname@vtt.fi Business ID

21 BUDAPEST, JUNE 2003 BIPE, UNDERSTANDING THE FUTURE Because anticipating enables to better control one s future, executives need economic forecasts and sector analyses to pilot their actions. By providing them information on the possible evolutions of their environment, the BIPE helps them to orient their strategy and fund their investments on realistic economic analyses. For forty years, BIPE, one of the leading European companies in consulting based on economic forecasts and with a forward-looking approach, has been providing executives with relevant advice to guide them in their actions. The BIPE s areas of action include: decision support and advice on business strategy: determining strategies, products, prices, activities and markets; forecasting the business environment, potential reversals of business trends, new market trends, evolutions in terms of competition, technologies, ways of life and consumer trends; public relations as well as the customer environment); sector forecasts and projections; help in elaborating, piloting and assessing public policies: advice, definitions, managing and evaluation of the impact; advice on economic regulations for both companies and public authorities. By providing them with forward-looking guidance on their environment, the BIPE helps businesses to: anticipate and react to market disturbances, in terms of activity and employment; elaborate the architecture and define the conditions necessary for the success of their investment or market penetration strategies; base the company s budget on economically realistic assumptions; understand the organisation of enterprises within a given sector and/or clusters and the way in which the organisation must evolve; prepare their marketing strategy with a better understanding of their customers and their growth potential; define what regulatory or fiscal changes are necessary and gauge their consequences (support for debates between business sectors and the public authorities); elaborate and/or support the definition and the implementation of industrial projects, including their investments, employment and training aspects. 19

22 In addition, the BIPE helps public authorities to: understand the roles of the different actors (for example, future dominant organisational models in the organisation of a sector or the probable responses of business to regulatory or other proposed changes); anticipate short, medium and long-term market evolutions or reversals in trend and understand what is behind the changes; measure the impact of past or proposed public policies; dialogue with the private sector, understand the needs of businesses and develop jointly suitable strategies. In addition to its expertise in forecasting tools and methods, the BIPE s analytical capacity is based on the specialisation of its teams in key sectors of the economy and the permanent monitoring of major changes. An international presence The BIPE belongs to a number of professional international networks such as: AIECE (Association of European Conjectures Institutes); Euroconstruct, in the area of construction markets; Eurostrategies, in the area of telecom and media; ERECO (European Economic Research and Advisory Consortium); Stratorg, a top-management consulting company present in Europe, China and Russia. The Competitiveness Institute (TCI), a European research institute for cluster practitioners based in Barcelona. In addition, BIPE and Futuribles International commonly manage a documentary collection in terms of forward-looking approach to promote and reinforce the use of this discipline in Europe. L Atrium 6, place Abel Gance F92652 Boulogne Billancourt Cedex France Tél. : 33 (0) Fax : 33 (0) contact@bipe.fr 20

23 BUDAPEST, JUNE 2003 ifo Institut für Wirtschaftsforschung Ifo Institute for Economic Research Field of Activities The Ifo Institute for Economic Research is one of the six major German economic research institutes. It examines short-term developments in the overall economy and in individual sectors as well as longer term tendencies and structural changes. The institute regularly conducts short-term forecasts, medium-term business cycle perspectives and long-term growth scenarios, both for the economy as the whole and for individual sectors and industries (e.g. construction industry with sub-sectors and branches). In its various business surveys the institute gathers and analyses data from more than 7,000 German firms monthly. The Ifo Institute publishes since more than 50 years the main survey findings, e.g. the well known Ifo Business Climate. Since 1981, the Ifo Institute has conducted its World Economic Survey (WES) amongst more than 1,100 business leaders and economists in 90 countries. Every quarter, these experts assess the present and the prospective economic situation in their countries. Special attention is given to the early detection of emerging economic problems. The institute analyses current and projected economic policy measures and puts forward its own economic policy recommendations. Setting-up and Status The Ifo Institute was founded in 1949 in Munich as a non-profit, independent research organisation and has the legal status of a registered society. Since 2002 there is an institutionally link to the University of Munich as basis for a strong co-operation. The Ifo Institute has about 700 personnel and institutional members, mainly enterprises, associations, foundations, interest groups and political parties. Organisation Since 1999, the Ifo Institute is structured in the following eight research and service divisions: Economic Forecasting and Financial Markets; Public Sector; Social Policy and Labour Markets; Structural Change and Industrial Economics (sub-division: Construction and Real Estate); Environment, Regions and Traffic; International Institutional Comparison; Business Surveys; Data and Information Centre. Resources With about 150 staff members, the Ifo Institute covers the whole spectrum of economic activity. About half of the Institute s funds are provided by the government, according to the general agreement on joint financial support of research in Germany. The remaining half of the funds is mainly raised through contract research, multi client studies, conference fees and foundation grants. The research contracts are primarily awarded by federal and state ministries, international organisations and the EU Commission, business associations and private companies. Membership fees and the sale of the institute s various publications contribute also to the funding of the organisation. ifo Institut für Wirtschaftsforschung e.v. an der Ludwig-Maximilians-Universität München Ifo Institute for Economic Research Box , D MUNICH, Germany, Tel.: / and 1389; Fax: / ; (Research Unit Construction and Real Estate): RUSSIG@ifo.de 21

24 Building Economy, Art and Architecture Consulting Office Budapest 1112 Cseresznye utca 54 Hungary Managing Director: Ms Anna Gáspár Tel/fax: Mobile: The Building Economy, Art and Architecture Consulting Office was established in 2000 to provide market services for various sectors of the construction industry. Members of Build & Econ are professionals with a wide range of experience in the fields of construction, architecture, economy and building information, construction market analysis, engineering and art, and provide their services in close co-operation with a number of major firms in Hungary. The management personnel of Build & Econ have participated as Hungarian partners in 's operations since 1990, targeting Hungary and Central-Eastern Europe. is a network of construction research institutions in 19 European countries which compiles and analyses information on the future of the economy and issues forecasts. These analyses of the construction and real estate markets and short- and long-term prognoses are presented at conferences held every six months. This information has proved invaluable for major banks, developers, manufacturers and construction companies. Services of Build & Econ: Construction market analyses and prognoses, edited twice a year (short- and medium-term studies) East-European construction market country reports: Hungary, Russia, Romania, Ukraine, Serbia, Croatia, etc. Individually tailored market research Conference organizing Architectural planning Art consulting References: In Hungary: National Bank of Hungary, Hungarian Statistical Office, Kopint- Datorg, Alukönigstahl, Bati International, Bau-Data, Doka, E-Build, ÉMI, ÉTK, Fundamenta, Graboplast, Groupe Schneider, Henkel, HVB, Közti, Lakáskassza, Lindab-Butler, Mofém, OTP, Skanska, Szonett, Tondach, MEO Contemporary Art Assembly, Műcsarnok Hungarian Art Gallery Mü-Terem Art Gallery, Nagyházi Art Gallery Abroad: (Europe), CIB (International Council for Building Research), Domoferm, WIFO (Austria), ABF, URS (Czech Republic) VTT, Helsinki KSV, (Finland); BIPE, CSTB, IFEM, IMETAL (France); Bertelsmann, IFO, Hochtief, Kömmerling, Ytong (Germany), Biennale di Venezia, CRESME (Italy), Info-Inwest, PCR&F (Poland); Araco, DIIC (Romania); VNIIESM (Russia); ZSPS, UEOS Komercia (Slovakia); ETH-KOF, Holcim, SGZZ (Switzerland), Building Centre, CFR, Shell (United Kingdom) 22

25 BUDAPEST, JUNE 2003 E C O N O M I C C O N S U L T A N T S DKM Economic Consultants, Davy House, 49, Dawson Street, Dublin 2 IRELAND Tel: Fax: E Mail:dkm@davy.ie Status DKM Economic Consultants is a specialist economic consultancy firm based in Dublin which was established in It is a subsidiary of Davy Stockbrokers, which is, in turn, a subsidiary of the Bank of Ireland Group. Field of activities DKM Economic Consultants undertakes commissioned research projects over a range of areas in applied economics. The firm s work covers construction, housing, transport, energy, and finance as well as regulatory, socio-economic and regional studies. The firm s client base covers most of the large State and private companies in Ireland, Government Departments and State Agencies. Its clients also include international organisations, including the EU Commission and the World Bank. DKM has extensive experience of the Irish housing and construction sector and a track record in economic forecasting for that sector. The firm has been engaged by the Department of the Environment and Local Government (DoELG) in recent years to (i) prepare the official estimates of national and regional construction output, (ii) assess the medium term outlook for construction and employment and (iii) examine the challenges facing the industry over the medium term. DKM recently completed a project which developed a mix-adjusted house price index for the DoELG. Research Projects The firm has completed projects for a number of private companies and financial institutions operating in the housing and construction sector including studies which examined: the prospects for some of the key concerns surrounding mortgage finance and housing affordability; the outlook for Domestic Mortgage Indemnity in the Republic of Ireland; developments in the economy of Dublin including demographic, settlement and housing trends in the Greater Dublin Area; and the prospects for construction materials in the period to

26 During the 1990s DKM acted as External Evaluator to the Operational Programme for Transport (OPT), and its predecessor, the Operational Programme for Peripherality (OPP). These are multi-mode programmes of investment in Ireland s transport infrastructure, co-funded by the EU and the Irish Government. DKM s evaluation team included its own economists plus economists and engineers from Irish and UK universities, research institutes and consulting firms. Nature of work More generally, projects undertaken for clients have included: market and data analysis; project appraisals; economic impact studies; infrastructure investment appraisals and evaluations; reviews of pricing and subsidy corporate strategy studies; issues; appraisals of transport policy issues; implications of EU policies and directives; energy policy appraisals; tariff studies; housing policy appraisals; demographic and household trends and projections; housing affordability and budget submissions; prospects; employment patterns and land use markets; measurement of housing and construction output. As External Evaluator, DKM s role involved reviewing all aspects of the programmes, reporting on progress in their implementation, evaluating the financial, physical, economic and qualitative aspects of investments, recommending changes where necessary to investment measures and project selection criteria (including evaluation of cost-benefit studies) and liaising with Government Departments, the EU Commission and other parties as and when necessary. DKM expertise in evaluation also extends to energy where the firm has carried out studies including an economic evaluation of the optimal infrastructural options for meeting gas demand up to the year 2025, and an evaluation of future gas transmission in the Republic of Ireland. Resources The DKM Team consists of four professional economists supplemented by the economic research capability of Davy Stockbrokers. The firm also utilises a panel of experts from Irish and United Kingdom universities and research institutes in the engineering, transport and energy fields.` 24

27 BUDAPEST, JUNE 2003 CRESME (CENTRO RICERCHE ECONOMICHE E SOCIOLOGICHE DI MERCATO NELL EDILIZIA) Status CRESME was founded in 1962 as Association and it is one of the most specialised Institute in economic and market analysis of the construction sector in Italy. It undertakes commissioned research project on the construction industry on behalf of public and private sector clients. The Institute is organised on the base of an Association of about 200 members, including construction companies, construction materials producers, category associations, industrial associations, credit institutions, construction co-operatives, government offices, local authorities and other operators of the construction sector. Later, in 1982, CRESME Association has created an Ltd company, CRESME RICERCHE s.p.a., that operates autonomously on the market. In 1985 CRESME RICERCHE s.p.a has created two new companies: CIDS, specialised in real estate management and SERICO, specialised in marketing communication. Organisation The Institute is organised in five multi-disciplinary divisions: informative system and cyclical analysis focused on construction markets; public sector contracts monitoring; marketing analysis and surveys; real estate market analysis and real estate management, professional education and training. The permanent staff of CRESME totally amounts to 50 people (whose 20 in CIDS and 5 in SERICO), while external consultants amount to around 30 people. Activities CRESME has an informative system able to articulate the building production market at territorial, typologic and forecasting level and offers a variety of services from short consultancies to major projects of the construction sector in the following categories: Construction Industry forecasting Economic and statistic analysis Market analysis Town planning analysis CRESME RICERCHE SPA Via Fogliano, 15 I Rome Italy Tel Fax cresme@cresme.it

28 Aims The EIB foundation aims at fostering the knowledge of economic and social questions related to and of importance for the Dutch construction industry in an independent and scientific way. EIB work comprises: scientific research, especially in the area of the construction process and the building markets; preparation of reports on scientific research, both on own initiative and in response to outside demand. Status Independent, non-profit making foundation. Organisation A number of interests is represented on the governing body, such as employers organisations, trade unions, architects, materials producers, consumers and government. A five member committee is drawn from this body to watch over the interests of the Institute and the achievement of its objectives, but without interfering in the scientific research itself. Staff The EIB has three research departments, one of which is focussed on the construction market and housing, another studies the construction firms and the labour market. The third department both has a supporting statistical and a research function. The staff mainly consists of economists, statisticians and sociologists and comprises around 20 people. Financial resources The institute is financed by general subscriptions from the Education and Development fund for the construction industry. Besides a part of the resources comes from funds for special projects and contract research. Many of these commissions originate from the Dutch government. Economisch Instituut voor de Bouwnijverheid De Cuserstraat CN Amsterdam Telephone: (++31) Telefax: (++31) eib@eib.nl Internet: Euroconstruct contact: Oebele Vries ovries@eib.nl 26

29 BUDAPEST, JUNE 2003 Box 569, N-1411 KOLBOTN NORWAY Phone: ps@prognosesenteret.no Visit us at Prognosesenteret AS (Norway) and Prognoscentret AB (Sweden) are independent market research companies established in 1978 and located in Oslo and Stockholm. We are offering different business research services on the Nordic building and construction markets. Total turnover in 2001 was approx. 2.5 Mill. Euro generated by 15 employees, - including a consulting team consisting of economists, business analysts, engineers and an anthropologist. Based on regular market analysis and a frequently updated database (since 1981), we are able to offer a unique combination of general market information and tailor-made reports for individual company clients within or related to the Nordic building and construction market. We provide more than customers with forecasts on a regular basis and do analysis to solve specific and short-term needs, mainly through customised web-pages. We also carry out ad-hoc analysis on various themes within the same market area. Our main services include: Regular Research Services - monthly or quarterly updates: Economic outlook for the Nordic area per country. Nordic construction activity in general per country, including statistics and comments about market trends. Regular Research Services updates twice per annum: The market for new residential building activity, incl. forecasts The market for new non-residential building activity, incl. forecasts The market for maintenance of residential buildings, incl. forecasts The market for maintenance of non-residential building, incl. forecasts Multi client research: Analysis on the consumer behaviour related to various building markets Quarterly tracking of trends within the DIY market: volume and structure The databank "BuildingMaterialsBarometer" includes detailed data on the consumption of construction materials and services in the Nordic region. The databank includes market figures for more than 500 products/services, and is based on a yearly registration of end-use consumption. Breakdown by country: Norway, Sweden, Denmark, Finland Breakdown by building type: Industrial buildings, commercial buildings, hotels buildings, buildings for education and research, buildings for health services, other buildings. Detached houses, semi-detached houses and row-houses, multi-dwelling houses 27

30 POLISH CONSTRUCTION RESEARCH & FORECASTING PL Warszawa, ul. Wspólna 37/24 Phone: Fax: , http: www. pab.waw.pl; polishconstruction.waw.pl PAB - POLISH CONSTRUCTION RESEARCH & FORECASTING is a private scientific and research institute specialising in the economic analysis of the construction industry. PAB was established in 2000 by specialists with more than 25 years of experience in activity within the construction industry. Basic aims are as follows: Permanent scientific research on the field of investment and building processes, the construction industry and building market, Preparation and issuing of reports on scientific research initiated by PAB itself as well as ordered by firms and different Polish and foreign organisations. Main fields of activity: Industry forecasting: short, medium and long term construction and investment forecasts, Workload surveys: permanent surveys of construction activity by branches and regions, Economic analysis: research and reports focused on the construction industry network, Statistics: preparatio of database and performing data researches and analyses Monitoring: real and permanent processes of searching for changes creation of the construction industry situation, Construction market research: market capacity, its diversification and opportunities for entering. PAB offers full professional research and services on individual orders in the range of: Analysis of demand, supply and competition on construction and building materials market Costs and prices analysis on construction and building materials market Construction and tendering procedure advisory services, Research on competition level for the construction and building materials market, 28

31 BUDAPEST, JUNE 2003 Publishing activity: Monographs reports Construction Monitoring: general and specific reports on status and changes in construction activity ( prepared in Polish, on special order translated into English) Business conditions surveys of construction: analyses of tendencies and development trends short term prognoses ( prepared in Polish, on special order translated into English) Rankings of construction companies ( prepared in Polish, on special order translated into English) Polish Construction Key Figures Journals quarterly Prognozy Rozwoju Budownictwa -Prognosis of Construction Development Polish Construction Market Review: a quarterly newsletter for contractors and investors Euroconstruct contact: Mariusz Sochacki Tel ; Fax: sochacki@polishconstrucion.waw.pl 29

32 Aims ITIC Instituto Técnico para a Indústria da Construção (Technical Institute for the Construction Industry) offers a wide range of services, such as the development of both technical and scientific activities in the Construction Industry field in order to improve economic analysis, technological innovation and the management and productivity of construction firms. Status ITIC is a private and non-profit institute. Its members are different agents involved in the Portuguese Construction Industry, such as universities, professional bodies, and construction firms and materials producers. Organisation ITIC structure relies on three main departments: Economic and Management Studies; Quality Methodologies; Training. Staff ITIC s activities are carried out by a multi-disciplinary team, including economists, engineers and legal advisors. Funding ITIC is partially financed by its members. However, the major part of its funds is raised through contract fees with private firms and public bodies. Activities ITIC undertakes technical and economic studies within the Construction sector. Our activities are set to meet the needs of construction firms through technical support to reinforce management, productivity and quality patterns and therefore issue economical and technical reports, and ensure the implementation of Quality Systems and Methodologies. We produce estimates and forecasts for the Construction industry based on macroeconomic analysis and field work. ITIC specialists base their work on accurate and proven methodologies. ITIC also aims to establish and reinforce technical and scientific relationships between Portuguese and foreign entities within the Construction industry. ITIC organizes national and international conferences, seminars, workshops and lectures. 30

33 BUDAPEST, JUNE 2003 ITIC is prepared to provide a wide range of: Economic and statistical analysis; Construction Industry forecasting; Construction Market analysis. ITIC Instituto Técnico para a Indústria da Construção Rua Duque de Palmela, Lisboa - Portugal Tel: fax: sede@itic.pt 31

34 ÚEOS - Komercia, a.s., Ružová dolina 27, Bratislava, Slovak Republic tel.: 00421/2/ ; , fax: 00421/2/ ueos@ueos.sk P R O F I L E O F T H E C O M P A N Y ÚEOS - Komercia, a.s. (Joint-stock company) is a private research and consultancy company, established in 1992 by transformation of former Ústav ekonomiky a organizácie stavebníctva, Bratislava (Institute of Building Economics and Organisation) founded in At present, ÚEOS - Komercia, a.s. has 30 employees. Research, advisory and consultancy services are realised by appr. 25 experts. In addition we created circle of external co-operators - University experts and further specialists, which participates on solution of important tasks and projects. Basic fields of company activities are as follows: applied economical research and development, entrepreneurial and economic advisory, monitoring and field research, evaluation of the assets of the companies, real estates, public procurement, classification of building works, technical assistance, development of economic and calculation software, organisation of trainings, seminars courses and further professional undertakings, commercial, intermediate and publishing activities. EOS - Komercia, a.s. solves scientific-technological projects and state projects, elaborates analytic, comparative and prognostic studies and further outputs, focused on development of selected areas of economy of Slovak Republic, inclusive creation of purpose oriented information systems and providing of statistic documents and indicators. ÚEOS - Komercia, a.s. also participate on creation of laws and other legislative standards; elaborates financial analysis and business plans of companies; elaborates restructuring projects of the companies; elaborates studies, associated with strategic development of the companies. ÚEOS - Komercia, a.s. also execute evaluation of property and real estates in the process of privatisation, liquidation and credit - awarding; deals with problems of public procurement and with creation of classification system of sorting of building production; elaborates professional publications and statistic materials in conjunction with creation of branch economies. Services of ÚEOS - Komercia, a.s. are oriented on various types of consumers: central and regional administration, municipalities, etc., enterprises (small, medium, and large), entrepreneurial associations and further similar subjects, research and development organisations, foreign firms and institutions. ÚEOS - Komercia, a.s. is by her outputs successfully integrated into international research and advisory. Within OECD, EU, and bilateral funding agencies it maintains systematic and continues co-operation with research and development institutions of various countries, including Germany, Hungary, Austria, Czech Republic and Poland. Selected business activities are realised in frames of important projects, funded by various supporting programmes (PHARE, USAID, World Bank, scientific-technological projects, etc.). At present time ÚEOS - Komercia, a.s. is a renowned and widely known company with special strength in development of market strategies and in economical consulting. Company belongs to a group of most qualified and experienced companies in Slovak Republic. 32

35 BUDAPEST, JUNE 2003 Wellington 19 E Barcelona tel fax The Catalonia Institute of Construction Technology, ITeC, is an independent non-profitmaking organisation that carries out its work in the area of operations intended to further the progress of Construction. ITeC is structured into Areas, Research Programme and Services. The Constructive Process Area works on the creation of information, methodology and tools (software), which are applicable to the execution and management of each constructive process phase. The Quality Area promotes, evaluates and endorses the quality. Activities include ensuring quality in companies, the evaluation of technical specifications and product certification. This area includes activities related to Economic Construction Analysis. Maintenance and Rehabilitation Area produces information, methodology and tools (software), for the planning and management of maintenance and for rehabilitation analysis and intervention. The Research Programme is the infrastructure for research projects development. The following research lines are open: Environment and Construction Construction and New Requirements Existing Construction The ITeC staff is made up of a multidisciplinary team of 100 persons. 33

36 Box 47121, SE STOCKHOLM SWEDEN Phone: info@prognoscentret.se Visit us at: Prognoscentret AB (Sweden) and Prognosesenteret AS (Norway) are independent market research companies established in 1978 and located in Stockholm and Oslo. We are offering different business research services on the Nordic building and construction markets. Total turnover in 2001 was approx. 2.5 Mill. Euro generated by 15 employees, - including a consulting team consisting of economists, business analysts, engineers and an anthropologist. Based on regular market analysis and a frequently updated database (since 1991), we are able to offer a unique combination of general market information and tailor-made reports for individual company clients within or related to the Nordic building and construction market. We provide more than customers with forecasts on a regular basis and do analysis to solve specific and short-term needs, mainly through customised web-pages. We also carry out ad-hoc analysis on various themes within the same market area. Our main services include: Regular Research Services - monthly or quarterly updates: Economic outlook for the Nordic area per country. Nordic construction activity in general per country, including statistics and comments about market trends. Regular Research Services updates twice per annum: The market for new residential building activity, incl. forecasts The market for new non-residential building activity, incl. forecasts The market for maintenance of residential buildings, incl. forecasts The market for maintenance of non-residential building, incl. forecasts Multi client research: Analysis on the consumer behaviour related to various building markets Quarterly tracking of trends within the DIY market: volume and structure The databank "BuildingMaterialsBarometer" includes detailed data on the consumption of construction materials and services in the Nordic region. The databank includes market figures for more than 500 products/services, and is based on a yearly registration of end-use consumption. Breakdown by country: Sweden, Norway, Denmark, and Finland Breakdown by building type: Industrial buildings, commercial buildings, hotels buildings, buildings for education and research, buildings for health services, other buildings. Detached houses, semi-detached houses and row-houses, multi-dwelling houses 34

37 BUDAPEST, JUNE 2003 K O F Konjunkturforschungstelle der ETH Zürich ETH Zentrum WEH CH-8092 Zürich Tel Fax kof@kof.gess.ethz.ch SWISS INSTITUTE FOR BUSINESS CYCLE RESEARCH, SWISS FEDERAL INSTITUTE OF TECHNOLOGY, ZURICH (KOF ETH) Field of activities The Swiss Institute for Business Cycle Research (KOF) analyses the development of the Swiss economy from a shorter-term perspective (economic analyses and forecasts) against the backdrop of longer-term developmental trends (growth and structural change). The research projects, products and services provided by the KOF cover a broad spectrum of topics. Regular surveys (in the form of business, investment and innovation tendency surveys) guarantee an up-to-date, comprehensive information system for the short- and medium-term analysis of the overall economy, for individual branches of industry, for the construction sector and for cantonal/regional studies. The main activities of the KOF (analysis and prognostics of the Swiss economy, search for leading indicators, research on political economic questions) are therefore based on the business tendency survey results. Constant research based on modern empirical methods (econometric models for the overall economy and for separate branches of industry, input-output models, time series analyses) assures that quality is maintained in the analysis and forecasting of cyclical developments and structural change. At an international level, the institute works together with authoritative organisations like the OECD and the IMF. The Swiss Institute for Business Cycle Research is an active member of various international academic and research associations (CIRET, AIECE). Since 2000, the CIRET office is placed at the Swiss Institute for Business Cycle Research. Status The Swiss Institute for Business Cycle Research is an institute of the Swiss Federal Institute of Technology (ETH), and as such an independent body. Organisation The KOF ETH currently employs 31 researchers. Some of them also lecture at the Swiss Federal Institute of technology and at the Zurich university. The institute is structured in the following six research division: Macroeconomic Models and Analyses in Switzerland; International Business; Business Tendency Surveys; Innovation, Growth and Employment; Market Momentum and Competition; Economic, Financial and Social Policy. Since 2000 the administrative headquarter of CIRET (Center for International Research on Economic Tendency Surveys) has been run by the KOF/ETH. 35

38 Construction Forecasting and Research, Experian Business Strategies Ltd, Nightingale House, 65 Curzon Street, London W1J 8PE Telephone: (44) (0) Fax: (44) (0) Web Site: Construction Forecasting & Research (CFR) has for a decade focused on economic analysis of the construction and related industries. CFR is now a part of Experian Business Strategies, one of the UK's leading economic consultancy firms. CFR works with clients in the private and public sectors, providing a better understanding of the industry in the context of the wider economic environment. We have a thorough and detailed knowledge of the factors that influence the various markets, types of work in the sector and its operational aspects. Our major strength lies in the location and analysis of construction related information to support clients need for insight on past trends and forecasts of future developments. We have a portfolio of well-known and respected publications, including the industry-standard national construction forecasts and the Foresight regional forecasts. We also collaborate with our fellow Euroconstruct members to produce compatible forecasts for nineteen European countries on a six monthly basis. Our survey unit carries out a detailed monthly state of trade of survey in the UK for the European Commission. Our work falls into the following categories: Industry forecasting: short, medium and long-term construction forecasts, on a national and broad regional basis. Workload surveys: regular surveys of construction activity, professional services, and industry structure. Market research: the use and provision of all relevant information to help clients assess market size, structure, competition and opportunities for entry or diversification. Economic analysis: research and reports on any aspects or sectors of the construction industry chain. Statistics: data search, analysis and advice on the use and relevance to clients of macro economic and construction industry statistics. Corporate research: company finance, profitability and future outlook. International comparisons: specifically of European construction markets. Seminars: presentations and lectures relating to any of the above areas. Experian Business Strategies is part of Experian, one of the UK s most highly regarded information service companies, with a worldwide turnover in excess of 1 billion. We are a leading economic and labour market analysis and forecasting consultancy (analysis shows that Experian Business Strategies came top in a recent Treasury comparison of medium-term (five year) forecasting performance). Working with both the public and private sectors, we have one of the largest independent research teams in the UK, devoted to the analysis of national, regional and local economies. We work closely with clients and explore a variety of issues associated with economic development and policy formulation. 36

39 BUDAPEST, JUNE 2003 Global Economic Outlook and Challenges for Europe THE EU-Perspective Georg M. Busch European Comission, DG Economic and Financial Affairs Conference Budapest, Hungary June,

40 Global Economic Outlook and Challenges for Europe The EU Perspective Recent global developments: weak activity persisting In mid-2003, world economic conditions are still unsatisfactory. Growth has been subdued in the US and western Europe since the beginning of the decade, remaining well below the rates attained during the second half of the 1990s. Japan has still not emerged from its protracted stagnation. World trade is recovering only slowly from its slump in 2001, thereby dampening export opportunities of the emerging markets, many of which are facing financial constraints. Few are the countries that enjoy healthy expansion of economic activity, such as China, Russia and, last but not least, the EU accession candidates in central and eastern Europe. The reasons for the delay in the long-awaited recovery of demand and output are manifold. Excessive investment in new technology (mainly information and communication) in the late 1990s, labelled as the «new economy», has still not been fully corrected and, associated with it, the slump on stock markets has not yet given way to a clear turnaround. Uncertainty has recently been enhanced by geopolitical tensions and the war in Iraq, associated with oil prices moving to new highs. In the US, high debt accumulated by private households and the large gap in the current account have hardly started unwinding. In Japan, conventional economic policy has virtually exhausted its scope for action, and structural reform to address the crisis in the financial and corporate sectors is making only slow progress. Also in Europe, the pace reform is insufficient, notably as labour markets and social welfare systems are concerned and the lack of determined policy action is holding back confidence of households and the corporate sector. Short-term outlook: a gradual recovery What are the prospects for improvement? The European Commission, in its Spring 2003 forecast released in mid-april, expects a gradual recovery of activity in Europe as from the second half of this year. While on annual average 2003, growth of GDP in the euro area may be only 1%, barely higher than last year, it should accelerate to 2 ¼% in Indeed, a number of external conditions have started improving in recent weeks and months: the war in Iraq has ended rather sooner than anticipated, oil prices have returned to more normal levels, and stock markets are showing signs of stabilisation. On the other hand, the decline in the dollar exchange rate implies a strengthening of the euro, which will limit the driving forces hoped-for from exports. The recovery will therefore have to rely largely on a revival of domestic demand. Investment: need for better infrastructure A positive turnaround can be expected from investment, following the decline over the last two years. Demand for replacement of obsolete equipment is building up, particularly for information and communication technology items that have a relatively short life cycle and whose prices are falling rapidly. Financing conditions have benefited from falling interest rates and business profitability is heading up, not least due to the recent fall in oil prices. Finally, public authorities are faced with the need to provide new or upgrade existing physical infrastructure, following the completion of the EU Single Market and in view of the imminent round of EU enlargement. This in particular should give stimulus to the European construction industry. 38

41 BUDAPEST, JUNE 2003 Consumption: overcoming the real income squeeze Even more crucial will be the revival for private consumption which, as you know, is by far the biggest component of aggregate demand accounting for typically over 60% of GDP. Private households, it is true, did not receive much good news in the last three years : incomes were squeezed by stagnation of activity, high oil prices and tax increases ; private wealth has been eroded by the heavy losses on stock markets ; and jobs became less secure with the rise in unemployment. Adding to this the uncertainty about future retirement incomes with the growing debate about pension reform, and the risks deriving from mounting geo-political tensions, it is no wonder that consumer confidence has fallen to its lowest level in a decade. Confidence is crucial For economic growth to resume, a revival of private household confidence is therefore essential. A number of external factors should help, like the end of the Iraq war and the return of oil prices to more normal levels, even if international political developments are still holding a number of important risks. Consumers may also be expected to no longer postpone the replacement of obsolete durable goods, particularly once the end of the fall in stock markets is confirmed. Challenges for policy Policy, for its part, has an important role to play in building and fostering confidence of firms and households. First, by creating a stable institutional and economic environment conducive to investment and job creation, e.g. by a transparent regulatory framework encouraging competition, or by a streamlined tax code. Second, by squarely addressing the structural reforms necessary to ensure macro-economic stability and sustainability, in particular making labour markets more responsive to market forces and keeping public retirement and health provisions viable in view of the ageing of the population in the decades ahead. The EU Broad Economic Policy Guidelines: Strengthening the forces of growth These challenges for policy have been taken up the European Commission, when it issued last April its recommendation for the «Broad Guidelines for the Economic Policy of the Member States and the Community for the period ». The main focus of the Guidelines is on strengthening the forces of economic growth in Europe in view of the ambitious goal formulated by the European Council of Lisbon in 2000, i.e. for the EU «to become the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion». What economic policy can and should contribute to this goal is threefold : to conduct growth-and stability-oriented macro-economic policies, notably by preserving price stability and keeping budgetary positions close to balance or in surplus; to implement structural reforms designed to raise the growth potential, in particular by improving the functioning of labour markets and by reinforcing investment in physical capital, but also in knowledge and innovation; to strengthen sustainability, both in public finances, but also in social cohesion and the efficient use of natural resources. 39

42 40

43 BUDAPEST, JUNE 2003 Macroeconomic and Social Indicators in the Area Statistical Appendix Conference Budapest, Hungary June,

44 Gross Domestic Product Million Euro (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finland France 1, , , , , , ,597.9 Germany 2, , , , , , ,208.6 Ireland Italy 1, , , , , , ,328.8 Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom 1, , , , , , ,791.8 Western Europe (EC-15) 8, , , , , , ,043.1 Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) 9, , , , , , ,423.6 Euroconstruct 6/2003 Annual Growth Rates (%) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

45 BUDAPEST, JUNE 2003 Unemployment 000s (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finland France 2, , , , , , ,560.0 Germany 4, , , , , , ,300.0 Ireland Italy 2, , , , , , ,090.0 Netherlands Norway Portugal Spain 2, , , , , , ,900.0 Sweden Switzerland United Kingdom 1, , , ,027.0 Western Europe (EC-15) 15, , , , , , ,218.5 Czech Republic Hungary Poland 2, , , , , , ,150.0 Slovak Republic Central Eastern Europe (EC-4) 3, , , , , , ,283.0 Euroconstruct Countries (EC-19) 19, , , , , , ,501.5 Euroconstruct 6/2003 Annual Growth Rates (%) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

46 Population Million (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

47 BUDAPEST, JUNE 2003 Households Million (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

48 46

49 BUDAPEST, JUNE 2003 The European Housing Market Trends and Future Challanges Margarete Czerny Austrian Institute of Economic Research Conference Budapest, Hungary June,

50 Housing Market in Europe The declining trend in the European housing market is slowing down in the forecasting period. Nevertheless, residential construction output shows the least favourable development in comparison to the other construction sectors up to It is clearly falling behind the slight recovery of the overall economy. Following a brief intermediate upswing during 1999/2000 housing output has been on the decline since Expectations are that the total housing market will come to a slow recovery in 2005 only due to a moderate growth in renovation and modernisation activities. New residential construction will stagnate on a low level in the mid of this century. Growth of GDP and Housing (Annual Growth Rates in %, Euroconstruct Countries ) ) ) ) GDPl Total residential Source: Euroconstruct, Budapest, June 2003, WIFO. 1) Forecast Residential construction output in Europe (Annual Growth Rates, % Euroconstruct EC-19) New residential R&M Total In 1999/2000 total residential construction output grew in Europe by 3½% and 3% following a decline since In 2001 and 2002 housing demand diminished along with the economic weakness and residential output fell by 1.8% respectively by 0.7% within the Euroconstruct area. There is no recovery expected in 2003 and 2004, residential construction output is expected to decline by 0.1% and respectively by 0.2 %. The overall economic conditions are still unsatisfactory and the confidence of households is very weak. Total Residential construction is recovering only slowly from its slump in 2005 due to the recovery of the renovation and modernisation sector. 48

51 BUDAPEST, JUNE 2003 Housing market 442 bn in Europe (Volume in bn Euro, Euroconstruct Contries 2002 vs. 2005) 442 bill bill % 327 bill. 52% 331 bill. 42% 209 bill. 42% 226 bill. 33% 33% 50% 58% 67% 48% 58% 67% Total Residential Total Non- Residential Civil Engineering Total Residential Total Non- Residential Civil Engineering NEW Renovation&Modernisation Source: Euroconstruct, Budapest, June 2003, WIFO. 2005: Forecast New residential construction decline in Western Europe until 2005 During 2003/04 new housing output will drop by 1.1% and 1.6% (after 1.4% in 2002 and 3.7% in 2001). A slight decline (-0.1%) is expected for Renovation and modernisation, on the other hand, are experiencing a slight growth (between 0.8% in 2003 and 1.9% in 2005) after a phase of stagnation in 2001 and Generally, in comparison with the forecast in December 2002, in June 2003 the individual countries have slightly cut back their predictions for the renovation and modernisation sector. New Residential Construction (Annual Growth Rates in %) 12,8 5,7 6,2 3,8 2,4 1,6-0,1-1,6-1,3-1,0-1,7-3,7-4,2-5, ) ) ) Western Europe(EC-15) Central Eastern Europe Europe (EC-19) Source: Euroconstruct, Budapest, June 2003, WIFO. 1) Forecast 49

52 Residential Renovation and Modernisation (Annual Growth Rates in %) ) ) ) Western Europe (EC-15) Central Eastern Europe Europe (EC-19) Source: Euroconstruct, Budapest, June 2003, WIFO. 1) Forecast The weak general economic perspectives as well as the insecurity on the job market clearly dampen the demand for new housing output. Despite the relatively favourable and low interest rate development some countries show a very cautious approach towards new investments. This shows that the housing sector is depending on the development of the overall economy. Countries with an unfavourable general development of the economy also show a clearly worse development of housing output. Declining housing completions in Western Europe The total number of housing completions exceeded up to 2 millions units in 2000 and will decline to 1,936 units in In Western Europe housing completions drop by approximately 100,000 housing units within five years. Stabilisation on a low level can only be expected in For the current year the number of completed flats in Europe will clearly be less than 2 millions. Approximately 1.81 million dwellings (2003) will be completed in Europe, until million. There is a clear drop in demand for the construction of one family houses as well as for the construction of flats. The decline in the number of completions of one family houses is continuing 2003 and The number of multi family houses grew only in 2002 and will decline 2003 to Europe has an high housing stock and hardly sees any further increases due to a nearly stagnating number of private households. The main indicators for housing construction activities are housing construction intensity (number of completed dwellings by 1000 inhabitants) as well as the housing construction coefficient (number of completed dwellings by 100 units of housing stock) both indicators will drop until

53 BUDAPEST, JUNE 2003 Housing Completions in the Euroconstruct Countries (Volume in 000s) ) 20041) 20051) Source: Euroconstruct, Budapest, June Downside revision of housing output prognoses The latest results of the prognoses of the Euroconstruct Group for housing output show a slight downside correction of the prognoses at the Budapsest conference in June The drop in new residential output turned out more moderate for the current year (instead of 2.1% only 1.1% for 2003), for 2004, however, a slightly stronger decline is expected to 1.6% (instead of 1.1%). The forecast for 2005 is - 0.1%. Prognoses of the expected slight growth in all 19 European countries have likewise been revised towards lower results in the modernisation and renovation. In 2002 renovation and modernisation activities failed to grow, but rather stagnated. In 2003/05 there will be a slight growth in the range between 0.8% and 1.9%. Different development in Western and Eastern Europe Housing output over the prognosis period shows a decreasing development in Western Europe. In East-Central Europe housing output, starting from a very low level, will experience a further decline (-1.4%) in 2003, 3.3% (2004) and 6.7% (2005). Within all Eastern European Euroconstruct countries Hungary shows a relatively stable double digit growth rate from 2001 to The housing sector in the Czech Republic is recovering during 2003 and 2005 (+ 5% to 6½%), the Slovak housing is very weak and will decline in 2003 following by a stagnation phase in 2004 and The housing market in Poland suffered from the sharp drop in the overall economy, residential construction output declined since 2001 to 2004 and will experience a recovery only in 2005 (+4.8%). 51

54 New-residential Construction Output in Western and Eastern Europe (Index 1999=100) Eastern Europe W estern Europe (EC ) ) ) Source: Euroconstruct, Budapest, June 2003, WIFO. 1) Forecast Renovation and Modernisation in Residential Construction (Index 1999=100) 130 Eastern Europe Western Europe (EC-15) ) ) ) Source: Euroconstruct, Budapest, June 2003, WIFO. 1) Forecast Housing: a 442 bn Euro market in 2002 The housing market is very important for the general economic activity and for the construction sector. At 442 bn the housing sector is the most important branch of the European construction industry. In Western Europe housing construction has a 46% share in the total construction volume. Countries with a share above average (Germany, 52

55 BUDAPEST, JUNE 2003 Ireland, and Portugal) are particularly affected by the unfavourable developments on the housing market. In Eastern Europe, by comparison, the percentage is much lower, totalling 24%. This clearly shows that housing has a major potential in Eastern Europe. Housing Market in Western and Eastern Europe Housing as Share of Total Construction Output % 24 % Western Europe EC-15 Central Eastern Europe Source: Euroconstruct Budapest, June In Euroconstruct area the share of new residential construction and renovation amounts about 50%. While Western Europe is seeing a clearly shrinking tendency in the new construction sector, the situation is more favourable in the renovation and modernisation sectors. The share of renovation activities in housing output as a whole greatly varies from country to country. While in Italy, Sweden, and Great Britain the renovation and modernisation markets in particular already account for more than 60%, in the Eastern European countries this share is approximately 35%. Consequently, Eastern Europe has a lot of catching up to do also in terms of renovation. Residential Construction by Sectors in Euroconstruct Countries 2002 (Euroconstruct Countries EC-19) New Residential bill. 49.8% Residential (R&M ) bill. 50.2% New Residential 6.0 bill. 64.5% Residential (R&M ) 3.3 bill. 35.5% Source: Euroconstruct, Budapest, June 2003, WIFO. Different development in various countries The housing market in Europe is dominated by the big five countries as Germany, France, Italy, Spain and United Kingdom. The share of these big five countries in the European housing sector amounts about 75%. European housing output in general is currently still affected by the unfavourable developments in Germany. The German 53

56 housing market is accounting for more or less one quarter of the total Western European housing market. In Great Britain housing output in 1999 dropped to the lowest level since the Second World War. A clear increase which is bound to accelerate until 2005 has been perceptible since 2002 so that housing output will be the supporting pillar of the British construction industry in 2003 and right up to The development of the housing market in the other big five countries is not so fourable. The housing output is declining in Italy up to 2005 and a recovery is expected in Germany and France in 2004 and In Spain the housing sector will only grow slowly during the forecast period. Significant growth rates are expected in other countries such as Finland, Denmark, and Sweden (2004 and 2005). In Austria and the Netherlands a slight growth is expected in 2003 to 2005 and the housing market in Switzerland will experience a recovery in 2004 and 2005 after a long period of declining. The housing market will decline in Norway until The smaller countries like Portugal, and Ireland will face a shrinking housing market after a prospering period in the nineties. Total Residential Construction by Country Groups Index 1999=100 BIG 5 Nordic Countries UK Spain France Italy Norway Sweden Finnland Denmark Germany (F) 2004 (F) 2005 (F) (F) 2004 (F) 2005 (F) Smaller Countries Eastern European Countries Hungary < Belgium Net herlands 10 0 Ireland Austria Switzerland 80 Port ugal (F) 2004 (F) 2005 (F) 14 0 Czech R Slovak R. Poland (F) 2004 (F) 2005 (F) Source: Euroconstruct, Budapest, June 2003, WIFO. (F) Forecast 54

57 BUDAPEST, JUNE 2003 The four Central Eastern European countries of the Euroconstruct group show a clear rise in new construction output and in terms of completions. Starting from a very low level, growth rates seems to be relatively optimistic. A strong increase in housing output up to 2005 is to be expected particularly in Hungary but also in other countries in East- Central Europe- with exception of Poland and Slovakia. The number of building permits will increase more strongly in the candidate countries than in Western Europe. The impulses, however, are far too weak to be able to provide a boost for the general economy in the accession countries. There is a lack of housing policy measures, the purchasing power of households is far too low to be able to meet the required volumes of investments into housing construction. In most accession countries there is an urgent need for action on housing policies. Moderate development of construction prices After a more pronounced rise in housing construction prices in the nineties (particularly in Spain and Great Britain) to 2002 a decreasing construction price growth rate can be seen throughout Europe. Generally speaking, the situation on the housing construction financing market is currently relatively favourable. Attractive financing instruments and low interest rates are could stimulate demand for housing construction. The financing institutions are offering housing construction funding schemes at very favourable terms and are subject to competitive pressure. Construction Prices (Annual Growth Rate in %) ) ) ) Source: Euroconstruct, Budapest, June 2003, WIFO. 1) Forecast 55

58 Interest Rate in Euroconstruct Countries (Annual Growth Rate in %) 7,0 6,5 6,0 5,5 5,0 4,5 4,0 3,5 3, (F) 2004 (F) 2005 (F) Short term Long term Source: Euroconstruct, Budapest, June 2003, WIFO. (F) Forecast Different developments in one family houses and multi-family houses : One family houses decline in Western Europe, growth is expected in Eastern Europe Approximately half of the completed housing units in Europe belong to the one- and two-family housing construction, the other half to multi-storey building construction. The number of completions in 1+2 familiy dwellings has been declining sinde 1999 with a sharp downturn in The completion of flats experienced a temporary rise in 2002 and will slightly decrease in the next couple of years. In East-Central Europe, on the other hand, completions of flats will rise strongly in 2004/05. The completions of 1+2 familiy house are expected to decline in 2005 after a continuous rise since Housing completions (Volume in 000s) Western Europe Eastern Europe Family dwellings Family dwellings Flats Flats ) 20041) 20051) ) 20041) 20051) Source: Euroconstruct, Budapest, June 2003, WIFO. 1) Forecast 56

59 BUDAPEST, JUNE 2003 The share of 1+2 family dwellings in the total number of completed flats is varying considerably amongst the different European countries. Principal reasons for these differences include the income levels, but also population densities, and the degree of influence by the state on housing subsidies and housing construction activities, as well as the ratio of owner-occupied flats. At 36% in Switzerland and 42% in Germany this percentage is very low in comparision to the other countries. In Central Eastern European countries the ownership rate is varying from 46% in the Czech Republic to 92% in Hungary. Home Ownership Rate in Eastern Europe Av erage: 67% 46.1 Hungary Poland Slov ak Republic Czech Republik Source: Euroconstruct, Budapest, June 2003, WIFO. Constant housing stock in Europe The housing stock in the 19 Euroconstruct Countries is estimated - approximately 199 million housing units in 2002 (Munich Conference in December 2002 by Ifo). Compared to 1998 the housing stock increased to almost 5 million units. Estimates show that the number of flats throughout the entire area will rise by 5 million units or 3% by 2004 and 2005 (IFO). The housing completions by 100 existing housing units in Europe counts about 1.1 housing units. This number will probably change only little as the number of private households is expected to increase at a similar rate. Housing intensity Housing intensity in Europe (measured in terms of the number of housing completions by inhabitants) is seeing a clear drop to well below 5% to By 2005 this number will fall to 4.4%. Both values are far below the past years. Differences exist between the developments of completed flats by inhabitants in Western and Eastern Europe. While housing construction intensity in Western Europe is declining, it is on the rise in East-Central Europe. After a very low level of 1 to 2 housing units by inhabitants during the nineties the prognosis period between 2003 and 2005 is seeing an increase in housing construction intensity to 2.7 housing units per inhabitants. However, there are enormous differences in quality and development in the individual countries. 57

60 Housing construction intensity, particularly in 2002, was far above average in Ireland, Spain and Portugal. The values were approximately twice as high as the European average, while Denmark, Belgium, Great Britain, Germany and Switzerland reported numbers far below the average. Between 1999 and 2005 this number sees a particular decline, mostly also because of the great influence of Germany. Declines are also observed in Belgium, the Netherlands, Austria, Switzerland, and Spain, whereas there is a rising tendency in Finland and France. In Western Europe as a whole housing supply is good, while in East- Central Europe housing standards in particular are very poor. As a result of the poor purchasing power for housing, values in Eastern Europe can hardly be compared with Western Europe. For this reason a comparison of the purchasing power parities, in the construction and housing sectors, is relevant. Housing completions per 1000 inhabitants (Euroconstruct Countries EC-19) 4,9 5,1 4,5 4,9 5,3 5,2 5,0 5,1 5,0 5,0 5,0 4,8 4,9 4,8 4,8 4,7 3,9 3,6 3,3 Western Europe (EC-15) 2,5 1,8 1,7 1,7 1,9 2,1 2,1 2,3 2,6 2,6 2,6 2,7 2,7 Central Eastern Europe (EC-4) ) ) ) Source: Euroconstruct, Budapest, June 2003, WIFO. 1) Forecast 58

61 BUDAPEST, JUNE 2003 Housing Completions per Inhabitants 2002 (Euroconstruct Countries EC-19) Ireland 12,4 Spain 9,0 Portugal 7,0 Finland 5,7 France1) 5,6 Austria 5,1 Norway 4,2 Italy 4,2 Netherlands 4,1 Ungarn 4,0 Denmark 3,9 Belgium 3,6 Germany 3,4 Switzerland 3,4 Tschechin United Kingdom Polen 3,3 3,0 2,3 Euroconstruct Countries (EC-19) 4,4 Sweden 2,1 Slowakei 2, Source: Euroconstruct, Budapest, June 2003, WIFO. Housing Indicators (Index 1995=100, Western Euroconstruct Countries EC-15) Housing Stock Households Population Housing completions Source: Euroconstruct, Budapest, June 2003, WIFO. 59

62 Housing trends in the five major European countries (Germany, France, Italy, Spain and United Kingdom) GERMANY Housing output in Germany, Annual Growth Rates, % New residential R&M Total Housing in Germany has declined dramatically since the end of the new housing boom mid-1990s. New residential construction output will continue to decline until A moderate increase in 2005 is expected for the first time since a long declining period. The number of new housing completions will decline in 2003 to less than units and increase about units in Renovation and modernisation of the housing stock is anticipated to increase slightly in the whole forecast period. Future trends: In the sector of multi-family houses, the long-lasting cyclical decline was mainly caused by falling rents, low increase in value and a high supply surplus with about 1.2 million vacant flats. This decline will stop in Permits for about units will be granted in 2003, accelerating to units in In the one-family house sector a reduction of own-home government grants is announced for 2003 and will dampening the demand up to In a long-term perspective, the increasing number of households due to the housing needs in Germany will enhance the housing demand in spite of the decreasing population. The percentage of owner-occupied houses is still low in Germany. With the recovery of the economy and the rise in income of private households the demand of family houses will grow. Mortgage rates are still quite favourable. Support will continue to come from special loan programmes for young families from the Bank for Reconstruction. FRANCE Housing output in France, Annual Growth Rates, % New residential R&M Total The French housing market showed boost in Overall new construction stayed at a high level last year, including starts and building permits. On the other hand, public rental housing bottomed out, renovation and modernisation tapered off for the first time in six years. The downturn in new construction in 2003 to 2005 will not be offset by an increase in renovation. The downturn in new construction is offset by a modest recovery in renovation. Growth in housing of slight below 1% should take place in 2005, the result of stagnation in new construction and an increase of 1.5% in work on existing housing stock. Building demand will be stimulated by low short-term rates and by the increase in transactions in existing housing. It will be undercut by the very slight increase in the 60

63 BUDAPEST, JUNE 2003 purchasing power of household's disposable income and by the growing threat of unemployment. France consider to cap VAT 5.5% in home renovation and maintenance as an exceptional measure to boost the building sector. Other countries e.g. Germany are hostile to that VAT measures. ITALY Housing output in Italy, Annual Growth Rates, % New residential R&M Total From 1999 to 2002, the construction sector played an important anti-cyclical role. The reasons for this growth was also due to the recovery in residential-building demand and the dynamics in the maintenance of residential buildings. A particular mix of positive factors has been created in Italy, made up of savings capacity and investment; the availability of particularly low long-term interest rates; and the growth in demand for residential construction increased the new residential construction output significantly. The housing market is reaching an expansionary peak. In 2003 the housing market in Italy is beginning to level off. The market was driven more by medium and large-scale real-estate promotion investment and less by an increased direct promotion to households. After the significant increase in the last ten years, with a particularly marked rise in the number of dwellings completed, volumes constructed and buildings erected, residential construction output will decline in 2003 to SPAIN Housing output in Spain, Annual Growth Rates, % New residential R&M Total Housing played an important role in Spain in the last years. Due to the forecasted slowdown in housing construction the overall outlook for 2003 is for moderate growth. New residential construction has been strong in 2002, with the number of housing starts increasing after a slight decrease in Housing completions have increased considerably in 2002, 17% more than in 2001, and significantly higher than the increase in starts, which, had led to a lower volume of overall production. In respect of 2003, opinions are still being voiced that new residential construction will enter a phase of moderation and recession predicted for precious years. Housing renovation remain active as it was in the last years. The production in this sub-sector has increased by 5% in 2002 and it is expected that this rhythm will continue in 2003 and following years. Taking into account that one of the basic characteristics of housing supply in Spain is the practical inexistence of rental housing. There has been a heavy increase in the price of the new rental housing units available. As for government subsidised housing, there is an extreme weakness in this sector. Subsidised housing completions were reduced dramatically within the last five years. The Spanish housing market continues to operate as an asset demand market demand for investment still heavily spurred on by the decrease in interest rates and the uncertainties in the stock market. In the medium term, and in respect of 2004 and 2005, there is an expectation for a decrease in activity in the housing construction industry, since doubts are beginning to 61

64 arise in relation to immediate return on investments made in housing, as returns have already reached price levels that exclude a large part of the housing demand (both rental and purchase) that needs it. In order to deal with the growing problems of marginalisation from the housing market of average and low income population segments, housing policy will have to be reoriented towards new instruments that can make it possible to promote access to affordable housing. UNITED KINGDOM Housing output in UK, Annual Growth Rates, % New residential R&M Total was a good year for residential construction with output rising by 6.6% in real terms, with growth very buoyant. Especially new residential construction increased by 12 %, 2003 is expected to be another good year, but growth is forecast to peter out thereafter. Housing renovation trends to have a more stable profile of output than new housing, with less marked swings over the years. A further robust increase of about 4.4% is expected for this year, but for the rest of the forecast period the rate is anticipated to drop to between %. The slowdown from 2004 onwards is largely due to weakness in the private housebuilding sector, where supply side constraints and a moderation in the housing market are likely to have an effect. New public housebuilding growth should remain strong as programmes to provide affordable housing, especially for key workers in London and the South East gains pace, while big social housing regeneration projects should keep renovation work rising over the forecast period. Concerning public housing renovation it started from a historical very low base before 200. In the 2000 Comprehensive Spending Review, the government made a commitment to bring all social housing up to a decent standard by 2010, funding was agreed for the next years to improve council housing where authorities retained ownership. Dispite all the talk of housing transfer and big estate regeneration schemes, non of this funding seems to have fed through into output in the sector as yet. Nevertheless, there is expecting output in the sector to stabilise this year and begin to rise thereafter as these regeneration programmes finally get on track. Private housing renovation and modernisation output rose a bit more robustly. There is an argument that RM&I work increases in a buoyant housing market as sellers look to improve their properties attractiveness. 62

65 BUDAPEST, JUNE 2003 The European Housing Market Statistical Appendix Conference Budapest, Hungary June,

66 Housing Completions -Total (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finland France (permits) Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) 1, , , , , , ,762.0 Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) 1, , , , , , ,

67 BUDAPEST, JUNE 2003 Housing Completions: 1+2 Family Houses 000s (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finland France (permits) Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) 1, , ,

68 Housing Completions: Flats 000s (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finland France (permits) Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

69 BUDAPEST, JUNE 2003 Housing Starts: Total 000s Concept (F) 2004 (F) 2005 (F) Austria compl Belgium starts Denmark starts Finnland starts France starts Germany compl Ireland compl Italy starts Netherlands compl Norway starts Portugal achv Spain starts Sweden starts Switzerland compl United Kingdom starts Western Europe (EC-15) 2, , , , , , ,713.9 Czech Republic compl Hungary compl Poland compl Slovak Republic compl Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) 2, , , , , , ,

70 Housing Starts: Single Family Houses 000s Concept (F) 2004 (F) 2005 (F) Austria compl Belgium starts Denmark starts Finnland starts France starts Germany compl Ireland compl Italy starts Netherlands compl Norway starts Portugal achv Spain starts Sweden starts Switzerland compl United Kingdom starts Western Europe (EC-15) 1, , Czech Republic compl Hungary compl Poland compl Slovak Republic compl Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) 1, , , ,

71 BUDAPEST, JUNE 2003 Housing Starts: Flats 000s Concept (F) 2004 (F) 2005 (F) Austria compl Belgium starts Denmark starts Finnland starts France starts Germany compl Ireland compl Italy starts Netherlands compl Norway starts Portugal achv Spain starts Sweden starts Switzerland compl United Kingdom starts Western Europe (EC-15) 1, , Czech Republic compl Hungary compl Poland compl Slovak Republic compl Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) 1, , , , ,

72 Housing Stock 000s (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland nr nr nr nr nr nr nr Italy nr nr nr nr nr nr Netherlands Norway Portugal nr nr nr nr nr nr Spain Sweden Switzerland United Kingdom Czech Republic nr nr Hungary Poland Slovak Republic

73 BUDAPEST, JUNE 2003 Non-Residential Construction Prospects in East and West Alice Pandolfi CRESME, Italy Conference Budapest, Hungary June,

74 Weight, Structure and Composition of the Market The non-residential building market is highly varied, and includes all the buildings for non-residential use: they range from industrial, commercial or services to those for social use such as hospitals, schools, prisons, barracks, museums and cinemas. The promoters may be public or private investors. Compared to the construction sector as a whole, the non-residential sub-sector represents 34% of the market. More precisely, new non-residential construction represents 20% of the European construction sector output, while residential renovation and modernisation accounts for the remaining 14%. Figure 1: Share of Construction Sectors in Total Output in 2002 R&M Non Residential 14% 2002 New Non Residential 20% Total Residential 45% Total Civil Engineering 21% The non-residential building sub-sector (new construction and renovation/ modernisation together) in Europe accounts for billion euros (2002 prices). According to estimates, it will be a market valued with billion euros in New construction (new non-residential construction), with an annual expenditure of billion euros, represents 59% of total non-residential construction output, while renovation (non-residential renovation and modernisation), with an annual figure of almost billion euros, represents 41% of the total non-residential construction output. Figure 2: Non Residential Share of New and R&M Total Non Residential billion euro R&M Non Residential 41% New Non Residential 59% 72

75 BUDAPEST, JUNE 2003 This average European distribution does not, however, reflect the situation on the single national markets. The summary table below shows how the proportion between new construction and renovation/modernisation, within the non-residential market of each country, varies considerably. While the average European proportion is about 60% (new construction) and 40% (renovation and modernisation), there are countries like Sweden, where renovation/modernisation is worth almost 70%, while the weight of new construction is now reduced to 1/3, or like France where the proportion is now 50% and 50%, and the Portugal where, on the other hand, the proportion is still mainly in favour of new construction (91%) while renovation/modernisation is still an under-dimensioned market (9%) compared to the European average. This analysis of the different weight concerning the market of new construction and renovation/modernisation within the non-residential building sub-sector is important, since the modes of investment and supplies necessarily differ very much. This structural subdivision of the market between new construction and renovation/modernisation also enables us to recall an interesting difference between the markets of Eastern Europe and of Western Europe. The former are still young markets, in which the economic structure must still be formed and consolidated, while the countries of Western Europe (with some exceptions like the above-mentioned case of Portugal), are mature markets, in which the economic structure is already formed, and in which the renovation and modernisation of existing production facilities are starting to have a significant weight on the market as a whole. The weight of new non-residential building on the total investments in the non-residential construction in Eastern Europe, compared to Western Europe, is about 16% higher. Table 1: Non-Residential Output by Country in 2002: share between New and R&M Country % Share New % Share R&M Austria 61,8 38,2 Belgium 62,5 37,5 Denmark 60,0 40,0 Finland 61,4 38,6 France 49,7 50,3 Germany 64,0 36,0 Ireland 79,4 20,6 Italy 50,1 49,9 Netherlands 49,7 50,3 Norway 55,2 44,8 Portugal 91,6 8,4 Spain 63,7 36,3 Sweden 32,7 67,3 Swítzerland 47,8 52,2 United Kingdom 64,0 36,0 Western Europe (EC-15) 58,0 42,0 Czech Republic 90,2 9,8 Hungary 70,4 29,6 Poland 67,4 32,6 Slovak Republic 79,9 20,1 Central Eastern Europe (EC-4) 73,8 26,2 Euroconstruct Countries 58,9 41,1 73

76 In Western Europe new non-residential building, in the construction sector as a whole, maintains a stable market share of approximately 19%, and the annual growth is closely related to the economic situation. In Eastern Europe, on the other hand, the sub-sector plays a predominant role (33%), since in order to favour the transition of the economies of these countries when they opened to Western capitalism ten years ago, it was first of all necessary to invest, not only in infrastructures but also in production activities. The increase of investments in this sub-sector was also fostered by the inflow of foreign capitals. Banks, financial companies, major distribution chains and companies seeking new areas for production, with low-cost labour, and new export markets, have gradually brought new life to industry, services and commerce. First, there was the prospect of a new, virgin market opening to consumer capitalism and then, the prospect of the countries entering the European Union, led direct foreign capital flows and investments making the non-residential sub-sector the main market (45%) of the construction sector in Eastern Europe. Figure 3: Share of Non Residential in Total Output in Western and Eastern Europe WESTERN EUROPE EASTERN EUROPE Tot Non Residential 33% Civil Engineering 21% Tot Residential 46% Civil Engineering 32% Tot Residential 23% Tot Non Residential 45% We can continue our structural analysis, assessing the share of total non-residential investments on the GDP. On average, in Europe, this ratio is 3.3%, although we can note that this average value is higher in Eastern Europe (on average 5%, thus 2% higher, with the exception of the Slovak Republic where the weight is 2.5%) compared to Western Europe where there are national figures much higher than the European average (this is the case of Belgium, Finland, Ireland, Portugal and Norway where the rate is 4-5%). There are likewise countries below the average, for example Germany and Spain, where this rate is less than 3%. Considering the weight of the single national markets within the non-residential market, we find that in terms of volume, expressed in billion euros, the first European market, with 63 billion of annual investments is the UK, followed by Germany (53 billion euros) and France (with 50 billion euros). These three countries alone represent 50% of the entire European non-residential market. However, it is interesting to note that the composition of the leading markets changes slightly if we consider the investments in new construction separately from those in renovation and modernisation. For the former, the two main markets are the UK (21%) and Germany (18%) while, considering the investments in renovation and modernisation, the first two markets are France (19%) and the UK (17%). We can conclude this general overlook of the structure of the non-residential subsector, looking at the composition of new construction. The following table shows 2002 data for the distribution of new non-residential construction in the various segments of public and private buildings, reflecting the data shown by each individual 74

77 BUDAPEST, JUNE 2003 country in Table 4a. The data shown in the table reflect the situation in 2002 for new non-residential construction in the Euroconstruct area. Table 2: New Non-Residential Construction 2002 by type of activities Type of activities Billion euro % Weight Schools&Universities 16,2 8.4 Hospitals 11,3 5.8 Industrial Buildings 46, Office Buildings 38, Commercial Buildings 42, Miscellaneous 37, Total 193,4 100 Notes to table I. For Hungary, where new construction cannot be estimated separately from renovation and modernisation, the figure of total non-residential construction otuput is shown. Investments in renovation and modernisation in any case account for approximately 1/3 II. Denmark includes schools and hospitals in the industrial building segment while commercial buildings are included in office buildings III. Austria does not provide specific data on hospitals and commercial buildings. These types of buildings are thus included in the other nonresidential segments IV. The Czech Republic does not provide specific data on the Miscellaneous segment V. The Miscellaneous segment groups together various types of buildings and in the single national reports there are precise explanations on the types of buildings each country groups under this term. In general, the buildings grouped under Miscellaneous include buildings not coming within the other segments, for example: cultural and leisure facilities, garages, parking facilities, police and court buildings, transport facilities, postal and telecommunications buildings, special structures. 75

78 Industrial Building Segment: The First Market of New Non-Residential Output In Table No. 2 and in the pie-chart (Figure n. 4) based on the data they contain, we can see that the weight of the industrial segment on the total new construction output has a primary role both in Western and Eastern Europe, but while in Western Europe the share is 23%, in Eastern Europe the rate reaches 40% (it was 34% six months ago). However, these are average data, which fail to take into account national features: in the Czech Republic, for example, this percentage reached approximately 50%, while it is about 9% in Norway. The second main market, both in Eastern and Western Europe, is represented by commercial buildings, but unlike the industrial segment, the weight of this segment in the two European areas is relatively the same: Eastern Europe (24%) and Western Europe (22%). It should be pointed out that in just six months the composition of the new non-residential building market has changed. There is a reduction of the weight of the industrial segment in Western Europe with an increase in Eastern Europe, where on the other there is a lower weight of the commercial segment, which on the other hand has slightly risen in Western Europe. Figure 4: New Non Residential Construction Output in Breakdown by different types of building AREA Miscellanous 20% Schools 8% Hospitals 6% Commercial Buildings 22% Office Buildings 20% Industrial Buildings 24% 2. Forecasts for 2005 Tables 3, 3a and 3b contain the 2005 forecasts for the non-residential construction, regarding new construction, renovation/modernisation and total non-residential construction output. We have drawn up the table also showing the data of the previous Conferences, for a better assessment of the differences in the past six months for the medium-term forecasts. Table 3. Total Non-Residential % change * 2003* 2004* 2005* Dublin 6/2002 3,0 1,6 0,1 0,8 1,5 n.a. Munich 12/2002 3,1 2,2-0,6 0,2 0,8 1,6 Budapest 6/2003 3,3 2,2-0,5-0,6 0,2 1,9 *: forecast 76

79 BUDAPEST, JUNE 2003 As we can see, in six months the estimates for growth in the 2-year period ( ) have been confirmed. There has been a reduction in forecasts for the subsequent 3- year period , while the forecasts for growth in 2005 have improved. The negative economic situation, still characterising the international economic panorama and the continuing terrorist threat, do not enable us to develop favourable forecasts in the short term. The year 2002 closed with growth rates even worse than those forecast six months ago, but the 2-year period will not be much better. The forecasts for recovery have thus been set forward to 2005, although the crisis experienced by the sub-sector in many countries in the 3-year period will have some consequences. In terms of investments, the recovery of 2005 will still not be able to compensate the overall fall in volumes occurring in the 3-year period. As we can see in Tables 3a and 3b below, the situation is critical both for new construction and renovation/modernisation, but the situation is definitely worse for new construction: the negative economic situation is still leading to the postponement of investment decisions, especially for private non-residential buildings with an overall share of 66% on the total new construction output. With regard to new construction, 2002 closed with a decrease of almost 1%, and the overall reduction for the 3-year period is 1.7%. For 2005 recovery is expected, with a growth of 1.8%. On the other hand, the situation of non-residential renovation and modernisation is relatively less serious. There will not be an actual fall, but only a phase of stabilisation between 2002 and 2003, with recovery being expected from 2004 (1.4%). Table 3a. New Non-Residential % change * 2003* 2004* 2005* Dublin 6/2002 2,5 1,3-0,9 0,1 1,4 n.a. Munich 12/2002 2,6 2,3-1,8-0,7 0,1 1,5 Budapest 6/2003 2,8 2,2-0,9-1,4-0,7 1,8 *: forecast Table 3b. Non-Residential R&M % change * 2003* 2004* 2005* Dublin 6/2002 3,7 2,1 1,6 1,8 1,7 n.a. Munich 12/2002 3,8 2,1 1,2 1,5 1,8 1,9 Budapest 6/2003 4,0 2,3 0,0 0,5 1,4 2,1 *: forecast It should be pointed out that the situation regarding forecasts is partially different if we consider the Eastern European market. The crisis of new construction already started in 2001 was especially serious between 2001 and 2002 (-7.3% in two years), but already in 2003, also due to the imminent entry into the European Union of the new candidate countries, the market crisis ended, and for the 2-year period an overall increase of 12% is expected. Since this is a highly variable sector regarding various types of buildings, the other factors that may influence it differ widely. In order to summarise, we can say that with regard to the segments of private non-residential buildings, i.e. basically industry, commerce and offices (although certain countries include the leisure buildings in Miscellaneous and others in Commerce), the key factor that most conditions the market is undoubtedly economic. This not only means trends in the economy in terms of GDP growth, but also the general climate of investor and consumer confidence (for commerce, the role of private consumers expenditure is very important) or economic variables, such as the unemployment rate (remarkable both for the office segment and 77

80 for the household expenditure decisions, and thus for the segment of commercial buildings). On the other hand, for public buildings (hospitals, schools, barracks, courts, prisons, stadiums, etc.) public-expenditure plans are fundamental both at the central and local level, as well as other contingent factors, for example the number of students for school buildings or the number of elderly and/or ageing rate of the population in certain areas for the building of specific centres and/or rest homes coming within health-care construction. In the new non-residential construction, the sub-sectors most hit by the crisis are private buildings (industry, commerce, offices), being naturally more sensitive to the international macroeconomic outlook, while in public buildings (schools and hospitals), the expenditure decisions at the central and local level form the main variable. In this case, they are investments not linked to the current economic situation, and thus to short-term factors, but to longer-term factors, e.g. expenditure decisions taken in view of elections. It should be observed that in the non-residential sub-sector, the crisis of new construction is in contrast with the relative stability of renovation and modernisation due to the crisis of new construction. It is as if investors had this attitude: the economic situation is not currently favourable, so I will postpone newconstruction plans, waiting for a couple of years until the situation improves, and for the moment I will just undertake renovation and modernisation. The economic uncertainty is reflected above all in a more cautious attitude in launching new-construction projects. The risks involved in renovation and modernisation are on the other hand lower. This of course applies as long as renovation and modernisation are cheaper than demolition and rebuilding. 3. The Single Segments of the New Non-Residential Building Market We have already said that on the average European level, the crisis involves above all the private non-residential building sub-sectors, in particular industry and offices, while the segments of public buildings (schools and hospitals) have a better performance. We can see in greater detail the situation in Western and Eastern Europe and the relative differences in the two European areas. There follow the graphs of the trends, subdivided between Eastern and Western Europe, of the various segments between 1998 and 2005 with a 1999 base. It has been decided not to publish the aggregate data and relative graphs of the Miscellaneous segment, since this segment is highly heterogeneous. The classification of the buildings it includes is not standard and varies widely from country to country. We thus believe that for reasons of standardisation and coherence, this segment can be taken into consideration in static terms only, i.e. its relative weight within the new non-residential building subsector, but not in dynamic terms, i.e. its annual growth increases. Schools and Hospitals With regard to the segment of school buildings, in Western Europe it has grown up to 2003 with a phase of stabilisation in the subsequent 2-year period. In Eastern Europe, on the other hand, the sector crisis has started in 2003 and recovery seems to be very slow. On the other hand, health-care segment in Western Europe has the same trend as the school segment, although after the stabilisation of 2004 a fall seems likely after In Eastern Europe, on the other hand, after the crisis of 2001, the segment is in slow-butcontinuous recovery. 78

81 BUDAPEST, JUNE 2003 Figure 5: Outlook for Schools and Hospitals Index 1999 = 100 SCHOOL AND UNIVERSITIES HOSPITALS * 2003* 2004* 2005* * 2003* 2004* 2005* Western Europe Eastern Europe Western Europe Eastern Europe Industry, Offices, Commerce With regard to the industrial segment, both areas of Europe, after the peak growth of 2001, have recorded a decline which is not likely to involve recovery in Western Europe until after 2005, while in Eastern Europe the crisis should end in The office segment closely follows industrial trends, showing that the variables affecting the two segments are mostly the same. On the other hand, the situation in the commercial segment is different. As a result of the relative stability of private consumers expenditure after the crisis of 2001 due to the events of 11 September, there is a slow-but-constant growth trend. However, while in Western Europe the recovery is at very low levels, in Eastern Europe the recovery will be consistent starting from Figure 6: Outlook for Industrial and Office Buildings Index 1999 = 100 INDUSTRIAL BUILDINGS OFFICE BUILDINGS * 2003* 2004* 2005* * 2003* 2004* 2005* Western Europe Eastern Europe Western Europe Eastern Europe Figure 7: Outlook for Commercial buildings and all types of activities Index 1999=100 COMMERCIAL BUILDINGS * 2003* 2004* 2005* Western Europe Eastern Europe Industry Commerce Office Schools Hospitals 79

82 4. National Markets As we mentioned in the paragraph on the forecasts, the crisis experienced by the subsector in many countries in the 3-year period will leave an impact. In terms of investments, the recovery of 2005 will not be able to compensate the overall reduction of the volumes occurring in the 3-year period. There follows a table in which the countries are subdivided into five groups, on the basis of the percentage growth ratio between the investments in with respect to those of the previous 2-year period As we can see, apart from the countries of Eastern Europe and four countries of Western Europe (Belgium, UK, Spain, Sweden), in all the other countries, the recovery announced for 2005 will still not be able to bring investments back to the levels of the period before the crisis. Breakdown of countries according to / growth prospects / % growth Groups of countries On strong decrease (-2.5% to 7.6%) Germany, Ireland, Italy, Norway, Portugal On slight decrease (-0.6% to 1.2%) Moderate growth (0.1% to 1.8%) Growth (4.0%-5.0%) Strong growth (8.0%-12.0%) Denmark, Finland,Switzerland Austria, France, Netherlands Slovak Republic, Spain, Sweden, United Kingdom Belgium, Czech Republic, Hungary, Poland For an in-depth analysis of the situation of the non-residential building market in each country, see the national reports. There follow the country summaries containing the key points of the non-residential sub-sector in the single national markets. 80

83 BUDAPEST, JUNE 2003 AUSTRIA 2002 The total area of non-residential building construction might somewhat recover only in 2005 along with the general improvement of the economy. A non-uniform development of the economy becomes evident in non-housing construction. While in 2002 office and shop construction still saw a clear expansion, industrial and commercial construction suffered major set-backs. Demand in the new construction sector at schools and universities has largely been satisfied, the volume of new consturction projects will decline over the next years. On the other hand there seem to be sufficient needs for sanitation both at schools as well as at universities. However, budget consolidation is putting limits on the expansion of sanitation expenses. CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 25,81 211,90 8,11 2,5 3,8 % variations Billion euro % weight New Non Residential 9,8 2,2 1,0 0,5 1,0 1,8 5,01 62% R&M Non Residential 2,8 1,7-3,0-1,0 0,3 1,0 3,10 38% Total Non Residential 6,9 2,0-0,6-0,1 0,7 1,5 8,11 100% M iscellanous 36% Schools 6% Industrial Buildings 21% Office Buildings 37% BELGIUM 2002 In comparison with the forecasts made last December, the growth profile seems to have been completely changed by the surprisingly low volume of non-residential building permits issued in According to official figures from the National Statistical Institute, this has fallen by some 30% to approximately 35 million m 3, as against an average of almost 50 for the years 1999 to 2001! This fall thus seems to be much greater than in previous forecasts, which, in view of the economic climate, put forward a volume of 42 million m 3. On the horizon, one can also foresee an increase in the office building, which, regardless of general economic improvement, should be supported by specific demand linked to the expansion of the EU. Non-residential building renovation should not really suffer from the fall in business investment. CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 23,62 261,83 9,28 2,8 3,5 % variations Billion euro % weight New Non Residential 1,6-3,1-13,2-3,0 10,0 6,7 5,80 62% R&M Non Residential 4,9 2,5 2,2 2,9 2,4 2,3 3,48 38% Total Non Residential 2,7-1,3-8,0-0,8 7,0 5,0 9,28 100% Commercial Buildings 17% M iscellanous 12% Schools 5% Hospit als 8% Office Buildings 28% Industrial Buildings 30% 81

84 CZECH REPUBLIC 2002 The inflow of foreign investment can be regarded positively on the whole. There are two basic but completely different categories of investment: purely financial investment such as the purchase of shares in privatised banks and companies, the purchase of controlling stakes, etc. and real investment, ie investment in new machinery and equipment, buildings and constructions, etc. Construction in the sphere of financial buildings will continue, albeit with gradually decreasing year-on-year growth. The highest growth is expected in the area of buildings used for production and services, where year on year growth should reach a maximum of 10% year-on-year in the 2003 to 2005 period. CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 9,02 50,10 4,29 1,3 8,6 % variations Billion euro % weight New Non Residential 3,8 17,9 8,9 5,8 5,5 5,3 3,87 90% R&M Non Residential -1,1 17,1-53,7 6,3 6,7 6,7 0,42 10% Total Non Residential 2,8 17,7-3,8 5,8 5,6 5,4 4,29 100% Commercial Buildings 27% Schools 9% Ho spit als 14% Office Buildings 1% Industrial Buildings 49% DENMARK 2002 New non-residential construction is weaker than previously forecast. Construction in public services (kindergartens, schools, arts & culture) will level off or even decline due to budget limitations imposed by tax freeze. Industrial construction declines , rising again from Office construction declines in but stays at a high level compared to previous decade. A ban on large shopping centres may be lifted in the coming years. There are significant regional disparities, with strongest activity in and around the Copenhagen region and in some of the other metropolitan centres. Industrial construction declines in 2003, but growth resumes in CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 18,22 182,81 6,60 2,0 3,6 % variations Billion euro % weight New Non Residential 7,0 5,0-5,0-5,0-1,0 1,0 3,96 60% R&M Non Residential 9,0-3,0-3,0 1,0 1,0 1,0 2,64 40% Total Non Residential 7,8 1,7-4,2-2,6-0,2 1,0 6,60 100% Industrial Buildings 11% M iscellanous 57% Office Buildings 32% 82

85 BUDAPEST, JUNE 2003 FINLAND 2002 In 2002 new non-residential construction fell 7 percent following an increase of the same magnitude in The drop was largest in hospitals, offices and industrial buildings. Demand for offices collapsed in 2001 leading to a quick and sharp decline in office construction. The drop in industrial buildings was the result of a few extremely large projects and the high construction volume of the previous year. Due to the delayed economic growth recovery new non-residential production will continue to decline this year at last years' pace of about 7 percent. Now, the decline will affect also public service buildings besides office and industrial buildings; only commercial building production is increasing. In 2004 non-residential construction is likely to remain at this year's level with slight growth in CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 19,22 139,70 8,65 2,6 6,2 % variations Billion euro % weight New Non Residential 15,0 9,5-7,5-7,5-5,5 7,0 5,31 61% R&M Non Residential 6,0 3,0 3,0 3,0 3,0 3,0 3,34 39% Total Non Residential 11,4 7,1-3,7-3,4-2,0 5,3 8,65 100% M iscellanous 34% Schools 12% Hospit als 6% Commercial Buildings 15% Office Buildings 11% Industrial Buildings 22% FRANCE 2002 Industrial starts dropped 9.6%, i.e. the greatest decline of any non-residential construction. As for storage facilities, they remain the only segment of non-residential construction that experienced a rise in 2002, with an increase of about 10.5%. Service buildings experienced an average decline of 8% in 2002, although the situation differed greatly for various types of building. The downturn was particularly sharp for offices (-20%), whereas shops remained relatively steady (a fall of only 0.8%). On the other hand, the downturn in the volume of renovation-maintenance work in 2002 is estimated at -1%, the consequence of the current economic slowdown. Overall, public building construction should be up by about 2% per year on average between 2003 and CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 149, ,30 49,50 15,1 3,3 % variations Billion euro % weight New Non Residential 10,8 7,9-1,8-5,6 1,7 3,0 24,59 50% R&M Non Residential 5,5 1,0-1,0 0,0 1,0 1,5 24,91 50% Total Non Residential 8,0 4,3-1,4-2,8 1,3 2,2 49,50 100% Commercial Buildings 11% M iscellanous 18% Schools 10% Hosp it als 10% Office Buildings 21% Industrial Buildings 30% 83

86 GERMANY 2002 The downward process in new non-residential construction accelerated in 2002 ( 9%) and will continue until next year (about 4.5% in 2003 and 2004, respectively). A recovery of 1.1% in 2005 is expected. Together with further reductions of renovation and modernisation until 2004 and only small increases in 2005, this will result in a substantial decrease of the aggregate sub-sector in 2003 (almost 3.5%) and further in 2004 (over 3%); for 2005 only a small positive growth rate of 0.9% is forecasted. CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 193, ,20 52,69 16,1 2,5 % variations Billion euro % weight New Non Residential -3,5-4,9-9,0-4,4-4,3 1,1 33,72 64% R&M Non Residential 0,2-1,9-3,5-1,3-1,2 0,6 18,97 36% Total Non Residential -2,3-3,9-7,1-3,3-3,2 0,9 52,69 100% M iscellanous 27% Schools 4% Hospit als 3% Industrial Buildings 19% Commercial Buildings 29% Office Buildings 18% HUNGARY 2002 A more modest pace of investment growth than earlier is invariably expected in the next few years. European recession moderated and domestic improvement restructured large industrial investments in Hungary. After a circa 10% annual decrease in 2002, as a result of governmental measures, a fairly modest grow rate, 3-5% increase is expected in industrial investment in The most significant projects will be found in the field of tourism as well as in the related service sector. Besides, in the long run, investment in industry, logistics and commerce will remain considerable. As for non-residential buildings of communal function, an increase is expected in PPP finance. Annual growth in nonresidential building construction may be around 5% in the next few years. CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 7,98 69,89 3,21 1,0 4,6 % variations Billion euro % weight New Non Residential 9,5 2,0 6,7 5,0 5,0 5,0 2,26 70% R&M Non Residential -2,0 11,0 4,4 5,0 5,0 5,0 0,95 30% Total Non Residential 6,0 4,5 6,0 5,0 5,0 5,0 3,21 100% Commercial Buildings 21% M iscellanous 3% Schools 5% Hospit als 5% Office Buildings 26% Industrial Buildings 40% 84

87 BUDAPEST, JUNE 2003 IRELAND 2002 All sectors, with the possible exception of retail, have been affected by the economic slowdown of the last two years. In particular, those sectors which experienced an unprecedented growth in building output during the boom years have been the hardest hit. The retail sector is holding up despite flat retail sales for the last twelve months. Private non-residential investment is weaker due to the reduction in private sector employment, the reduction in foreign direct investment and the deterioration in economic competitiveness. In relation to industrial building the closure of a large number of manufacturing and production companies over the last twelve months has exacerbated the vacancy rate in the industrial market. CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 21,04 129,40 4,89 1,5 3,8 % variations Billion euro % weight New Non Residential 4,6-3,5-11,1-14,1-4,4 2,0 3,88 79% R&M Non Residential 2,1-7,6-1,0 2,0 2,0 3,0 1,01 21% Total Non Residential 4,1-4,3-9,2-10,8-2,9 2,2 4,89 100% Schools 11% M iscellanous 17% Hospit als 8% Commercial Buildings 21% Office Buildings 23% Industrial Buildings 20% ITALY 2002 With respect to the situation described in December s report the prospects for the non-residential building in do not differ greatly from those of the residential-building segment: after growing by 8.1% in 2001 and 3.0% in 2002, investment in non-residential building will enter a slight recession in 2003 (with a decline of -0.9%) and a more marked one in 2004 (down 3.0%). With respect to December, the projections have become more pessimistic, envisaging a decline of -2.8% in The recovery could arrive in the second half of 2005 and continue into CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 135, ,35 42,53 13,0 3,4 % variations Billion euro % weight New Non Residential 6,5 8,1 3,0-0,9-3,0-2,8 21,32 50% R&M Non Residential 4,5 2,6-0,8-0,7 0,2 0,1 21,21 50% R&M Non Residential 5,4 5,2 1,1-0,8-1,4-1,3 42,53 100% M iscellanous 34% Schools 2% Hospit als 2% Industrial Buildings 40% Commercial Buildings 14% Office Buildings 8% 85

88 NETHERLANDS New non-residential construction output already dropped by more than 5 percent last year. Because renovation and maintenance activity maintained a small positive growth rate, total non-residential output decreased by 2.3 percent. Under influence of a economic recovery private non-residential investments in most other sectors will return to positive growth rates in Total new non-residential construction is expected to increase by 2.1 percent in 2004, followed by 4.1 percent in Renovation and repair activities don t fluctuate as heavily as new investments CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 48,18 445,50 16,70 5,1 3,7 % variations Billion euro % weight New Non Residential 6,4 3,5-5,2-12,7 2,1 4,1 8,30 50% R&M Non Residential 4,9 3,3 0,8-0,5 2,7 3,1 8,40 50% Total Non Residential 5,7 3,4-2,3-6,6 2,4 3,6 16,70 100% M iscellanous 23% Schools 5% Hospit als 7% Industrial Buildings 14% Commercial Buildings 15% Office Buildings 36% NORWAY 2002 New-builds are expected to fall by m 2, or close to 6%. The main reasons include a reduced demand and a general pessimism in the market. In addition, we have experienced a substantial rise in vacant premises, following several years with a considerable number of new-builds combined with a low increase in employment since A history of reduced profits, bankruptcies, negative profiling in media and pronounced uncertainty surrounding general conditions also contribute to a more cautious prospective attitude. However, the total activity remains still substantial at a relatively high rate of new-builds under public sector auspices. CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 19,28 196,30 8,19 2,5 4,2 % variations Billion euro % weight New Non Residential -3,0-1,3 6,7-3,4-12,8-3,2 4,52 55% R&M Non Residential 12,7-4,2-3,1-5,8 3,7 3,6 3,67 45% Total Non Residential 3,9-2,7 2,1-4,5-5,5 0,1 8,19 100% Schools 10% M iscellanous 18% Ho spit als 14% Commercial Buildings 41% Office Buildings 8% Industrial Buildings 9% 86

89 BUDAPEST, JUNE 2003 POLAND 2002 According to the forecast, decline of growth of public investments, as schools and hospitals, will amount to 13% in The bigger investment outlays from the EU auxiliary funds cannot be expected before n 2002 the weakening of the economic growth rate has also caused some weakening of investment rate in the scope of the private non-residential construction. Many domestic enterprises, mainly small and medium size companies, has undergone problems and searched for ways of saving their cost and limiting the occupied space. The main reasons for more active investor interest in Poland is the expectation of rapidly decreasing yields connected with Poland's entry into EU. The difficult situation of world equity markets, resulting in capital flowing into State bonds and real estate market has also contributed. CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 21,21 199,60 9,84 3,0 4,9 % variations Billion euro % weight New Non Residential -2,2-12,5-13,2-2,0 6,1 9,6 6,63 67% R&M Non Residential 4,2 2,3-3,3 0,5 3,7 3,1 3,21 33% Total Non Residential -0,5-8,5-10,2-1,2 5,3 7,5 9,84 100% Commercial Buildings 23% M iscellanous 8% Schools 11% Ho spit als 4% Office Buildings 18% Industrial Buildings 36% PORTUGAL 2002 Non Residential Construction performed rather well in 2002 with growth rates of +9,5% (new construction) and +6,0% (R&M) being estimated, stimulated by Euro 2004 Football Championship.A slight acceleration is being held for 2003 in new non-residential construction with a growth rate of 10,5% being estimate, approximately one percent point above the estimates for In 2004 an acute fall is being forecast as a result of the conclusion of several projects related to Euro 2004 Football Championship (-10,0%). A slow recovery in this segment should take place in 2005, with a 1,5% growth rate being forecast. CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 22,68 129,34 5,03 1,5 3,9 % variations Billion euro % weight New Non Residential 3,0 7,5 9,5 10,5-10,0 1,5 4,60 92% R&M Non Residential 13,5 5,5 6,0 6,5-5,0 1,5 0,43 8% Total Non Residential 3,8 7,3 9,2 10,2-9,6 1,5 5,03 100% Miscellanous 16% Schools 14% Ho spit als 8% Commercial Buildings 23% Industrial Buildings 14% Office Buildings 25% 87

90 SLOVAK REPUBLIC 2002 Within the wide extension in May 2004, Slovak Republic becomes the member state of EU. In the same year the country becomes also the member state of NATO organization. Non-residential construction shared in the year 2002 in new inland construction (inclusive modernization and reconstructions) by 39,8 %. Compared to the year 2001 it increased by 2,6 % and we assume growth also in years 2003 and 2004, even if R&M will grow at a highee rate than New construction. In 2002 acceleration of macroeconomic performance of the Slovak economy continued. However, development in construction production is slower then in whole economy. CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 1,62 25,70 0,64 0,2 2,5 % variations Billion euro % weight New Non Residential -1,0 8,7 2,4 2,1 0,6 0,2 0,51 80% R&M Non Residential -1,8 6,0 3,2 3,6 6,0 7,5 0,13 20% Total Non Residential -1,2 8,2 2,6 2,4 1,7 1,7 0,64 100% M iscellanous 9% Schools 3% Ho spit als 4% Commercial Buildings 28% Office Buildings 16% Industrial Buildings 40% SPAIN 2002 New non-residential construction closed 2002 with a variation rate of some importance, +4%, which is, however, indicative of a change in the trend towards moderation and stabilisation, after three years of progressive growth that had exceeded 8%. The forecast for 2003 and following years is, in fact, for slower growth, around 2%, falling to 1% in By building type, those that have reached the smallest amounts of applications for building permits have been industrial buildings, warehouses and commercial buildings. CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 80,42 693,90 18,24 5,6 2,6 % variations Billion euro % weight New Non Residential 6,0 8,6 4,0 2,0 2,0 1,0 11,62 64% R&M Non Residential 6,0 5,0 6,0 4,0 3,0 3,0 6,62 36% Total Non Residential 6,0 7,3 4,7 2,7 2,4 1,7 18,24 100% M iscellanous 11% Schools 5% Hospit als 2% Commercial Buildings 32% Industrial Buildings 42% Office Buildings 8% 88

91 BUDAPEST, JUNE 2003 SWEDEN 2002 During 2002, new building permits issued for industrial and office buildings have decreased immensely. Measured in sqm, building permits for industrial buildings have fallen by 35 percent and office buildings by 69 percent! The latest data on building permits gives an indication on future willingness to build, and this has of course been taken into consideration in the forecast for In our forecast we estimate that the general economy will gradually improve. This is especially the case for the later part of the forecasting period. This means that the situation for new non-residential would stabilise during In our forecast, we therefore estimate only a slight further decrease in the volume of investments in new non-residential by 0.9 percent compared to We forecast a growth in this sector in 2004 at 4.9 percent and 0.9 percent in CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 18,04 252,59 6,92 2,1 2,7 % variations Billion euro % weight New Non Residential 21,1-14,7-7,1-0,9 4,9 0,9 2,26 33% R&M Non Residential -1,4-4,3 1,4 0,3 2,4 1,9 4,66 67% Total Non Residential 6,0-8,2-1,5-0,1 3,2 1,6 6,92 100% M iscellanous 28% Schools 10% Hospit als 3% Industrial Buildings 20% Commercial Buildings 23% Office Buildings 16% SWITZERLAND The downward process in new non-residential construction will continue in A recovery of 2.1% in 2004 and 0.9% in 2005 is expected. The weakening of the economic growth has increased the risk of having vacant office space and many projects were postponed. Together with a decrease in renovation and modernisation investments, this will result in a decrease of the aggregate by 1.8% in After a stagnation in the following year (-0.1%), a slow recovery by 1% is forecasted in Due to the increased stock in the last decades, many buildings are faced with problems relating to technical, functional and locational obsolescence. Nevertheless, the renovation market does not show a stable development: the annual growth rates fluctuated from 3 percent to + 3 percent in recent years CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 29,19 284,97 8,82 2,7 3,1 % variations Billion euro % weight New Non Residential 6,5 7,5-7,3-1,6 2,1 0,9 4,22 48% R&M Non Residential -2,8 2,8 0,5-2,0-2,2 1,1 4,60 52% Total Non Residential 1,5 5,1-3,4-1,8-0,1 1,0 8,82 100% M iscellanous 24% Schools 11% Hospit als 6% Commercial Buildings 18% Office Buildings 17% Industrial Buildings 24% 89

92 UNITED KINGDOM 2002 Despite the weakness of the UK economy as a whole last year new non-residential construction output rose by close to 11 per cent in 2002, with all sub-sectors except the industrial one contributing to the growth is expected to be another good year, but slowing public investment and the weakness of office construction are forecast to dampen growth in the following two years. Overall, non-residential building growth is forecast to moderate to around 4.6 per cent this year, fall to just over 1 per cent in 2004, before picking up again in The most buoyant new work sectors are likely to be health, education, retail and leisure, while the outlook for industrial and office construction is expected to be gloomy for most of the forecast period. CONSTRUCTION SECTOR OUTPUT Billion euro GDP Billion euro TOT NON RES OUTPUT Billion euro - % weight in Europe TOT NON RES/GDP % 132, ,00 62,63 19,2 3,8 % variations Billion euro % weight New Non Residential -1,4 4,0 10,6 5,1-0,2 1,2 40,08 64% R&M Non Residential 5,6 9,5 6,7 3,5 3,5 4,5 22,55 36% Total Non Residential 1,0 6,0 9,2 4,6 1,1 2,4 62,63 100% Commercial Buildings 28% M iscellanous 7% Schools 16% Hosp it als 8% Office Buildings 27% Industrial Buildings 14% 90

93 BUDAPEST, JUNE 2003 Civil Engineering Pekka Pajakkala VTT, Finland Conference Budapest, Hungary June,

94 EUROPEAN CIVIL ENGINEERING WILL DEVELOP FAVOURABLY OVER THE NEXT FEW YEARS The total European civil engineering market was valued at 208 billion in It is growing at about the rate of the GDP. The public sector continues to finance most civil engineering projects which means that GDP and the volume of civil engineering typically grow at the same pace. Over the next few years civil engineering will, however, grow faster than GDP. The phenomenon is quite typical for various European construction markets. The new forecast for civil engineering in Europe is however smaller than the previous presented in December 2002 in Munich.The forecasted total growth in civil engineering during 2003, 2004 and 2005 is now 8,0 percent (10,7 % ). The new civil engineering is now forecasted to grow by 9,6 percent (12,5 %).The information on output values and growth rates: total, new/r&m, by areas (The Big Five...), countries and sectors (roads,...) can be seen in various appendix-tables in this summary report. In 2002 European civil engineering markets grew at a low 1.3 percent rate. Yet, it exceeded the growth of the European GDP (1.1 %). In 2003 civil engineering growth will accelerate to about 2 percent, reaching around 3 percent in the next two years. GDP growth will also pick up, but will remain slightly lower for those years. This means that the role of civil engineering in the European economy will increase somewhat. Civil engineering's share of GDP has been falling staying at little over 2 percent. During the forecast period until 2005 civil engineering will be the fastest growing sector of construction in Europe. New building construction will decline except for Renovation markets are growing but clearly less than civil engineering. 3,5 % 3,0 GROWTH OF GDP AND CIVIL ENGINEERING COUNTRIES GDP 2,6 Civil Engineering 2,9 2,6 3, CONSTRUCTION OUPUT BY SECTORS COUNTRIES index 1995 = 100 2,5 2,0 2,0 2, ,5 1,0 0,5 1,5 1,1 1,3 1, New Building Renovation and Modernisation of Buildings Civil Engineering 0, CONSTRUCTION OUPUT BY SECTORS 2002 COUNTRIES Total Output EUR 975 billion Civil Engineering, new 14 % Civil Engineering, r&m 7 % Residential construction, new 22 % CIVIL ENGINEERING 2002 COUNTRIES Other 18 % Total 208 Billion Thereof other transport infrastructure 18 % Transport Infrastructure 54% Non-residential construction, r&m 14 % Non-residential construction, new 20 % Residential construction, r&m 23 % Energy and water works 18 % Telecommunications 10 % Thereof roads and bridges 36 % 92

95 BUDAPEST, JUNE 2003 On the European level civil engineering accounts for about a fifth of total construction (21 %). In the forecast period that share will increase. Transport infrastructure accounts for more than half of the European civil engineering market (54 %), energy and water supply networks' share is 18 percent, telecommunications-related civil engineering accounts for around 10 percent, and other civil engineering constructions for 18 percent. During the forecast period until 2005 the construction output of roads and bridges and other transport infrastructure has the most positive and equal outlook. The energy and water works is growing slowly and telecommunications-related constructions have no substantial growth, in many countries they have negative growth. The development of civil engineering in Europe is based on the following factors: In many countries poor economic growth and tight budgets will slow down investments in civil engineering. At the same time the slump in construction in some other countries results, however, in investment in civil engineering. The EU is already investing in the development of the existing infrastructure of new member states. Thus the civil engineering markets of central Eastern Europe are starting to grow fast ( like in Ireland and Portugal after EU-membership in 1995). The infrastructure-projects need also national funding and its lack is the main reason for possible slow growth. A key aim of the EU is to ensure the movement of information and goods between member states which requires good connections. The poor condition of civil engineering constructions calls for renewal of networks and intensive maintenance in many countries (UK, France, Germany, ). New joint financing models (PPP-public-private partnership, BOOT-build-ownoperate transfer, ) have been introduced and are reflected in increased construction activity. The throughput of the network has remained low due to economic growth and migration in several European countries. In the forecast period, growth in European civil engineering focuses on new construction. That sector will see 2.5 percent growth this year, and the two subsequent years will post just over 3.5 percent growth. Growth in the repair and maintenance subsector will remain below 2 percent this and next year. In 2005 it will reach slightly over 2 percent growth. CIVIL ENGINEERING 2002 COUNTRIES Total 208 Billion CEE Countries 6 % Germany 15 % 4,5 % 4,0 % SHARE OF CIVIL ENGINEERING COUNTRIES (output per GDP) CEE Countries Smaller Countries 20 % UK 10 % 3,5 % 3,0 % Smaller Countries Nordic Countries 8 % France 15 % 2,5 % 2,0 % Nordic Countries Italy 14 % Spain 12 % The Big Five 1,5 %

96 The Big Five: Growth in Spain, UK and Italy, no growth in France and Germany The Big Five account for two-thirds of European civil engineering construction. Their civil engineering activities will develop favourably also up to In 2002 their growth reached just under 2 percent, but in 2003 and the two subsequent years growth is estimated at percent annually. Civil engineering will increase faster than GDP also in the Big Five over that period. Thus, civil engineering s share of GDP is showing a slight upward trend, but remains nevertheless under 2 percent or at about the European average. The markets of the Big Five divide quite equally between the five countries. In contrast to other sectors of construction, France's share of the civil engineering market (23 %) is slightly larger than Germany s (22 %). Italy s share is quite close to these two countries' (22 %). Spain's share is 18 percent and UK's 15 percent. Developments in the group of five countries are clearly two-fold. Both the French and German markets will hold their own. Changes in the forecast period will be small. Growth will be fastest in Spain. The UK market has also grown quite rapidly for the first years of this millennium and continues on that track. Italy's growth lags clearly behind Spain's and UK's but will continue throughout the forecast period. The types of civil engineering works receiving emphasis in the Big Five are much the same as in the rest of Europe only the share of telecommunications constructions is slightly higher. 3,5 % 3,0 GROWTH OF GDP AND CIVIL ENGINEERING THE BIG FIVE COUNTRIES GDP Civil Engineering 3,0 2,9 2,6 2,6 2, CIVIL ENGINEERING OUTPUT THE BIG FIVE COUNTRIES index 1995 = 100 2,5 2,0 1,5 1,6 1,8 1,3 2, Italy UK Spain France 1,0 1,0 100 Germany 0,5 80 0, CIVIL ENGINEERING 2002 THE BIG FIVE COUNTRIES Other 18 % Total 136 Billion Thereof other transport infrastructure 18 % CIVIL ENGINEERING 2002 THE BIG FIVE COUNTRIES Total 136 Billion Italy 22 % Germany 22 % Transport Infrastructure 54% Energy and water works 18 % Spain 18 % UK 15 % Telecommunications 11 % Thereof roads and bridges 35 % France 23 % 94

97 BUDAPEST, JUNE 2003 France Weak economic growth and tight budgets will curtail investment. France is not lacking in infrastructure projects. However, the main factor behind these investments is the budget, which depends on the country s economic growth and the constraints on its national accounts. In France, 80 percent of investment in this sector depends on public funding. Measures to promote alternative financing have been taken in the form of programs to develop public-private partnerships. There are several noteworthy elements of French Civil Engineering: The relatively great weight given to roads, The priority accorded to the renovation and maintenance of existing networks, A reappraisal of the high-speed TGV Lyon-Turin link, Confirmation of the TGV East link (up to Baudrecourt) and rail projects already underway (like the Perpignan-Figueras link). The situation with regard to local government could be better. The year 2002 was marked by additional operating expenditure, as the 35-hour working week became standard from January This held down investment in 2002, but we will undoubtedly see an initial recovery in 2003 that should continue into 2005 (pre-election year). This takes us back to the classic electoral cycle, although the cycle s amplitude should be attenuated by the boom in inter-municipality cooperation in recent years. Infrastructure investment fell in 2002 (-2%) and will stagnate in 2003, despite an upturn in local investment. There will be weak growth in 2004 and 2005 (0.7% and 0.5%, respectively). Germany In 2002 more than 53 percent of German real investment in civil engineering was by public authorities and almost 47 percent by (private) firms. Total civil engineering, especially newconstruction, declined up to In 1999 the sector expanded considerably, but since 2000 the negative development has continued, the focus of this decline being new construction. Private enterprises will remain cautious with regard to (new) projects for the reasons mentioned above; the financial difficulties of the public sector, above all in the municipalities, will prevent an increase also in this subsector of civil engineering until Investments in road and rail construction are expected to stimulate civil engineering with the focus on projects of the German Unity programme. These projects are aimed at improving or establishing transport links between West and East Germany (and rest of Europe) but will primarily benefit East Germany. Deutsche Bahn's investment programme is expected to boost civil engineering by the private sector; itis still spending billions of euros per year for expanding, and even more for improving, its rail network. Only a decreasing share of these construction efforts will involve for building new high-speed stretches, an increasing share is earmarked for modernising rail stretches and for the reconstruction of stations and the railway network after the flood damage in parts of the new Länder. Investment in streets and bridges is also required, especially in the flood-afflicted municipalities. The funding for the future investment programme of the central government will come primarily from the savings in interest payments, as the revenue from UMTS licenses will be 95

98 used to reduce the national debt. Funding for the traffic congestion reduction programme and (on a mid-term perspective) for some BOT or PPP projects for the extension and modernisation of the highway network will come from the revenue from a general Autobahn usage fees for trucks, which in 2003 will replace use fees (Euro vignette) charged today for particular periods of time. Increasing renovation and modernisation efforts will be needed in all subsectors of private and public civil engineering in order to keep the large number of existing structures in condition. This holds true especially for the rail network, highways, airports, and docks and channels. A paradigm change in the public sector towards more rapid extension of this kind of civil engineering activities has occurred in recent years, primarily in the public sector. After continued decrease this year (due to newconstruction), only slight increase is forecast for 2004 (0.1% in new construction and 0.7% in renovation and modernisation, partly due to extra measures after the flood damage). Significantly faster expansionof civil engineering activity is expected for 2005, both as regards new construction and R&M. Italy On the basis of new estimates for 2002, the overall expenditure in the civil-engineering segment is billion euros, i.e. 19% of the production value in the construction sector. The growth rate has been lower with respect to estimates made 6 months ago, due to a downward revision of the dynamics of some bodies of the public sector. The Central Government, has reduced expenditure in the construction sector. The negative dynamics in the local public-service enterprises, and the lower growth rate of the National Road Company have also contributed to this reduction. The reduced dynamics affect both new building and renovation & maintenance: the very good rates of 2001 (respectively +8.6 and +6.5%) have declined to about 2%. The sector should improve significantly in 2003; the forecast trend from this year is brighter especially with regard to new building. In the medium term ( ) the civilengineering segment will continue to be the only exception within the construction sector recording a phase of reduction in the expenditure. The timing for the completion of the extraordinary programme for strategic infrastructures, quantified at 126 billion euros to be spent over 10 years, has been slightly set forward. Investments in the transport sector, which as usual represent the most important segment of civil engineering (58.5% in 2002), have risen only by 1.9%. The same applies to the road-building segment which, contrary to the optimistic forecasts, has increased only by 2.9%. Railway transport is performing very well and is the most dynamic segment of the sector. Light transport systems for mass transit still play an important role. Although the quota of local public-service companies declined slightly in 2002 with respect to the previous year, it will grow in the future since public-service companies are participating in development programmes launched to respond to the pollution emergency occurring in many cities, and to respond to the need to decongest the major urban centres. These are also positive years for ports and airports. Policies are being applied to strengthen Italy s strategic role in the processes of world traffic, to promote maritime transport as an alternative to all road transport, and support the natural trends in the air-transport market. After transport, the most important percentage of civil engineering includes infrastructures for water and energy, amounting to 30% in

99 BUDAPEST, JUNE 2003 The sector has grown only by 2% and will have similar dynamics in the coming years. This is due to the contrasting trends in the major utilities companies. Finally, the telecommunications sector seems to be on the decline, at least in the medium term. In 2002, there was a reduction in the growth equal to 8% with respect to the previous year. The market will in any case maintain a positive trend due to the continuation of the programme for placing the services of the public administration on-line. Spain The sector that contributed the most to the positive development of construction in Spain in 2002 was civil engineering. It grew 7.9 percent thanks to the boost in commissions over two years. The forecast for total construction growth in 2003 and the following years is still based on the brisk activity in this subsector (6 % to 8 %), which is a key component in the forecasts for public spending in the 2003 budget and the initial draft budgets for 2004, being prepared on the basis of multi-annual scenarios for By subsectors of civil engineering, growth will be greatest in railroad infrastructures and electrical energy production and transmission, although in terms of absolute volume the most important subsector will continue to be road building (46 % of totalcommissions). The investment forecasts for roads are based: firstly, on the goal of creating a high capacity road network; secondly, on local railroad programmes in cities and their environs; and thirdly, on improvements to conventional railroads (improvement of infrastructure, installations, signalling, etc.). Another major subsector forecast to expand is Spanish airport construction, accounting for programmed investments of 9,000 million, of which 60 percent will be allocated to the airports in Madrid and Barcelona (70 % to expand installations). The planned construction of Spanish ports and harbours represents an investment volume of approximately 7,500 million. United Kingdom The main driver of growth in Civil Engineering will be transport. The biggest project is Terminal 5, part of a ten-year development plan for Heathrow. BAA also has significant development programmes for both Stansted and Gatwick. Now that Network Rail is finally up and running, it is somewhat easier to assess the likely level of expenditure on rail over the coming years. According to its 2003 Business Plan, Network Rail s total expenditure on renewals is projected to rise by 49 per cent from 2002/03 to 2004/05, while total committed enhancements should rise by 38 per cent over the same period. However, a recent announcement by Network Rail has suggested that up to 20 per cent of expenditure savings will be made on the operations, maintenance and renewals account to 2005/06. New orders for roads increased by 26 per cent in However, it must be noted that some of these orders will relate to long-term maintenance contracts and others to the new Early Contractor Involvement form of contract. All this activity cannot but suggest continuing increases in output from the infrastructure sector, which we have put at 9 per cent for this year, 5 per cent for 2004, slowing to 2 97

100 per cent in 2005 as it reaches a high plateau.civil engineering renovation output is estimated to have increased by just over 6 per cent in 2002, and further, but less robust growth is expected for each of the three forecast years, largely predicated on rising expenditure on roads maintanence, which makes up a major share of the sector. Civil engineering developing quite poorly in the Smaller Countries Group The Smaller Countries Group consists of Austria, Belgium, Ireland, the Netherlands, Portugal and Switzerland. The civil engineering markets in these countries will grow slower than GDP until In 2002 and 2003 they will experience negative growth, and positive growth will only be seen in Thus, civil engineering's share of GDP is declining. Yet, it is larger than with the Big Five at just under 3 percent. Focus in the Smaller Countries Group is on transport infrastructure. More roads, bridges and other transport infrastructure are being built than in Europe on average. Development within the countries of this group differs widely. The forecasts for Belgium and Austria are the most favourable. The Portuguese and Swiss markets will post hardly any growth. In Ireland the market volume will contract significantly between 2002 and 2005, a good 10 percent in all. Both the new civil engineering and the maintenance sector will fare quite poorly close to zero growth is expected. 3,0 2,5 GROWTH OF GDP AND CIVIL ENGINEERING SMALLER COUNTRIES 2,5 GDP Civil Engineering 2,3 2, CIVIL ENGINEERING OUTPUT SMALLER COUNTRIES index 1995 = 100 2,0 1,5 1,0 0,5 0,0-0,5-1,0-1,5 1,7 1,4 1,0 0,9 0, ,3-0, Ireland Portugal Netherlands Belgium Austria Switzerland CIVIL ENGINEERING 2002 SMALLER COUNTRIES Other 20 % Total 42 Billion Thereof other transport infrastructure 22 % CIVIL ENGINEERING 2002 Switzerland 22 % SMALLER COUNTRIES Total 42 Billion Austria 15 % Belgium 10 % Energy and water works 16 % Transport Infrastructure 61% Portugal 15 % Ireland 10 % Telecommunications 2 % Thereof roads and bridges 40 % Netherlands 28 % Austria Output growth in the civil engineering sector will remain stable over the next years. After an increase of 6.3 per cent last year, the sector s output will increase by 4.4 per cent in 2003 and by 3.3 per cent in each of the following two years. The increase in R&M will be about one per cent lower, and slightly higher in its counterpart (new investments). 98

101 BUDAPEST, JUNE 2003 Current priorities of the government include a general motorway improvement, several tunnel projects, improving connections to the East, and other railway infrastructure improvements. A system of charging highway/road usage will be introduced in The revenues are planned to be used to finance further transport infrastructure investments. The pleasant dynamics of the civil engineering output is based on expected growth rates of 7 to 15 per cent in the transport infrastructure. On the other hand, civil engineering output from energy, and water works sub-sector will decrease. For the current year, an increase of 15 per cent in construction output for transport infrastructure is counterbalanced by a 3.1 per cent shrinking of construction output for energy and water works. Belgium As alternative funding is rather limited, and the authorities always supply 80 percent of civil engineering orders, developments in this sector are largely correlated to public investment. The profile of forecasts is dictated by the cycles in local authority investment in the downward phase of , and in the upward phase during 2005, with a view to the local elections in At the time of writing, no details were available of the speed of reversal of the trend during the years , 1 but it seems to be generally accepted that 2003 will see renewed growth in civil engineering, at least in the public works sector. The public companies, especially the SNCB (the Belgian State railway company), supply a large volume of work, but the situation could develop differently, even if the need is still strong and there is a major investment plan. Faced with large funding difficulties, it may be necessary to cut back heavily on works (possibly by as much as one third) if the government elected on 18 May 2003 does not reconsider the budget aspect of the SNCB 12-year plan. The case of the SNCB illustrates perfectly the situation in Belgian civil engineering. The need is great maintenance of the infrastructure alone requires around 2.5 billion per annum ( it is estimated that 1.5 to 2% of its value as new, estimated at 130 billion by the Institute for National Accounts, must be budgeted for this). However, the resources are not available in its last annual report, the Belgian National Bank expressed its concern that the Belgian public capital stock had fallen during the previous decade (because investments have not even succeeded in offsetting natural depreciation)! 1 New estimates are expected by the end of May. 99

102 Ireland Civil Engineering in Public Capital Programme Expenditure Average 2003 % Change m m Annual m in Value Actual Estimate % Change Estimate 2003/2002 in Value Roads 475 1, % 1, % Public Transport % % Water and Sewerage Services % % Energy 383 1, % 1, % Total 1,186 3, % 4, % Source: Public Capital Programme 2003 Despite the 1.2 billion in Public Capital Programme for 2003 allocation for national roads (+26%), this will not be sufficient to fund all of the national road schemes which are awaiting finance. With an estimated 75% of the total provision already committed to projects under construction (such as the Dublin Port Tunnel, the M50 South Eastern Motorway and the N7 Kildare Bypass) a number of projects are unlikely to start in A further 40m. is the anticipated contribution from public private partnership schemes. To date a total of 11 schemes in the national roads improvement programme have been identified for development as PPP projects. The PPP approach is expected to be the preferred route for a further four motorway projects which are expected to be delivered over the lifetime of the NDP. PPP road projects, are estimated to have a total value of approximately 1.5bn. and are expected to attract private investment of at least 890m. according to the National Roads Authority. The roads allocation for 2003 also includes some 340m. for improvements on nonnational roads plus a provision ( 53 million) for measures under the Dublin Transport Initiative. Within the public transport provision, which is 29% up in nominal terms, the estimates provide for 127 million for the Luas light rail lines to Tallaght and Sandyford in Dublin, the first of which is not expected until the first quarter of There is also an increase (19%) in the capital allocation for CIE towards the ongoing development of the suburban and mainline rail and bus networks. The investment planned for water and sewerage services reflects the investment priorities for water and sewerage infrastructure in the Government s Water and Sewerage Investment Programme for the period 2002 to The list of projects includes the Dublin Bay project, the largest wastewater treatment plant currently under construction in the EU at a cost of 209m, which is due to be fully operational by the year-end. Investment in Government construction, which includes provisions for the construction of new premises, ongoing works on the refurbishment of existing Government offices, Garda Stations prisons and courthouses, is set to decline by 8% in Overall we forecast a decline of 7% in the volume of construction related investment in new civil engineering projects in

103 BUDAPEST, JUNE 2003 The Netherlands Civil engineering's share of total construction output in the Netherlands has increased significantly in the past 15 years: from less than 20 percent in 1987 to almost 25 percent in 2002 when a construction volume of 11.7 billion (in 2002 prices) was reached. Civil engineering construction benefited proportionately more from the Netherlands important central location in the European transport network than other subsectors. Road and railway extensions as well as large investments in harbours and airports were inevitable. In the period civil engineering output increased by 6 percent annually. The favourable economic development, with a booming ICT sector, as well as some large infrastructural works, contributed strongly to the increase in construction activity. Also, the increased activity in the building construction sector required civil engineering companies to prepare building sites. Finally, maintenance activities on existing infrastructural structures could expand due to the favourable budgetary situation. In 2003 new civil engineering construction is expected to decrease slightly (0.7%). The forecast for transport infrastructure construction for the central government, however, especially road infrastructure, is positive. Investments in public transport infrastructure and the abolition of bottlenecks in the road infrastructure are given priority. In 2004 and 2005 new civil engineering will still decrease slightly. This outlook is mainly based upon the weak economic climate, combined with the disappointing demand for new building sites for residential and non-residential construction. Also, declining expenditures on the Betuwelijn and the HSL-Zuid, as completion of these large projects is nearing, contribute to the negative outlook. Civil engineering renovation, on the other hand, is expected to show some growth in 2004 and To tackle arrears, budgets for national roads and dikes will be increased. Municipalities will spend more budget for on sewerage repair work. Finally, for 2005 a structural increase in maintenance funds for waterways is scheduled. When looking at the relationship between economic growth and civil engineering it can be seen that in the years before 1998 the trend was rather constant. Since 1999 civil engineering output has increased at a faster rate than the overall economy, due to the launching of large infrastructural projects. Now completion of these projects is approaching, while economic growth is low, which threatens also civil engineering output. The relationship between economic growth and civil engineering is clear: an economic upturn or downturn, of course, influences the budgetary situation of the government. The availability of sufficient financial resources is an important condition for the realization of infrastructural projects. Portugal In 2002 new civil engineering output fell 3.5 percent as a result of the delay in several important construction projects. In 2002 the number of awarded contracts for new civil engineering construction fell 26.7 percent compared to the preceding year. The value of these contracts reached million, a 35.8 percent fall compared to On the public procurement side only miscellaneous construction and hydraulic works showed positive growth (+17.6 % and 5.3 %, respectively) whereas townplanning (-45.7 %) and road networks (-43.6 %) were hit hard. 101

104 The recently forecast favourable development for new civil engineering output had to be revised a growth rate of -5.0 percent was given for Recovery is expected in 2004, although a moderate one (+0.5 %). More significant growth is predicted in 2005 (5.0 %). In 2002, Civil Engineering R&M works were estimated to have grown 5.0 percent, reaching 437,64 million, representing 7.0 percent of total civil engineering construction and 24.1 percent of total declared R&M works. From January to March 2003 awarded contracts fell 69.1 percent (in value). After a period of remarkable growth (14.0 % and 16.0 % in 2000 and 2001), civil engineering is expected to continue on a deceleration path this year at a forecast growth rate of 3.5 percent. An upward trend is expected to take place from 2004 onwards, with growth rates of 5.0 percent and 6.5 percent in 2004 and 2005, respectively. Switzerland Civil engineering's share of total construction output has increased significantly in the past. It increased from less than 18 percent in 1990 to 26 percent in The favourable economic development and various major railroad projects were responsible for this upswing. The construction of new highways remains a stabilising factor in the civil engineering sector. The revenue from the HVF (heavy vehicle fee), will flow to projects that have been launched to bring about a relocation of goods transport from roads to railroads, such as the new tunnel system through the Alps with a construction volume of more than 1 billion per year during the next ten years. New high speed rail connections with France, Italy and Germany are also under construction. The slowdown in economic growth in 2002 led to a reduction in tax revenues for the year 2003 and, as a result, a reduction in public sector spending on public works. Investment spending on civil engineering is expected to decline by 1.5 percent in the current year, to stagnate in 2004, and to increase again by 1.8 percent in Investment in transport infrastructure is likely to decrease in 2003 and 2004 because of the sharp price increases for the major railroad projects Bahn 2000 and NEAT and the deficits in public sector finances. Increasing renovation and modernisation will be necessary in all subsectors of private and public civil engineering in order to keep the large numbers of existing structures upto-date. However, cuts in renovation and modernisation expenditures in the civil engineering sector are widely used as a buffer in order to balance budgets; actual expenditures do not therefore reflect actual demand. Moderate expansion is expected in the forecast period. A couple of good years ahead for the Nordic Countries Group The Nordic Countries Group accounts for about 10 percent of the European civil engineering market which will grow approx. 3 percent this and next year. In 2005 growth is expected to stop and turn slightly negative due to severe contraction in Norway (-10 %). Civil engineering's share of GDP is of the same magnitude in the Nordic countries as in Europe on average, about 2.5 percent. The share has been in clear decline for nearly 10 years. 102

105 BUDAPEST, JUNE 2003 Civil engineering's share of total construction is much the same in various Nordic countries. The countries with the largest share are Denmark (32 %) and Sweden (26 %) followed by Finland and Norway (both with 21 %). The structure of Nordic civil engineering markets differs significantly from those of the other groups. The share of telecommunications constructions is more than 1.5-fold (16 %) compared to the average of the rest of Europe (10 %). The share of other transport infrastructure besides roads and bridges is also notable (railways, ports, airports, ). The mentioned strong growth in Norway distinguishes it from the other Nordic countries. The contraction in 2005 will be the result of the completion of the large Snow White project then. The Nordic countries will enjoy a growth trend throughout the forecast period. Fastest growth is predicted for Sweden, followed by Finland; Denmark will also see slight growth for the entire forecast period. 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0-0,5-1,0 GROWTH OF GDP AND CIVIL ENGINEERING NORDIC COUNTRIES GDP Civil Engineering 3,6 3,1 2,8 2,5 2,4 1,7 1,3 1,1 0, , CIVIL ENGINEERING OUTPUT NORDIC COUNTRIES index 1995 = 100 Finland Denmark Finland Norway Sweden Nordic Countries Sweden Denmark Nordic Countries Norway Other 24 % CIVIL ENGINEERING 2002 NORDIC COUNTRIES Total 18 Billion Thereof other transport infrastructure 11 % Transport Infrastructure 43% CIVIL ENGINEERING 2002 NORDIC COUNTRIES Sweden 26 % Total 18 Billion Denmark 32 % Thereof roads and bridges 32 % Energy and water works 17 % Telecommunications 16 % Norway 21 % Finland 21 % 103

106 Denmark After many years with strongly rising activity, the trend was reversed in 1999, when new civil engineering activity declined by 20% due to fading activity in a number of large projects. The declining trend continued into 2000, with slight growth since then. The general trend has been downwards for motorways, airport construction, energy and environmental projects. Certain types of infrastructure, such as energy electricity, gas, district heating - is in the hands of various types of regulated semi-public, independent companies at the moment. It is quite uncertain what happens with total liberalisation of energy markets. Only one type of new non-transport infrastructure looks promising, according to plans: Large off-shore windmill farms. However, a total liberalisation of energy markets raises serious questions about the economic viability of windmills, which are cross-subsidised. One planned offshore windmill farm has already been stopped. Otherwise, long term trends point downwards in relation to most non-transport civil engineering areas, such as investments in natural gas, district heating and environmental activities. The only really large infrastructure project under construction at the moment is the Copenhagen Metro. Rush hour traffic on the Greater Copenhagen network of motorways has increased dramatically during the last years in spite of an increasing number of people working one or two days weekly at their home office. The introduction of a flexible road-pricing system within a few years is being discussed, but is politically contentious. The idea is to optimise the use of existing roads instead of building new ones. However, an expansion of the road network seems likely too. Some motorways will be built in provincial areas in any case. There is still a great bridge to be built. The Great Belt Project was completed in mid The Øresund Bridge between Copenhagen and Malmö (in Southern Sweden) was completed in the spring of The missing link is the Fehmarn Belt Project, joining Southern Denmark and Germany. The cost will be in the range of 3-5 billion Euro depending on the solution. In principle, it has been decided to build the link. Finland The volume of civil engineering is growing steadily in Finland. Changes in the volumes of successive years have been a few percent. In 2002 the volume increased about 2 percent. Growth will accelerate a bit in 2003 and 2004 and is expected to remain continue also in The new government will finance civil engineering projects to stimulate the national economy. Large and mid-size earthwork contractors and investors see 2003 as slightly weaker than 2002 whereas civil engineering firms and small earthwork contractors expect the good situation of last year to continue. The weakening of the finances of municipalities poses a threat. VTT estimates that municipalities will cut investments in municipal engineering significantly in For instance, the city of Helsinki is planning major cuts in civil engineering investments. Road and railway construction is increasing in Finland. On the other hand, maintenance of railways and roads is not receiving more money, rather the opposite is true. Investments in municipal engineering, including road construction, will also contract in the next few years. A peak in energy supply construction will occur in the 104

107 BUDAPEST, JUNE 2003 next few years as work on Finland's fifth nuclear power plant starts. Construction of the telecommunications network is on ice. Norway Following several bad years, noticeable growth is now expected in this market. A jump in investments was expected based on clear signals in the public project documents for the individual sectors. Various government offices have sent clear signals in the last few years of increasing road investments, renewed investments in railroads, and extra investments in the water/sewer sector and environment. The current problem is that many of the mentioned plans in this year s proposal for the state budget have been postponed or reduced. The most important contributor to growth in this sector at this stage is still the gigantic Snøhvit ( Snow White ) project in northern Norway. This project is the largest oil/gas investment in the northern region ever, and it is large enough by itself to make Norway's total civil engineering investments increase again. Sweden New political guidelines have been set whereby road investments are substantially cut down for 2004 and Our forecast still predicts growth, but at a more modest pace. In 2003, road investments will increase by 8 percent but only 1 and 2 percent in the years 2004 and Investments in the transport sector will also be lower in the forecast period, due to the completion of the Arlanda Airport. There will be increased focus on railways. In the transport infrastructure sector there may be some new large investments in railways at the end of the period. The parliament has granted money to build a highspeed rail-link from Umeå to Haparanda in the north of the country the total cost will be around 1,300 million euros.the Malmoe region will also get a new railway-tunnel through the city to the Oresundlink. This project is, however, not yet fully financed, and as time goes by it seems less likely that this project will start in the forecast period. The telecommunications sector is the most difficult sector to forecast. In the forecast period new civil engineering will increase by 1.4 percent in 2003, by 3.4 percent in 2004, and by 3 percent in This sector is to a large extent financed by state funds, which can easily be cut off in case the Swedish economy as a whole worsens further. Civil engineering renovation has grown modestly over the last few years and will continue to grow in the forecast period. Due to cuts in new investments in roads over the next few years, the focus will be more on maintaining the existing road network. We forecast an annual average growth rate of 3 to 7 percent per annum until Rapid growth expected for CEE Countries in civil engineering in 2004 and 2005 Civil engineering has developed slowly in the CEE Countries for the last 5 years. This year's figure should be 3 percent. The next two years should see 9 and 13 percent growth, respectively. The countries covered by the forecast (Czech Republic, Hungary, Poland and Slovak Republic) will join the EU in According to the EUs regional policy the transport infrastructure in CEE-countries is well below average levels in the Union, in terms of both quantity and quality. In particular, a huge amount of work is needed to develop national networks and connect them to the trans-european networks. On the environmental front, the worst problems are water pollution, waste management and air pollution. Some 40% of the population in the 105

108 applicant countries do not have running water and only 42% of liquid waste is treated, and then rarely to EU standards. More than half of these countries' civil engineering construction occurs in Poland, followed by the Czech Republic (27 %) and Hungary (17 %). The Slovak Republic accounts for 4 percent. The structure of the civil engineering market in these countries also differs considerably from the European average. Civil engineering focuses on new constructions. The European average for new construction in this sector is 66 percent while in the CEE countries it is 73 percent. The traffic network of the CEE countries is limited and its capacity low compared to Western Europe. The need of new construction is great. CEE construction focuses more on energy, water supply and telecommunication networks than in the rest of Europe. The share of the transport infrastructure is clearly smaller then in Europe on average. The mentioned great need of construction is also reflected in civil engineering's share of GDP in the CEE countries: over 3.5 percent and clear increase forecast for the next few years. In 2005 the share is expected to even exceed 4 percent. The most important funding sources for the infrastructure projects in the accession countries are EBRD (European Bank for Reconstruction and Development), ISPA (Instrument for Structural Policies for Pre-Accession), EIB (European Investment Bank), ERDF (European Regional Development Fund), NIB (Nordic Investment Bank) and World Bank. For the sake of comparison, civil engineering volumes grew rapidly in Ireland and Portugal after they joined the EU in The sector's share of GDP increased quickly having been 2,7 percent in Ireland and 4,1 percent in Portugal at the time of joining. Both countries posted their record figure in 2001: Ireland at 3,4 percent and Portugal at 5,0 percent. In the six years since their accession to the EU, the sector's volume has increased nearly 2.1-fold in Ireland and 1.5-fold in Portugal. EU financing has played a significant role in that growth. Similar growth can also be expected in the countries that join the EU next year. 14,0 12,0 GROWTH OF GDP AND CIVIL ENGINEERING CEE COUNTRIES GDP Civil Engineering 12, CIVIL ENGINEERING OUTPUT CEE COUNTRIES index 1995 = ,0 8,0 6,0 4,0 2,0 2,0 2,0 1,5 3,0 3,0 3,7 8,6 4, CEE Countries Hungary Poland Czech Republic 0,0-2,0-4, , Slovak Republic

109 BUDAPEST, JUNE 2003 Energy and water works 29 % CIVIL ENGINEERING 2002 CEE COUNTRIES Other 10 % Total 13 Billion Transport infrastructure 42 % CIVIL ENGINEERING 2002 CEE COUNTRIES Total 13 Billion Slovak Republic 4 % Czech Republic 27 % Poland 52 % Telecommunications 19 % Hungary 17 % Czech Republic The volume of energy sector construction continues to fall while the volume of waterindustry-building construction is increasing slightly. Construction of telecommunications constructions has, following a sharp fall in 1999, begun to revive as a result of the expected abolition of the state s monopoly in that area. Transport constructions continue to make up the largest share of civil engineering works. They consist mainly of rail corridors connected to the European international network, while the construction of additional sections of motorway and the extension of the Prague underground are also significant. Transport construction makes up 58 percent of the total volume at the present time, and it should remain at almost the same level until Telecommunications construction should increase over 1.5-fold between 2000 and 2004mainly due to the strong growth in the years 2001 and The share of energy and water industry constructions will fall from around 30 percent in 2000 to 25 percent in Hungary Hungary's EU accession, which takes place on 1 May, 2004, will probably have the strongest influence on infrastructure improvements in the Hungarian and Central-East- European economies. The first years of economic transition in Hungary ( ) caused considerable changes in thevolume, technical equipment, ownership and structure of infrastructures as well as in investments and the labour force. The Hungarian national economy is under increasing pressure to modernize the country's backward transport-related infrastructure. Management, regulation and operating conditions are also changing, which will be of great importance in the next few years. On a few issues public road construction versus railway line development, flood and water management, privatisation and the financing of projects (e.g. PPP) Hungary faces the typical European problems. Almost all of these dilemmas are closely connected to the requirements for Hungary's EU accession. The country started preparing for them a few years ago and was able to bring about positive changes in Civil engineering grew 3.8 percent in 2001 and over 9 percent in 2002, primarily due to large road and railway construction projects. 107

110 According to the Government's public roads program until 2015, the road supply will increase 4-fold from today's 6.8 km/1,000 km 2 to 27 km/1,000 km 2 by Taking over the country's energy production and the more favourable official prices have attracted investors' attention, and many of them have started to build new power stations: geothermal power stations, recycling energy stations, wind power stations or biomass power stations. Telecommunications, which has driven the whole economy with its rapid development in the past 10 years, is now struggling for survival on the market hoping to see its full liberalisation. Annual investment growth of percent occurred in environmental protection. The number of sewage disposal, waste-water purification and waste treatment projects is increasing, they also play an important part in the National Development Plan. A crossborder environmental infrastructure network will be built between Hungary and Austria. Poland The expected rapid growth of outlays for road investments will be delayed till The increase of outlays for the Polish communications infrastructure, as well as for the new programmes of environmental protection, will not take place before The rate of growth of civil engineering construction will amount to only 1 percent in 2003, and 5.6 percent in It is expected that the outlays for civil engineering projects will increase significantly above 15 percent in Finding of more efficient sources of financing for the programme is a precondition for radical acceleration of the construction of highways and expressways and modernisation of other domestic roads. The basic problem is still the first years of realisation of the modified programme, when the budget means, foreign credits, the ISPA fund and planned expenses of the concession owners do not cover the needs. The following new sources of programme financing are planned for solving the problem: fees for using the highways (charged at entrance and exit) will be substituted by the system of vignettes. Slovak Republic In 2002 civil engineering (including modernization and reconstruction) accounted for 31 percent of total domestic construction. Its volume increased 5.5 percent over 2001 Construction of traffic infrastructure grew by 8.7 percent. In 2003 civil engineering is expected to grow 5.5 percent. According to the programme declaration, the government shall look beyond public funds to find sources of funding for transport and environmental construction. EU financing should help eliminate the lag in the development of the infrastructure. At the summit in Copenhagen (December 2002) 1,560 million euros from structural funds and the cohesion fund was approved for the shortened programming period For realisation of priorities and measurements of the regional operative plan Basic infrastructure million euros should be provided from the ERDF fund. A sum of million euros was assigned to the cohesion fund (for projects over 10 million euros in the field of environment and transfer infrastructure). 108

111 BUDAPEST, JUNE 2003 Recent Developments and Perspectives The Big Five Civil Engineering Output: France 35,0 30,0 25,0 bill. 11,1 11,0 10,9 10,9 11,0 35,0 30,0 25,0 bill. 2,7 2,7 2,9 2,9 2,7 4,2 4,2 4,2 4,3 4,5 20,0 20,0 6,1 6,0 5,9 5,8 5,8 15,0 10,0 20,6 20,0 20,1 20,3 20,4 15,0 10,0 13,9 13,4 13,2 13,2 13,4 5,0 0, New Renovation and Modernisation 5,0 0,0 4,7 4,7 4,8 5,0 5, Other Transportation Roads & Bridges Communication Energy & Water Works Other Annual Growth Rates, % Annual Growth Rates, % New 5,8-2,9 0,4 1,1 0,5 Transport Infrastructure 1,8-2,9-0,6 1,3 1,0 R & M -3,5-0,5-1,0 0,0 0,5 Thereof roads and bridges 1,5-4,0-1,5 0,5 1,0 Total 2,3-2,1-0,1 0,7 0,5 Telecommunications 2,5-1,5-2,0-2,0 0,0 Energy and Water works 4,3 0,1 1,2 2,1 3,0 Other 2,5-0,5 6,0 0,5-6,0 Civil Engineering Output: Germany 35,0 30,0 25,0 bill. 9,6 9,4 9,5 9,5 9,8 35,0 30,0 25,0 bill. 15,6 14,7 14,4 14,4 14,6 20,0 20,0 15,0 15,0 4,4 4,4 4,5 4,4 4,4 10,0 5,0 0,0 21,9 21,0 20,8 20,8 21, ,0 5,0 0,0 10,2 10,0 10,1 10,3 10,9 1,3 1,2 1,2 1,2 1, New Renovation and Modernisation Other Transportation Roads & Bridges Communication Other Annual Growth Rates, % Annual Growth Rates, % New -6,0-4,3-0,9 0,1 2,4 Transport Infrastructure -2,0-2,1 0,8 1,6 5,2 R & M -3,0-1,8 0,4 0,7 2,8 Thereof roads and bridges -3,9-1,4 1,0 1,8 5,6 Total -5,1-3,6-0,5 0,3 2,5 Telecommunications 3,8-0,3 2,9-3,1-1,0 Energy and Water works na na na na na Other -9,5-5,6-2,5 0,3 1,5 109

112 Civil Engineering Output: Italy 35,0 30,0 bill. 35,0 30,0 bill. 2,4 2,4 2,5 2,4 2,3 25,0 20,0 16,7 17,0 17,3 17,5 17,5 25,0 20,0 8,7 8,9 9,1 9,3 9,4 1,1 1,1 1,1 1,2 1,2 15,0 10,0 5,0 0,0 12,7 13,0 13,4 13,8 14, New Renovation and Modernisation 15,0 10,0 5,0 0,0 9,6 9,9 10,3 10,5 10,7 7,6 7,6 7,8 7,9 8, Other Transportation Roads & Bridges Communication Energy & Water Works Other Annual Growth Rates, % Annual Growth Rates, % New 8,6 2,2 3,5 2,8 2,0 Transport Infrastructure 7,4 1,9 3,0 2,4 1,4 R & M 6,5 1,7 1,9 1,1 0,2 Thereof roads and bridges 4,6 2,9 3,7 2,5 1,2 Total 7,4 1,9 2,6 1,8 1,0 Telecommunications 10,9 2,8 2,9 2,4 0,8 Energy and Water works 8,4 2,0 2,2 1,8 1,1 Other 2,5 1,3 1,0-2,3-2,4 Civil Engineering Output: Spain 35,0 30,0 25,0 20,0 15,0 10,0 5,0 0,0 bill. 5,0 4,9 4,7 4,6 4,4 24,9 22,9 17,9 19,5 20, New Renovation and Modernisation 35,0 30,0 25,0 20,0 15,0 10,0 5,0 0,0 bill. 3,9 4,3 1,3 8,4 4,0 4,7 1,4 4,0 5,0 1,5 9,2 9,9 4,1 5,6 1,6 10,8 4,2 6,1 11,8 4,3 4,8 5,1 5,6 6, Other Transportation Roads & Bridges Communication Energy & Water Works Other 1,7 Annual Growth Rates, % Annual Growth Rates, % New 10,0 8,8 7,0 9,8 9,0 Transport Infrastructure 10,2 9,5 7,3 9,6 9,0 R & M 3,0 4,0 3,0 3,0 3,0 Thereof roads and bridges na na na na na Total 8,5 7,9 6,2 8,5 7,9 Telecommunications 4,5 6,0 5,9 7,3 7,0 Energy and Water works 12,0 9,0 7,3 10,9 9,5 Other 1,4 1,8 1,3 2,1 2,0 110

113 BUDAPEST, JUNE 2003 Civil Engineering Output: United Kingdom 25,0 bill. 25,0 bill. 20,0 15,0 7,3 7,7 8,1 8,4 8,7 20,0 15,0 6,3 6,3 1,4 6,4 1,4 6,7 6,8 1,4 1,4 10,0 5,0 11,4 12,9 14,0 14,7 15,0 10,0 5,0 1,4 6,8 7,5 7,7 6,1 4,9 6,1 6,8 7,5 7,6 7,8 0,0 0, New Renovation and Modernisation Other Transportation Communication Roads & Bridges Energy & Water Works Annual Growth Rates, % Annual Growth Rates, % New 6,3 13,0 9,0 5,0 2,0 Transport Infrastructure 29,0 18,0 11,0 5,0 3,0 R & M 6,3 6,1 4,2 4,2 3,7 Thereof roads and bridges 32,5 25,0 12,0 10,0 3,0 Total 6,3 10,3 7,2 4,7 2,6 Telecommunications -4,5-4,0 0,0 0,0 2,0 Energy and Water works -16,5 0,0 1,0 5,0 2,0 Other na na na na na The Smaller Countries Civil Engineering Output: Austria 7,0 6,0 5,0 4,0 3,0 2,0 1,0 bill. 1,1 4,6 1,3 1,2 1,2 1,2 4,9 5,1 5,3 5,5 7,0 6,0 5,0 4,0 3,0 2,0 1,0 bill. 0,7 1,9 0,3 2,8 0,8 1,8 0,3 3,1 0,5 0,5 0,6 1,9 1,9 1,9 0,3 0,3 0,4 3,6 3,8 3,9 0,0 0, New Renovation and Modernisation Transportation Communication Energy & Water Works Other Annual Growth Rates, % Annual Growth Rates, % New 2,9 6,9 5,0 3,5 3,5 Transport Infrastructure 4,9 12,0 15,0 7,0 3,0 R & M 1,7 4,0 2,0 2,0 2,6 Thereof roads and bridges na na na na na Total 2,7 6,3 4,4 3,2 3,3 Telecommunications 1,9 9,0 0,3 1,9 2,9 Energy and Water works -1,7-3,2 5,5-3,1 1,9 Other 6,4 8,1-36,7 1,4 11,1 111

114 Civil Engineering Output: Belgium 6,0 bill. 6,0 bill. 5,0 1,0 5,0 1,0 4,0 3,0 0,9 0,8 0,9 0,9 4,0 3,0 0,8 0,8 0,8 1,0 1,0 1,0 0,9 1,1 1,2 2,0 1,0 3,6 3,5 3,6 3,8 4,3 2,0 1,0 2,6 2,6 2,6 2,8 3,1 0,0 0, New Renovation and Modernisation Transportation Energy & Water Works Other Annual Growth Rates, % Annual Growth Rates, % New -5,6-2,2 2,4 6,2 12,4 Transport Infrastructure -7,6-2,3 2,2 6,0 12,2 R & M -16,1-4,3 0,2 3,9 9,9 Thereof roads and bridges na na na na na Total -7,9-2,6 2,0 5,8 11,9 Telecommunications na na na na na Energy and Water works -9,2-4,1 0,4 4,1 10,1 Other -6,7-1,4 3,2 7,0 13,2 Civil Engineering Output: Ireland 4,5 4,0 3,5 bill. 0,6 0,7 0,7 0,7 0,8 4,5 4,0 3,5 bill. 3,0 3,0 1,7 1,8 1,5 1,5 1,4 2,5 2,5 0,3 0,1 0,1 0,1 0,1 2,0 1,5 3,5 3,5 3,2 3,2 3,1 2,0 1,5 1,6 1,6 1,5 1,6 1,6 1,0 1,0 0,5 0,0 0,5 0,0 0,6 0,7 0,8 0,8 0, New Renovation and Modernisation Other Transportation Communication Roads & Bridges Energy & Water Works Annual Growth Rates, % Annual Growth Rates, % New 15,9 0,0-6,6-1,5-3,6 Transport Infrastructure 20,2 3,6 1,8 0,0-1,3 R & M 4,1 9,1 2,0 2,0 3,0 Thereof roads and bridges 24,6 1,0-3,7 0,3 0,5 Total 13,9 1,4-5,2-0,9-2,4 Telecommunications 2,3-58,1-2,9-3,0 0,9 Energy and Water works 8,4 7,9-14,1-2,1-4,3 Other na na na na na 112

115 BUDAPEST, JUNE 2003 Civil Engineering Output: Netherlands 14,0 12,0 bill. 14,0 12,0 bill. 10,0 8,0 6,0 4,3 4,2 4,2 4,3 4,4 10,0 8,0 6,0 2,5 2,3 2,1 2,2 2,2 1,5 1,3 1,3 1,3 1,4 0,7 0,6 0,5 0,6 0,6 4,0 7,8 7,5 7,5 7,4 7,3 4,0 7,5 7,6 7,8 7,5 7,4 2,0 2,0 0, , New Renovation and Modernisation Transportation Communication Energy & Water Works Other Annual Growth Rates, % Annual Growth Rates, % New 5,7-4,2-0,7-1,5-1,0 Transport Infrastructure 6,5 1,0 2,5-3,0-1,5 R & M 6,1-2,2 0,0 2,1 1,6 Thereof roads and bridges na na na na na Total 5,8-3,5-0,4-0,2 0,0 Telecommunications 2,0-14,5-4,5 8,0 4,0 Energy and Water works 5,5-10,0-5,0 5,0 3,5 Other 5,1-10,2-6,7 4,9 1,7 Civil Engineering Output: Portugal 7,0 6,0 bill. 0,4 0,4 0,5 0,5 0,5 7,0 6,0 bill. 1,4 1,1 0,8 1,0 1,2 5,0 5,0 0,7 0,7 0,7 0,7 0,7 4,0 4,0 3,0 6,0 5,8 5,5 5,6 5,8 3,0 3,0 2,9 2,9 2,9 2,9 2,0 2,0 1,0 1,0 1,4 1,5 1,6 1,5 1,5 0, , New Renovation and Modernisation Other Transportation Roads & Bridges Energy & Water Works Other Annual Growth Rates, % Annual Growth Rates, % New 10,0-3,5-5,0 0,5 5,0 Transport Infrastructure 10,0 0,0 1,0-2,5 2,5 R & M 16,0 5,0 3,5 5,0 6,5 Thereof roads and bridges 10,0-2,5-0,5-1,5 2,5 Total 10,4-3,0-4,4 0,8 5,1 Telecommunications na na na na na Energy and Water works 5,0 3,5-1,5 1,5 5,0 Other 14,5-15,7-27,0 18,1 16,7 113

116 Civil Engineering Output: Switzerland 10,0 9,0 bill. 10,0 9,0 bill. 8,0 7,0 6,0 4,7 4,5 4,3 4,1 4,2 8,0 7,0 6,0 3,6 3,5 3,5 3,5 3,5 5,0 5,0 4,0 3,0 2,0 1,0 0,0 4,3 4,7 4,7 4,8 4, ,0 3,0 2,0 1,0 0,0 3,3 3,4 3,3 3,3 3,4 2,1 2,2 2,1 2,1 2, New Renovation and Modernisation Other Transportation Roads & Bridges Other Annual Growth Rates, % Annual Growth Rates, % New -10,9 9,4 0,4 1,7 1,3 Transport Infrastructure -8,4 4,0-3,3-0,6 2,4 R & M 0,0-4,6-4,8-3,5 2,4 Thereof roads and bridges -11,6 4,2-3,5-0,9 2,9 Total -5,5 2,1-2,2-0,8 1,8 Telecommunications na na na na na Energy and Water works na na na na na Other -0,7-0,9-0,3-1,1 0,9 The Nordic Countries Civil Engineering Output: Denmark 6,0 bill. 6,0 bill. 5,0 5,0 4,0 2,5 2,4 2,4 2,5 2,5 4,0 3,0 3,0 5,5 5,5 5,5 5,6 5,6 2,0 1,0 3,1 3,1 3,1 3,1 3,1 2,0 1,0 0, , New Renovation and Modernisation All Annual Growth Rates, % Annual Growth Rates, % New 2,0 1,0 0,0 0,0 0,0 Transport Infrastructure na na na na na R & M 4,0-2,0 0,0 2,0 2,0 Thereof roads and bridges na na na na na Total 2,9-0,3 0,0 0,9 0,9 Telecommunications na na na na na Energy and Water works na na na na na Other na na na na na 114

117 BUDAPEST, JUNE 2003 Civil Engineering Output: Finland 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 bill. 1,2 1,2 1,3 1,3 1,3 2,4 2,5 2,6 2,7 2, New Renovation and Modernisation 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 bill. 0,6 0,6 0,6 0,6 0,6 0,6 0,6 0,6 0,6 0,6 0,6 0,6 0,6 0,6 0,7 1,3 1,4 1,4 1,5 1,5 0,6 0,6 0,6 0,6 0, Other Transportation Roads & Bridges Communication Energy & Water Works Other Annual Growth Rates, % Annual Growth Rates, % New -4,0 2,5 3,0 3,0 2,0 Transport Infrastructure -5,5 2,5 4,0 3,5 2,0 R & M 1,0 1,0 2,0 2,0 2,0 Thereof roads and bridges -5,5 2,5 4,0 3,5 2,0 Total -2,4 2,0 2,7 2,7 2,0 Telecommunications 0,0 0,0-0,5 1,0 4,0 Energy and Water works 3,5 3,0 2,5 2,0 1,0 Other 0,3 1,6 1,9 2,3 0,9 Civil Engineering Output: Norway 5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 bill. 0,6 0,5 0,5 0,5 0,5 3,5 3,8 3,0 3,2 3, New Renovation and Modernisation 5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 bill. 1,4 0,5 0,2 1,2 0,1 1,3 0,6 0,3 1,3 1,5 1,2 0,8 0,9 0,9 0,3 0,2 0,3 1,2 1,3 1,4 1,3 0,3 0,3 0,3 0, Other Transportation Roads & Bridges Communication Energy & Water Works Other Annual Growth Rates, % Annual Growth Rates, % New -8,1 6,7 10,6 7,2-9,6 Transport Infrastructure -16,2 16,2 5,0 7,2-6,3 R & M 5,0 6,8 3,7 13,1-10,6 Thereof roads and bridges -3,9 0,5 5,7 10,9-5,1 Total -6,5 6,7 9,7 7,9-9,7 Telecommunications -4,2 16,1 4,8-27,1 37,2 Energy and Water works -8,1 12,2 38,5 8,5-3,0 Other 5,5-6,3 3,0 16,4-24,2 115

118 Civil Engineering Output: Sweden 6,0 bill. 6,0 bill. 5,0 5,0 4,0 1,0 1,1 1,1 1,1 1,2 4,0 1,0 1,1 1,1 1,1 1,2 3,0 3,0 0,9 0,9 0,9 0,9 0,9 2,0 3,7 3,5 3,5 3,7 3,8 2,0 1,1 1,0 1,0 1,0 1,1 1,0 0, New Renovation and Modernisation 1,0 0,0 1,0 1,2 1,3 1,3 1,3 0,7 0,4 0, Other Transportation Roads & Bridges Communication Energy & Water Works Other 0,4 0,4 Annual Growth Rates, % Annual Growth Rates, % New 20,2-6,0 1,4 3,4 3,0 Transport Infrastructure 10,3-1,4 1,4 3,7 2,2 R & M 3,0 5,0 3,0 5,0 7,0 Thereof roads and bridges 12,3 22,0 8,0 1,0 2,0 Total 16,1-3,7 1,8 3,8 4,0 Telecommunications 67,4-15,6 2,1 6,2 7,0 Energy and Water works 1,1-2,4 0,9-0,1 0,0 Other 3,0 5,0 3,0 5,0 7,0 The Central Eastern European Countries (CEE) Civil Engineering Output: Czech Republic 4,0 3,5 3,0 2,5 2,0 bill. 0,6 0,6 0,6 0,6 0,6 4,0 3,5 3,0 2,5 2,0 bill. 0,9 0,3 0,9 0,9 1,0 1,0 0,5 0,6 0,6 0,6 1,5 1,0 2,5 2,9 2,9 3,1 3,1 1,5 1,0 1,9 2,0 2,0 2,0 2,1 0,5 0,5 0, , New Renovation and Modernisation Transportation Communication Energy & Water Works Annual Growth Rates, % Annual Growth Rates, % New 1,1 16,1 3,4 3,6 3,1 Transport Infrastructure 13,0 3,9 1,3 1,4 1,3 R & M 0,4-11,3 0,3 0,5 0,6 Thereof roads and bridges na na na na na Total 1,0 10,5 2,9 3,1 2,7 Telecommunications -39,3 86,7 7,9 8,1 6,0 Energy and Water works -1,2 1,1 3,5 3,8 3,6 Other na na na na na 116

119 BUDAPEST, JUNE 2003 Civil Engineering Output: Hungary 3,5 3,0 bill. 3,5 3,0 bill. 2,5 2,0 1,5 1,0 0,5 0,7 0,6 0,6 1,4 1,5 1,6 0,8 1,9 0,9 2,2 2,5 2,0 1,5 1,0 0,5 0,7 0,6 0,6 0,7 0,7 0,6 0,8 0,9 0,9 0,8 0,7 1,1 1,0 0,8 1,3 0, , New Renovation and Modernisation Transportation Communication Energy & Water Works Annual Growth Rates, % Annual Growth Rates, % New 3,8 8,6 6,0 15,0 17,5 Transport Infrastructure 3,6 13,0 10,0 18,0 20,0 R & M 3,7 10,3 15,0 15,0 15,0 Thereof roads and bridges na na na na na Total 3,8 9,1 8,6 15,0 16,7 Telecommunications 0,0 4,8 5,0 5,0 5,0 Energy and Water works 8,3 8,6 10,3 21,0 22,0 Other na na na na na Civil Engineering Output: Poland 9,0 8,0 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0,0 bill. 2,6 2,3 2,4 2,2 2,3 5,9 4,6 4,3 4,3 4, New Renovation and Modernisation 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0,0 Subcategories for new construction only bill. 1,0 0,9 0,9 1,4 1,4 1,4 0,7 0,7 0,7 0,9 1,6 0,8 1,0 1,0 1,0 1,2 0,5 0,4 0,4 0,4 0, Other Transportation Roads & Bridges Communication Energy & Water Works Other 0,9 1,8 0,9 1,7 Annual Growth Rates, % Annual Growth Rates, % New -4,0-5,7 0,0 11,8 20,5 Transport Infrastructure -6,7-10,0-3,0 18,3 45,0 R & M -4,6-3,8 3,3 5,1 8,7 Thereof roads and bridges -8,0-7,5 0,1 25,0 45,0 Total -4,2-5,0 1,1 5,6 16,7 Telecommunications -5,0-2,0 3,5 7,5 12,0 Energy and Water works -10,0 0,2 4,0 14,5 10,0 Other -5,1-5,5-4,0 1,5 4,5 117

120 Civil Engineering Output: Slovakia 0,7 bill. 0,7 bill. 0,6 0,5 0,4 0,3 0,2 0,1 0,1 0,1 0,1 0,1 0,1 0,4 0,4 0,4 0,5 0,5 0,6 0,5 0,4 0,3 0,2 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,3 0,3 0,3 0,4 0,4 0, , New Renovation and Modernisation Transportation Communication Energy & Water Works Other Annual Growth Rates, % Annual Growth Rates, % New 6,8 5,7 4,7 5,6 6,1 Transport Infrastructure 14,1 8,7 8,0 8,3 8,5 R & M 5,2 4,5 9,4 4,7 5,5 Thereof roads and bridges na na na na na Total 6,5 5,5 5,5 5,4 6,0 Telecommunications 4,4 3,0 3,0 3,0 3,0 Energy and Water works -22,8 0,0 2,0 2,0 2,0 Other 32,1 0,1-0,3-3,1-0,3 118

121 BUDAPEST, JUNE 2003 Construction Markets to 2005 Outlook in West and East Anna Gaspar Build&Econ, Hungary Conference Budapest, Hungary June,

122 Summary of European Construction Markets A Market of 1045 Billion Euros in 2002 Residential and non-residential building and civil engineering generated business worth 1004 billion euros for the 15 countries of Western Europe and 42 billion euros for the four Central-Eastern European Euroconstruct member countries, altogether 1045 billion euros. New construction represents 56.5 percent while Renovation, Maintenance & Improvement exceeded 43.5 percent of the total construction output of 19 countries of Europe. The market of construction in 2002 Table 1 West European Countries Central East European Countries Population 378 million (85%) 65 million (15%) Constr. sector output per capita Total construction sector output 938 bn 40 bn Total construction output* 1003 bn (96% of total c.o.) 42 bn (4% of total) *Including services, construction by other sectors, DIY activity and black economy Overall European construction markets experienced stagnation in Total construction output reached zero growth while construction sector output decreased by 0.2 percent in the Euroconstuct countries. The flattening of world economic development, increasing uncertainty because of the Iraq conflict, the budget consolidation process in the majority of countries of Europe, threatening unemployment growth, the pessimistic business expectations altogether resulted in zero growth in average. Although the picture is more complex and diversified, the all-europe construction sector experienced a slowering downturn in residential construction, most of all in new construction, when the decline is continuous, even if the R&M in residential construction shows a slight growth in Non-residential construction responded to the changing global macroeconomic situation very sharply and rapidly, mostly with industrial facilities experiencing a very sharp downward adjustment. The only positive development was observed in the civil engineering sub-sector, civil engineering work rose by 1.3 percent, due to the growth in new transport infrastructure. 120

123 BUDAPEST, JUNE 2003 The construction sector in Europe Figure 1 Construction Sector Output 2002 Western Countries New Renovation % Central-East. Countries New Renovation % % % % Residential % Residential 9.28 New Renovation New Renovation % % % % Non Residential % Non Residential New Renovation New Renovation % % % % Civil Engineering % Civil Engineering New Renovation New Renovation % % % % In 2002, Europe s construction sector market is less dominated by Germany, which accounts for 20 percent of the West European Market. Germany is followed by the France, Italy and United Kingdom by 15.3, 13.9, 13.6 percent respectively, and Spain 8.2 percent. Altogether, the big five countries of Euroconstruct cover over 70 percent of the total Euroconstruct area. Contruction output of the smaller countries (Austria, Belgium, Ireland, the Netherlands, Portugal, Switzerland) performed 19.6 percent, Scandinavians (Denmark, Finland, Norway and Sweden) 7.7 percent. Finally the Central East European Euroconstruct member countries (the Czech Republic. Hungary. Poland and Slovakia) contributed by 4.1 percent to the construction output of the 19 Euroconstruct member countries. 121

124 Euroconstruct market by countries in 2002, ranked by construction sector output Table 3 Bn M capita % of total Construction output Population PerCapita Euroconstruct Germany France Italy United Kingdom Spain Netherlands Switzerland Austria Belgium Portugal Poland Ireland Norway Finland Denmark Sweden Czech Republic Hungary Slovakia Total avg: It is obvious that countries below a 1000 Euro Per Capita performance face enormous tasks, demand and dynamism in the near future. If we compare the extremities of Poland and Ireland, the sixth big in Europe and Ireland, the smallest by population, we clearly see the future directions of growth. The question is only the time. How long does it take to upgrade and how far the recession is sustainable (see the case of Germany). GDP and Construction Market Development In 1999, the confidence indicators for the construction industry show a steady rise was regarded as a very good year everywhere, but Germany, with a 3 percent growth, while in and 2003 the performance of the construction sector was expected to have a moderate growth by percent in Western Europe and a steady climb in Central Eastern Europe. Two years later, after 11 September 2001, according to the Rome Euroconstruct conference statements (in December 2001) was regarded as a year of stabilisation with an expected recovery in West Europe in The only exception was the prognosed strong recession in two of the largest European markets. Germany and Poland. In the last year economic growth in Europe has developed weaker than expected and construction industry growth stopped. According to the Euroconstruct country reports of the Budapest conference, the correlation of the GDP and construction output in all Euroconstruct region show the picture as follows: 122

125 BUDAPEST, JUNE 2003 Both GDP and construction output was revised downward in the period while the Munich Euroconstruct prognoses for 2002 proved to be almost perfect, there is a 0.1 percent difference upward in GDP of 2002 and downward in construction output. The GDP and construction output correlation in the period of , according to the Budapest forecasts. in 19 countries show that the construction sector is growing at a slower rate than the economy as a whole. This is the trend that already occurred in the previous decade, with the sole exception of A 1.3 percent GDP growth is expected in 2003, while a faster growth is expected in (2.2 and 2.6 percent). A downward revised by 0.4 percent small construction output growth is expected for percent, and, respectively, for the following two years 0.6 and 1.8 percent growth is forecasted, both revised by 0.6 and 0.2 downward. The real signs of recovery are postponed; it occurs the earliest in GDP and Construction Output 1999/2005 Munich. Budapest in percent Table 4 In 19 Euroconstruct countries Annual growth rates, 2002 price, % Paris 12/00 Munich 12/02 GDP Budapest 06/03 Paris 12/00 Munich 12/02 Construction output Budapest 06/ (0.0) (0.0) (-0.1) (+0.1) (0.0) (+0.1) (+0.1) (-0.3) (-0.6) (-0.4) (-0.4) (-0.6) (-0.1) (-0.2) GDP and Construction Output 1999/2005 Munich. Budapest in percent Table 5 In 15 West European Euroconstruct countries Annual growth rates, % Munich 12/02 GDP Budapest 06/03 Munich 12/02 Construction output Budapest 06/ (0.0) (0.0) (0.0) (+0.2) (0.0) (+0.1) (0.0) (-0.4) (-0.6) (-0.3) (-0.3) (-0.6) (0.0) (-0.1) Although the economic growth is faster in the 4 Central East European countries, the period shows more and more similar movements with that of the whole European economy and construction growth. The difference is in amplitude, economies are much smaller, more open, more vulnerable internationally and globally, impacts on economies are much bigger or extreme, both in growth and in decline. The signs of adjustment are inevitable. A 2.0 percent GDP growth and due to the serious recession in Poland a 2.2 percent decrease is expected in For the years

126 2005, a significant growth is forecasted both in GDP growth and construction output, in spite of the downward revision. GDP and Construction Output 1999/2005 Munich. Budapest in percent Table 6 In 4 Central East European Euroconstruct countries annual growth rates, % Munich 12/02 GDP Budapest 06/03 Munich 12/02 Construction output Budapest 06/ (+0.2) (0.4) (+0.1) (-1.1) (0.0) (+1.0) (+0.1) (+0.7) (+0.4) (-3.0) (-0.2) (-1.1) (-1.9) (-1.1) A Medium term outlook Sector approach: Housing sector is dominant in West Non-residential in Central East Europe Residential construction the biggest sub-sector of the European construction market represented 45 percent of the total construction output. Due to the overall decline, especially in Germany, Poland, Portugal and Switzerland, the end of the forecast period residential construction accedes 41 percent only. A sharp decline of 2000/2001 is followed by a slow recovery till Non-residential construction, altogether gives 33 percent of the total construction output. In West European countries, during the whole period shows a stable percent of the total yearly construction output. 57 percent of which is the new construction. The non-residential output figures in Eastern countries exceed percent, within 75 percent of new construction. R & M activity shows a moderate but permanent growth during the whole period , while new non-residential construction suffers the most of the global recession. Civil engineering, although the smallest sub-sector. 22 percent of the total output in 2002, suffered less in 2002 and expected to grow the quickest in the forecast period. The lack of developed infrastructure in majority of acceding countries of East Europe will give impact in civil engineering from 2005 on. 124

127 BUDAPEST, JUNE 2003 Euroconstruct construction markets by sectors in : Table 7 Annual growth rate. % Residental West European Countries Central East European Countries Euroconstruct countries Non-residential West European Countries Central East European Countries Euroconstruct countries Civil Engineering West European Countries Central East European Countries Euroconstruct countries Total Construction Output Euroconstruct market by new construction and R&M in Table 8 Annual growth rate. % New Construction Output West European Countries Central East European Countries Euroconstruct countries R&M Output (42-44 % of the total output) West European Countries Central East European Countries Euroconstruct countries New construction is dominant in the total period in the European market by its share of percent. In Central-East Europe, the share of the new construction is much higher, above 70 percent. During the forecast period, this share remains stable. 125

128 Expected changes in European Construction Markets: new EU members, new markets in the East Euroconstruct construction market by country groups in 2002 Table 9 bn % M capita % Country groups Construction output Distribution Population Distribution Big Smaller Countries Nordic countries Central-East European countries New EU Members The Central East European economies, the three Baltic countries have joined the global economy vigorously in the past 14 years: a change in the structure of production resulted in the manufacture of modern and exportable industrial goods, which is mainly due to a favourable economic environment as well as to the presence and continuous development activity of multinational companies in the region. The most exciting task in the oncoming years is preserving advantages, moving over to second- and thirdgeneration investment areas. To achieve that, up-to-date education and further training facilities should be created, legal and institutional systems should be upgraded and the service sector should be extended. However, the ten countries are preparing for accession in a period when the European Union is struggling with the effects of global recession and the next few years promise only a slight improvement. So they must survive the first years of their EU membership in an intense global competition, with decreased export potentials. Nevertheless, the 3-4 percent average economic growth of the joining 10 will exceed the estimated 1-2percent of that of the 15 EU member countries in Country Area Population GDP/capita Economic growth*,% Thousand km2 M Cyprus Czech Republic Estonia Poland Latvia Lithuania Hungary Malta Slovakia Slovenia Source: Eurostat. *IMF and EU prognosis Despite the fact that the acceding countries of Eastern Europe have had a dynamic years since 1989, amounts that could be spent on construction have been fairly modest. It is indisputable that concerning buildings and civil engineering structures, the 126

129 BUDAPEST, JUNE 2003 built environment needs replacement, modernisation and extension to meet requirements of global development. A main driving force of that will be the EU accession, that is opportunities and duties (a more intense protection of the built environment. the improvement of infrastructural supply and the minimising of regional differences) as well as funds to fulfil them. So after an exciting years of political and economic changes, acceding countries are facing a further years of dynamic development including the built environment continuously formed by the construction sector. The participants of the construction sector are facing extraordinary tasks in 2003: There is only one year for accelerated preparations until EU accession (modernisation of the Public Procurement Law. the modernisation of the Law of the Built Environment. the mastering of tender "skills" with the help of consulting services); From January 2004 on procurement procedure of acceding countries are fully open to EU member countries the competition is getting fiercer; Problems concerning authorisation, regulation, administration and training in the construction sector must be solved; Connecting engineering services (Planning. construction. project management) with international division of labour. Determining participants of the quality of construction activity are architects and service engineers who form the technical and architectural image of buildings and settlements, organise and supervise the implementation of construction projects. The market of engineering services will increase considerably; A more intense performance must be given for minimising infrastructural backwardness, in more and more project financing conditions; Duties as a result of EU membership a more intense protection of the built environment, the improvement of communal grounds and infrastructural supply have put PPP, an efficient type of budget relieving project finance, in the limelight. PPP (Public Private Partnership) is well known in the EU countries, it means public service construction projects and operating services done by private enterprises. PPP has raised interest from the west towards states joining the EU, where adjustment to the Union's legal system is as well as attachment to the EU is being developed with a relatively high economic growth. To implement PPP in a country, political intention is needed as well as support from the population, clear conditions and making the most of experiments that were either successful or ended as a failure (Czech. Polish. Hungarian case). A few experimental projects are expected to start in A new regional construction market: South East Europe South-East Europe, one of fastest developing regions in Europe in terms of GDP growth, will be a challenge to the international business and investment community. It comprises 11 countries Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Macedonia, Moldova, Romania, Serbia and Montenegro, Slovenia, Turkey and one autonomous territory (Kosovo). The population of the region is growing continuously million people in Infrastructural development and improvement of transport links in South-East Europe continue to be a top priority for SEE 11. The international financial institutions invest significant amounts of money into the rehabilitation of roads and the construction of new ones, the railways sector, ports and waterways, energy sector, environment and water. as well as cross-border trade facilitation. The forthcoming Olympic games in 127

130 Athens (Greece) in 2004 also attract considerable investments in the improvement of infrastructure and have an impact on neighboring countries, which expect to benefit from the games as well. The infrastructural projects in South-East Europe jointly managed by the European Commission and the World Bank, comprise 46 projects with a total cost of Euro 3.46 billion. The 37 transport projects (23 road infrastructure and 6 cross border/trade facilitation projects) account for 70% (Euro million) of the total costs, followed by 4 energy sector projects (20% or Euro billion), and 5 water and environment projects (10% or Euro billion). Substantial progress has been made in launching the projects, as the number of projects (23) started (by June 2002) has doubled in comparison to December Another 5 projects are expected to start by the end of Change of GDP by regions Figure % EC-15 Central Eastern European C. Eastern Europe 128

131 BUDAPEST, JUNE 2003 Change of Construction output by regions Figure % EC-15 Central Eastern European C. Eastern Europe The main developments in the Euroconstruct countries expected over the period AUSTRIA In Austria, the recovery will stay within modest bounds; on average, real GDP will grow by just 2 percent p.a. between (as against some 2.5 percent between ). In 2003 GDP growth will be 1.1% and in %. The economy as a whole will receive stronger impulses only in 2005 at 2.5%. The construction industry is benefiting from an increase in public investments in underground engineering. Even though demand for flats is starting to pick up, progress is slow. Business construction might slightly pick up in 2005 along with the economic recovery. After a phase of stabilisation in 2002 real growth in the construction sector is expected to be 1.5% in 2003, and 1.7% in In line with the total economic recovery in 2005 the construction sector can grow by 2,5 %. The economic recovery is mainly based on increased investments into road and rail infrastructure - especially against the background of the EU Eastern Enlargement. BELGIUM The general economic prospects have been revised downwards. In view of the high level of unemployment and the sluggish growth in disposable household income, the demand for new housing should fall considerably in On the 2004 horizon, a recovery in non-residential construction can be hoped for. In the longer term, the acceleration of growth is expected for

132 DENMARK Economic growth is softening in Denmark, but less than in many other countries. Employment has held up fairly well, as has private consumption and hence domestic demand. In , a stagnation or a weak decline in home prices will support the new residential construction grows at 5percent. From 2003 onwards construction in public services, industrial construction, office construction will decline. Civil engineering will be flat in the forecast period, unless specific public initiatives come into effect. FINLAND EU membership has brought economic stability and kept interest rates stable and low. Thus, construction has not decreased as much during slow economic growth as earlier in similar situations. In 2003 the total construction volume is expected to increase about 1 percent. Residential construction will grow significantly at about 7 percent. New nonresidential construction will contract: especially construction of offices and industrial buildings will suffer. Quite stable growth of 3 percent is forecast for renovation; civil engineering should also grow at the same rate. In 2004 the total construction volume will grow slightly more than in 2003 at about 1,5 percent. In 2005 growth is expected to pick up along with livelier new construction. Structural change towards renovation will continue especially in non-residential construction. In , housing construction will be the engine of construction in both new construction and renovation. Consumers have strong confidence in their finances, incomes are developing positively and economic policies of the new government are expected to be stimulating. FRANCE France will continue at a mediocre pace of economic growth in 2003, as it faces another downturn in investment in production due to excess capacity, as well as sluggish trade, tighter public spending, more restrained consumer spending, and sharply higher unemployment. Housing starts will be down due to the strong acceleration in unemployment. Lower investment and production will take a bite out of the building of industrial facilities, which could see an 8percent fall; in addition, weak growth in service jobs will undoubtedly result in a significant setback, -14percent, in office construction. There will at best be stagnation in public works, as local government merely offsets the drop in central State spending. A very limited, very gradual recovery is expected in the French economy for 2004 and 2005, in line with the moderate outlook for the euro zone. Investment will pick up slowly, as foreign trade is held in check by the gloomy international situation (in particular in Germany, France s leading partner). The job market, which is slow to respond, will continue to worsen in Budget policies will tighten further, thus limiting any opportunities for State action. The construction market will have little room to manoeuvre. A slight downturn should thus be expected in new housing, with a very modest recovery in non-residential construction and virtual stagnation in civil engineering. Overall, building and civil engineering work will increase by one-half point in 2004 and by about 1percent in Growth in the construction market may thus lag behind overall economic growth. GERMANY The flattening of world economic development, increasing uncertainty, the budget consolidation process, severe structural problems and dampened business expectations in Germany will together result in only small economic growth in Germany of about 0.5percent in Growth will increase by 1.8percent next year, in the outlook for 2005, acceleration to almost +2.5percent is expected. The average number 130

133 BUDAPEST, JUNE 2003 of unemployed will increase in 2003 to 4.45 million and to 4.5 million in In 2005 only a slight reduction to 4.3 million is expected. After a further sharp reduction by almost 6percent in 2002, total construction output/investment will decrease in 2003 and in For 2005 a moderate recovery of construction investment is expected (+1.8percent). Construction activity will shrink in both parts of Germany in 2003 by the same magnitude. Until 2004 construction output/investment will remain a strong growth brake for the German economy with differing developments in the sub-sectors. New residential construction will continue to decline until 2004; it is expected to expand moderately in Renovation and modernisation of the housing stock is expected to increase slightly in the whole forecast period. The downward process in non-residential construction accelerated in 2002 will continue until A recovery, only a small positive growth rate of 0.9percent, is forecast in Civil engineering will decrease further this and next year; an expansion almost 2percent is expected for 2005, with impulses coming from both new construction and R&M. IRELAND Ireland has been losing international competitiveness steadily since the year 2000, and even earlier on some estimates, due to exchange rate strength. Recent trends in the euro exchange rate suggest that the economy is now fundamentally uncompetitive. The principal concern of policy should clearly be the restoration of competitiveness. Overall construction output is forecast to decline in 2003 by 3percent, following a decline of just over 1percent in As for 2004, the construction sector will contract by almost 4percent in A sharp decline in private house building output in 2005 (- 10percent) generates a further contraction in construction output, of the order of 5percent in Thus construction output is forecast to decline in volume terms by almost 4percent on average per annum over the period 2002 to 2005 compared with an average annual increase of 9percent over the period ITALY In 2002 the economy entered a phase of stagnation. In 2003, the recovery of the Italian economy should be fuelled by domestic demand and a recovery in net foreign demand. Although the prospects for are somewhat brighter for the Italian economy, with GDP expected to grow by 2.1percent in 2004 and 2.4percent in 2005, against this general economic background, the construction sector - which throughout 2002 underpinned the Italian economy in both investment and employment terms - is expected to enter into a recession stage lasting throughout With the exception of the civil engineering market, all building sectors will show a downward trend. The combined effect of the fall in sales and the reduction of household consumption has one sure victim : the residential maintenance & renovation market. THE NETHERLANDS In response to the worldwide cyclical downturn GDP growth in the Netherlands also slowed down sharply since Dutch GDP now remains behind the European average. This is mainly due to an erosion of price competitiveness. In 2003 economic growth will be less than 1 percent. The projected recovery of world trade is only expected to become evident in the growth figures for the Dutch economy from 2004 onwards. Investments in particular are suffering from the economic downturn. In reaction to the economic slowdown unemployment is rising rapidly now. 131

134 Last year a long period with a rising construction output came to an end. The construction industry was facing a shrinking demand (-2.2 percent) as will be the case this year (-1.9 percent). In 2004 a return to some growth is foreseen (+1.2 percent), followed by a 2 percent growth in In the period residential construction is expected to increase by 1 to 2 percent annually. The decreasing growth of demand does not force entrepreneurs to enlarge their production capacity. Last year, a period of high growth for the civil engineering sector suddenly came to an end. In the period the construction level is likely to stabilize, as some large infrastructure rail projects will approach completion. NORWAY The development since 2002 proves the efficiency of strict economic policy, where the inflation can be stabilised at a low rate, despite a major growth in inland expenditures. However, real economical stability still remains dependent on the growth in real wages being compatible with the underlying growth in productivity. Further cuts in the interest rate are expected. A minor reduction of housing and non-residential building is expected in , the RMI in both sub-sectors will grow by 2-3 percent. Following several bad years, a noticeable growth is expected in civil engineering. The most important contribution to growth in this sector will at this still be the gigantic development of the Snøhvit ( Snow-white ) project of the largest oil/gas investment in the northern region ever. PORTUGAL After a period of buoyant growth the Portuguese economy is now under a significant adjustment phase. While economic recovery is being forecast to take place on the second half of 2003, it should only reflect on GDP evolution in A more significant growth is forecast to take place only in 2005, although still below the average growth observed in the 1996/2000 period. The Construction Sector Output is expected to have fallen in 2002 with a growth rate of -2,6percent being estimated (total construction output is estimated to have fallen 1,9percent), led by both new residential construction and civil engineering output. In a context of significant economic deceleration it is reasonable to expect that many investment decisions, of both households and companies, be delayed until economic prospects become more favourable. The demand for public works is also expected to remain fragile, as public investment is strongly conditioned by a public deficit target below 3,0percent of GDP in 2003 and aiming at balance/surplus until Therefore, the recovery of the construction activity is expected to occur only in 2005, with a growth rate of +1,9percent in the construction sector output. SPAIN Economic growth in 2002 was more than one percent above the average in the Euro zone, and, accordingly, the convergence process with the EU continues moving forward. The forecast for 2003 is for a slight improvement that could lead to growth rates between 2percent and 2.5percent, reaching 3percent GDP growth in 2004 and The overall forecast for the construction industry in 2003 is a moderate growth, of around 3percent, due to the foreseeable slowdown in housing construction and the decline in activity in non-residential construction, which will only be slightly offset by the dynamic of investment in civil engineering works, which will continue to be the driving force in the industry. In terms of 2004 and 2005, the expectation is for a slight recovery, 132

135 BUDAPEST, JUNE 2003 in line with the general forecast for the economy, which will continue to be based on investment in infrastructures. SWEDEN The growth of the Swedish economy picked up during the autumn of However, recovery was interrupted last year and GDP growth for the full year 2002 was limited to 1.9 percent. GDP is forecast to increase by 1.4 percent this year and by 2.8 percent in 2004 and There is no room for further unfinanced tax cuts or reforms requiring additional government expenditure. In comparison to the previous year, a small decrease was observed in construction output in The only sector, which has the same development as, previously predicted is the R&M residential market. New residential buildings have been adjusted from an increase of 4 percent to a decrease of 6 percent in Only the volume for civil engineering will increase in For 2004, the forecast is that the volume of buildings will increase by 3.2 percent. For civil engineering, there will be a growth of 3.8 percent. In 2005, the outlook is a further increase of 2.5 percent in construction output. SWITZERLAND Due to a less favourable world economic environment, economic growth in Switzerland 2003 year is expected to stagnate at best. The projection for 2004 points to GDP growth of 0.8percent, followed by a growth rate of 1.3percent in During the current and the next year, foreign demand will create only a small stimulus for the Swiss economy. The construction sector is suffering heavily from the economic slowdown. After a reduction by 1.5 percent in 2003, total construction output will stagnate in For 2005, a recovery to about 1.8 percent is expected. New residential construction will continue to decline until 2003, but expand again during the rest of the forecast period, only a moderate increase is expected in The downward process in new nonresidential construction will continue in A recovery of 2.1percent in 2004 and 0.9percent in 2005 is expected. The output of the civil engineering sector will decrease by 2.2percent in It will take a further downturn in 2004 (-0.8percent) and increase by 1.8percent in the following year. Due to reductions in tax revenues, the public sector will reduce its spending on public works. Investments in transport infrastructure are likely to decrease in 2003 and 2004 because of the sharp price increases in the past for the major railroad projects. UNITED KINGDOM UK GDP growth finished the year 2002 at around 1.8 per cent, below the long-term trend for the country, but much in line with expectations for the year. Growth is expected to pick up this year despite a deceleration in consumer spending. We expect investment and exports to recover from their recent troughs, contributing to GDP growth of 2.2 per cent in 2003, followed by 2.6 per cent next year as global conditions improve. Over the medium term, the UK is set to achieve growth of around per cent a year with more balanced patterns of demand and output. Inflation and nominal interest rates are expected to remain low. The public sectors health, education, and infrastructure were the main drivers of construction industry growth in New residential construction experienced a buoyant 2002, with output increasing by over 12 per cent is expected to be another good year, but growth is forecast to peter out thereafter. Housing renovation 133

136 tends to have a more stable profile of output than new housing, with less marked swings over the years. New non-residential construction output rose by close to 11 per cent in 2002, 2003 is expected to be another good year, but slowing public investment and the weakness of office construction. Non-residential renovation work is anticipated to continue to grow over the forecast period, albeit at a lower rate. New civil engineering work rose by 13 per cent in Growth was particularly robust for transport infrastructure. Increases in civil engineering output will be less strong than previously expected in ACCEDING COUNTRIES CZECH REPUBLIC After several years of economic recession, accompanied by a fall in GDP, the years 2000 and 2001 saw of 3.3percent growth. Those positive trends continued into 2002, when GDP should have grown by between 3.5 and 4 percent a year. The floods that affected large parts of the Czech Republic in August 2002 put paid to that prognosis, though despite the floods year-on-year GDP growth reached 2.0percent in the end. After a fall in the volume of construction output in 1998 and 1999 of more than 6 percent a year, in 2000 positive development growth was achieved with growth of around 5 percent compared to the previous year. In 2001 there was growth of almost 10 percent (at market prices). In the year 2002 construction production fell sharply to 2.5percent. A strong increase in Construction output is predicted in , 4,6-4,7 percent yearly. HUNGARY Unfavourable domestic and world economic processes that took place in 2002 do not help the earlier growth rate of the slowed down Hungarian economy to be sustained. In the next few years provided no significant, negative world economic events take place a lower, relatively balanced growth rate is expected, a circa 3 to 5 percent annual GDP growth. The catch-up processes of the Central- and Eastern-European Region imply an extension of the construction market as well. A strong international competition is expected in the field of EU and publicly financed or PPP projects, mainly in infrastructure, due to EU accession. The growing residential construction and renovation market as well as privately financed investments will remain a market for domestic architects and contractors also in the oncoming years. A 6-9 percent growth is expected in 2003, similarly to that in 2002, which may go up to an annual 8-10 percent in the following years. POLAND Yet there were no clear and lasting symptoms in 2001 indicating that stagnation tendencies in the economy can be overcome. Low domestic demand, low level of accumulation and reduction of outlays for fixed capitals were the main factors to slow down the economic activity. In 2002 a decline was reported, compared to the 2001, in investments expenditures, construction output, new housing and transportation. In view of low increase in new jobs, the situation in the labour market remains difficult. However, it is also worth noting the improvement in financial performance of enterprises compared to the previous year. GDP will grow by 2.5percent in 2003 and by 3.7percent in In 2005 the rate of economic development will be higher and growth of GDP will exceed 5percent. 134

137 BUDAPEST, JUNE 2003 A further decrease is expected in the construction sector, concerning the year Deceleration of the falling tendencies in the construction industry can be expected in These tendencies in 2004 could be stopped by introduction of a higher VAT rate in construction after accession of Poland to European Union. The new rate will be equal to 22percent (upper from the present one, which is equal to 7percent). The new regulations will drastically affect the situation of large number of businesses, not only those producing building and finishing materials, but also dealing with home improvement and interior decoration. The significant acceleration of the positive tendencies in the economy will take place in The expected inflow of the foreign investments, financed by the commercial investors as well as by EU funds, should create a high demand for the new construction objects. SLOVAKIA In 2002 acceleration of macroeconomic performance of the Slovak economy continued. Related to increase of the regulated prices, in the year 2003 inflation of 8,8 % and deceleration of the tempo of growth of GDP to 3,7 % are assumed. Development in construction production is slower then that of the whole economy. Production grew in 2001 just by 0,8 percent. Total growth of construction production in 2002 was 4,1 percent. Compared to development needs, it, however, means in actual fact stagnation of construction, mainly due to the lack of financial sources for investment construction. Significant growth of construction production in 2003 is not assumed. Some support for the development of the fundamental infrastructure (transport, environment, local infrastructure) should represent the financial means, confirmed from EU for the years These means shall be provided by Structural fund and Cohesion fund. BALTIC COUNTRIES: Estonia, Latvia, Lithuania The 2002 combined GDP of the Baltic States was about 30 billion EUR. Since 1999 the GDP of all Baltic States have grown. In 2002 their combined GDP grew by 6 percent compared to The growth is expected to continue at a rate of 5-7 percent in the forecast period. GDP forecasts for Estonia and Latvia have been increased and that for Lithuania decreased. The 2001 combined value of construction was about 3 billion EUR in the Baltic States. In the forecast period, the value of construction is expected to increase in all Baltic States. The number of completed dwellings had decreased in recent years but the amount will go slightly up in the forecast period. The value of non-residential construction will also increase; presently there is a boom in commercial construction. Investment in civil engineering is needed to reach the EU standards for the environmental and transport sectors. The construction of treatment plants for waste-water and drinking water and improvement of the Via Baltic highway continue. 135

138 136

139 BUDAPEST, JUNE 2003 Summary Construction Markets to 2005 Statistical Appendix Conference Budapest, Hungary June,

140 Table 1 - Total Construction Sector Output ( ) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) Euroconstruct 6/2003 Billion Euro at 2002 constant prices Annual Growth Rates (%) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

141 BUDAPEST, JUNE 2003 Table 2 - Total Building Construction ( ) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) Euroconstruct 6/2003 Billion Euro at 2002 constant prices Annual Growth Rates (%) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

142 Table 3 - Total Civil Engineering Construction ( ) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) Euroconstruct 6/2003 Billion Euro at 2002 constant prices Annual Growth Rates (%) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

143 BUDAPEST, JUNE 2003 Table 4 - Total Residental Construction ( ) Billion Euro at 2002 constant prices (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) Euroconstruct 6/2003 Annual Growth Rates (%) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

144 Table 5 - Total Non-Residental Construction ( ) Billion Euro at 2002 constant prices (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) Euroconstruct 6/2003 Annual Growth Rates (%) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

145 BUDAPEST, JUNE 2003 Table 6 - New Residental Construction ( ) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) Euroconstruct 6/2003 Billion Euro at 2002 constant prices Annual Growth Rates (%) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

146 Table 7 - New Non-Residental Construction ( ) Billion Euro at 2002 constant prices (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) Euroconstruct 6/2003 Annual Growth Rates (%) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

147 BUDAPEST, JUNE 2003 Table 8 - New Civil Engineering ( ) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) Euroconstruct 6/2003 Billion Euro at 2002 constant prices Annual Growth Rates (%) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

148 Table 9 - Building Renovation and Modernisation ( ) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) Euroconstruct 6/2003 Billion Euro at 2002 constant prices Annual Growth Rates (%) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

149 BUDAPEST, JUNE 2003 Table 10 - Residental Renovation and Modernisation ( ) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) Euroconstruct 6/2003 Billion Euro at 2002 constant prices Annual Growth Rates (%) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

150 Table 11 - Civil Engineering Repair and Maintenance ( ) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19) Euroconstruct 6/2003 Billion Euro at 2002 constant prices Annual Growth Rates (%) (F) 2004 (F) 2005 (F) Austria Belgium Denmark Finnland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe (EC-15) Czech Republic Hungary Poland Slovak Republic Central Eastern Europe (EC-4) Euroconstruct Countries (EC-19)

151 BUDAPEST, JUNE 2003 Financing Projects Investment Opportunities, Experiences and Co-operation Incentives Russia Géza Toldi Transelectro Group Conference Budapest, Hungary June,

152 THE FINANCING OF PROJECTS IN RUSSIA BY Géza TOLDI, TRANSELEKTRO GROUP HUNGARY The political situation in Russia has continued stabilising in the past few years. The strong presidential power, the vigorous measures of the Russian Government and the unconditional support of the State Duma went on improving the economic and political climate of the country. The Government do their best for the laws to further accelerate the most important reforms, strengthen legislative power, providing a clear business life. Laws must promote the simplification of company registration, the reduction of company taxes and an increase in investment from abroad. The fact that the Bill on land has been passed into law provides a theoretical opportunity for the commercial use of land though a detailed regulation of this is still to come. Furthermore, tax payers' burdens have decreased and decrees have also been signed for the regulation of proportionate rates and taxes. Gradual changes in the retirement system promotes the appearance of pension funds in Russia. The reforms of the banking system are at least as important, as a result of which capitalisation and transparency of banks should be increased. International banks are allowed to start bank filials in Russia and they do not have to work as independent legal entities. A reduction of value-added taxes and wage-related social security fees will be put in the focus of tax reforms from 2004 on as well as higher taxes will be levied on the exploitation and exports of energy sources. Besides, to improve the balance of the state budget, exports of energy sources will also be intensified. (VAT will decrease from 20% to 18 %, the maximum of wagerelated social security fee will fall from 35,6% to 26%. In addition, the 5% regional sale tax will be cancelled. However, to compensate all that, taxes on the use and exploitation of energy sources will be increased considerably. This, for example, in the case of oil exploitation will be 357 Rbl per ton instead of the earlier 340 Rbl. Furthermore, the 5% tax levied on the export of gas will be raised from 5% to 20%. After the construction and inauguration of a few shopping- and recreation centres the Duna Plaza in Budapest and two similar shopping malls in Sopron and Nyíregyháza the Hungarian Transelektro Rt. (joint-stock company) decided to make the most of their experience in estate development of the kind in foreign countries as well. The Russian and the Ukrainian markets, being untouched by these establishments, offered a good ground in the middle of the 1990's. Due to an increase in average wages in Moscow, investment in trade centre projects has grown considerably in the past few years. The growth rate of investments continues to be more intense in 2003, as a result of which m2 of commercial floor space will have been completed by the end of the year. Despite these data, there are only 85 m2 of commercial floor space per citizens, which is approximately a quarter of the proportion of commercial floor space in Budapest. With their recently passed motions, the Government in Moscow support the process of transferring most of business being done in street stalls to shopping malls. Two directions of development are found in the field of commercial estates: new, international chain stores have appeared on the market such as Auchan, AVA or Spar, but Ikea and Ramstor present are still being extended as well. chain stores of Russian ownership have got stronger, they are increasing the number and floorspace of their stores as well as municipalities are renovating traditional markets and converting them into indoor ones. 150

153 BUDAPEST, JUNE 2003 Types of trade centres in Moscow Denomination Total floorspace m 2 Area of attraction Super regional centres over citizens within 15 km Regional centres over Over citizens within 20 km Territorial To be reached by means of public transport within minutes, one anchor supermarket and smaller tenants. Local citizens, one anchorsupermarket Super regional centres: ATRIUM near Kurskiy railway station (floorspace: m 2, net m 2 ), IKEA- MEGA opened in December, 2002, located at the external ringroad (circa m 2 ). Regional centres: RAMSTOR in Sheremetevskoy Road, ZAPADNIJ in Rublovskiy Road; ZOLOTOY BABILON (floorspace: m 2, net m 2 ) Territorial centres: RAMSTOR-I (floorspace: 19000m 2, net m 2 ); RAMSTOR-II (floorspace: m 2, net m 2 ); GLOBAL CITY (floorspace: m 2, net m 2 ); RUBLOVSKIY PASSAGE (floorspace: m 2, net 8160 m 2 ); AUCHAN (floorspace: m 2, net m 2 ); As a result of high rents, large Russian chain stores tend to place their shops in estates of their own property (shopping malls) instead of rented ones. For example, the 6 largest chain stores ( Arbat Prestig, Sportmaster, Starik Hattabich, Sedmoj Kontinent, M- Video, Technosila ) have built several shopping malls as joint investment such as GVOZD-1, GVOZD-2 or VEIMART, where, besides their own shops, they house shops of other tenants as well. Local centres: circa 30 trade centres such as SEMJONOVSKIY, AVANGARD, STOLICA, JASENEVO or MAGNIT. Our company was planning to build a shopping- and recreation centre of a circa thousand m 2 floorspace, preferably in Moscow. We looked for a partner and a suitable building site. The first steps were taken in 1997 and the following specific market conditions had to be considered: No land can be bought for commercial use. A maximum 49 years' lease of the site is possible, contract should be signed by the local (in our case, Moscow) municipality. This contract consists of two parts: buying leasehold rights and rent paid annually. Leasehold rights should be paid for after signing the contract whereas rent should be paid annually. 151

154 No institutional investors are found in the market of investment, only private investing partners can be relied on. Russian banks do not have any practice of project financing and they do not even deal with it. International banks working on the market have not formed suitable structures for that yet. Legal environment considerably differs from international customs concerning corporate-, tax-, controlling-, banking and other laws. With special regard to the above circumstances, a strategic decision was made by the company: to realise the shopping- and recreation project together with the Government of Moscow. This was supported by the city of Moscow and we all agreed to start a joint-venture company for the project. The involvement of the city in the project developing company offered the following advantages: the most suitable city site could be selected for the project out of those designated for commercial development city participation was attractive for banks, city guarantees could be used for financing the city could give us a hand with accelerating bureaucratic procedures and eliminating special "fees" for obtaining licences the city provided us protection against different groups of interests. After evaluating possible versions suggested by the municipality, the suitable site was selected. A 3,5-hectare site was chosen, which was located in Tusion in the North-West Administration District of Moscow. With full knowledge of the selected building site, the Government of Moscow regulated major tasks of the near future in a Lord Mayor s decree at the beginning of 1999: building licence plan had to be worked out and based on that, building licence had to be obtained the area designated for construction had to be reserved at MOSCOMZEM Business plan had to be worked out for the organisation of financing a joint-venture, an open joint-stock company had to be started in Moscow with a minimum registered capital of Rbl, with participation of MOSCOMIMUSHESTVO in 47%, the Moscow Chamber of Commerce and Industry in 5% and Transelektro Rt. in 48% raising capital was possible after an evaluation of real expenditures of the three parties, based on guidelines set in the business plan to be worked out. This could be done in several phases as the project was making progress. In accordance with the above decision, we started working out the plans and had the concept for construction approved of by construction authorities in Moscow. After the approval of the concept, we were granted the building licence, which was ordered by the Government of Moscow, who undertook taking it in the joint-stock company as an asset later on. They also put the designated construction area in reserve for the project. All we had to do was presenting the documentation for the registration of the joint venture and having it registered. This activity brought us a few unusual things which were typical of the Russian market: 152

155 BUDAPEST, JUNE 2003 the degree of bureaucracy unusual for us, which was even more felt being a joint-venture company with a foreign owner. All documents concerning the company had to be produced and submitted in an authentic translation with the consul's endorsement on them. Before submitting documents to the company registry court, certificates had to be obtained from the tax office, the social security office, different social associations and the local municipality, etc. and they had to be attached to the petition for registration. We had to take notice of the special features of the Russian corporate law as well. For example, the fact that until the registration of the company enters into effect, the co-operation of shareholders will be regulated by the so-called founders agreement. Syndicate's contracts are not acknowledged by the Russian law so shareholder's obligations cannot be put down when starting a company and cannot be accounted for legally later on. All that can be relied on is a gentlemen's agreement. This certainly makes the planning of co-operation and financing a lot more difficult. Paying registered capital may take place only by means of foreign exchange transfer in rubles via Russian banks. To do that, a foreign company must open a foreign exchange account and a ruble account at the bank of the running account of the joint venture, which will do the above conversion. Opening an account and arranging rights of signature are rather bureaucratic and complicated processes. According to Russian law on companies, no intellectual products are allowed to be taken in a joint-venture company as an asset. When starting Tushino Plaza Rt. (joint-stock company) in Moscow, we made an agreement with our Russian partners on taking assets in the company. The municipality would take the capitalised rent of the designated site, the rental right and the external public utilities system in the company while Transelektro would take in planning, knowhow, business plan, feasibility study, finding potential tenants, preparatory activities, coordination and the related expenses. Accordingly, we made the feasibility study as well as plans for the various procedures. Furthermore, we defended the planned estate development in a public debate conducted by the Lord Mayor, agreed on the conditions of tenancy contracts with future tenants and obtained statements of intent from them. Simultaneously, having the necessary materials, forming a financing construction was started. We found out early that despite improvements of the Russian economic situation and the money market, solving the problem of financing projects by the local banks was quite hard due to the following: A requirement of a minimum 30 % equity Risks of the stages of construction should be covered by guarantees loans are not granted for longer than 5 years conditions of interest: LIBOR + cca. 10 %. So we were compelled to make a Hungarian finance construction with the cooperation of international banks. With this construction financing banks are given a 95% 153

156 insurance by Hungarian Export Credit Insurance Joint-stock Company (Magyar Exporthitel Biztosító Rt.) for any risks concerning the project. The remaining 5%, which is risk on the Russian side, can be covered by security or bank guarantee. Loan will be taken by Tushino Plaza Rt., with a 20% equity and a 80% project loan, the loan will have to be paid back in 10,5 years, with a 2 years' grace, interest is based on the extent of Hungarian supply in accordance with CIRR, 70%. The security of the loan will be provided by the rents and the shopping mall itself. In the above conditions and the organisation of the Raiffeisen Bank Rt. Hungary an international bank consortium was founded. Credit conditions were found favourable and accepted in Moscow. A sentence of the Russian Supreme Court, passed on 14 June 2002, forbade the Government of Moscow to take in land leasehold rights as an asset in the joint-stock company. Of course, this has a vital influence on all our plans that have been made for the project. At present we are working on how and in what conditions we could continue our project in Moscow, possibly with another partner. 154

157 BUDAPEST, JUNE 2003 Financing Projects Investment Opportunities, Experiences and Co-operation Incentives Romania Mihail Negulici Head of Foreign Parnters Department Association of the Romanion Contractors Conference Budapest, Hungary June,

158 ROMANIA Investment opportunities, experiences and cooperation incentives Topics 1. General view on the economic situation 2. Construction industry till Construction industry in 2003 and opportunities 4. Cooperation incentives 1. General view on the economic situation Romania is now looking to the skyline 2007: accession in EU. For this target are the general efforts of the country made. The priorities in the meantime are: giving a new momentum to economic growth, curbing bureaucracy, fighting against corruption and organized crime, against drug traffic and so on. Very recently, assumed the Government in front of the Parliament, the responsibility for a package of laws about the fight against corruption. Another two very important targets of the Romanian Government are to stabilize the legislative system and to simplify and reduce the tax system. Romania s economic performance was followed by an economic growth. If in 2000 GDP was 1,6 % higher than one year before, the growth of GDP in 2002 related to 2001 was +4,9 %. This value is in the range of the promised ratio of about 5% for the period The Gross Domestic Product of Romania was in 2002 ROL 1,512,256.6 Bn ( about 43,3 Bn.). During 2002 the inflation decreased to 17.8 % and for 2003 the target is between %. Romanian foreign trade produced a coverage of imports by exports of 92.2 % in January 2003 against 84.1 % in January The exports to EU were $ Mil. in January 2003, with 28.5% higher than one year before. The figures for imports were.$ Mil corresponding to +13.1% Registered unemployment rate, which was 13.5 % in February 2002, decreased one year later to 8.5 % but it had a minimum level of 8.1 % in November and December The weight of unemployed persons registered in stable population aged was 9.1 % in February 2002 and 5.7 % in February this year. 2. Construction industry till 2002 In the past two years, Romanian construction industry has had a continuous positive evolution. The increase in 2001 and 2002 against the previous year is as follows ( Table 1): 156

159 BUDAPEST, JUNE 2003 Table Added value Volume of constructions (in Bn.ROL) % The investments and construction works in 2002, on structure elements and ownership are as shown in Table 2 and 3 The special situation of the construction of dwellings in 2002, in billion ROL and % against the previous year, is shown in Table 4. In the field of non residential buildings, 2002 was a very intensive year: a lot of administrative buildings financed from both the state budget and private funds. For instance, a very stately building, 15 floors, concrete and glass from a central place of Bucharest will house the central body of the Romanian Developing Bank- Société Générale. Other new buildings for banks appeared in all big cities from Romania. Table 2 Year Bn. ROL % Investments total of total by elements of structure: new construction works

160 Table 3 Year Bn. ROL % CONSTRUCTION WORKS - TOTAL of total by elements of structure: - new construction works capital repair works maintenance and current repair works of total by ownership: - state majority private majority INVESTMENTS TOTAL ,22 of total, elements of structure of total, private ownership , Year Bn. ROL % DWELLINGS TOTAL of which financed from - private funds budgetary subventions Dwelling in urban area-total private funds budgetary funds Dwellings in rural area private funds budgetary funds Dwellings under constructionon total of total, - budgetary subventions

161 BUDAPEST, JUNE 2003 Having in view that a lot of new projects are now under way and other projects are scheduled to commence in the near future, we expect to develop further at the same rate. In civil engineering there are a lot of works in the field of hydraulic engineering, installation and water management, of collective heating installation, of existing transport infrastructure, of developments of the subway in Bucharest and many other. The rehabilitation and maintenance are located in the field of the buildings affected by earthquakes, in the field of cultural and historical buildings and in the field of the rest of state ownership buildings which have not turned into private ownership yet. The big problem of this type of works is that both private and public funds available are very scarce. The number of employees in construction was 299,200 in December 2002 and 291,900 in January The average gross salary was ROL 5,817,200 in December 2002 and ROL 5,155,500 in January 2003 We must note the very long and hard winter, may be the most severe in the past 50 years, which reduced the number of employees very much as well as the average salary at the beginning of Construction Industry in 2003 and opportunities The construction industry will be developed in 2003 so as in the next few years. For April May-June 2003 we are waiting for an increase of activity in constructions. In the next three months the expected level of growth is over 60 % both in under construction as in new contracts and orders. In the meantime the number of employees will increase by about 25 %. The added value in construction will increase each year between 6.6 and 7.4 %. The right figures in % against of previous year are in Table 5. Table Aver. 2002/05 Added value inconstructions Volume of constructions Bn ROL % In the field of dwellings, a governmental program has already started. Over dwellings will be erected by budgetary funds for young families. On a special credit program ( mortgage ) these dwellings will be sold or hired to these families. In the city of Turnu Măgurele, a fund of 21.2 Mil is budgeted for 2003 for three main directions : streets repairing works about 600,000 construction works and rehabilitation of public buildings construction of common city services 159

162 A second program of 20.5 Mil. will realize a lot of investments as industrial park (. 4.5 Mil), border checkpoint to Nicopol (Bulgaria ) for Mil., street sewerage and main roads ( 4.1 Mil.), optimization of the drink water net of the city ( 3.38 Mil.) and other smaller works for 528,000. A very new information is a $ 130 Mil project : the transformation of the so called RADIO HOUSE ( the last unfinished construction project from the communist regime, a very big building) in a super-mall called DAMBOVITA CENTER which will have: a mall a 5-star hotel with 300 rooms offices floorspace of 16,000 sqm a hospital a sports centre 100 residential luxury flats a big parking are All this big work will be based on a private-public partnership made by : - Ministry of Public Works,Transports and Dwellings Mimel Insaat (Turquie) + Orb Estates (Great Britain) All this project is to be finished in 2006 and the works will begin in September this year. DAMBOVITA CENTER will be the greatest commercial complex from East Europe. Other projects with foreign financing and deadline 2008 are: Drinking water net in the city of Satu Mare, a project of Mil 37.3 from which 26.5 Mil. are from abroad (ISPA) Sewerage system and drinking water net in the city of Buzau Mill. 35.4/26.2 Drinking water net in the city of Sibiu ( 37.5 Mil./ 25.5 ) Sewerage system in the city of Piatra Neamt ( 28.5 Mil./21.1 ) Technical assistance for improving the navigation on the River Danube ( 2.0 Mil / 1.5 ) till 2005 The Government have elaborated a very large set of Investment Programs and Objectives of National Importance. This document contains the following groups of suggested investments: complex investments with multiple uses and national impact (the complex improvement of the Lower Danube and the water main channel Siret Baragan) energy infrastructure development and modernization programs (15 programs) programs for developing and modernizing transport infrastructure (6 programs: motorways, a road bridge over the Danube, a cargo terminal at Constanta, airports, Constanta port programs for development and modernization of the public utility infrastructure (cities infrastructure, seismic renewal of representative national buildings in some municipalities) programs for development and modernization of communication (2 programs) programs for developing water supply sources (5 programs) 160

163 BUDAPEST, JUNE 2003 programs for tourism development (Europe resort, Dravcula park, Super ski in the Carpathians, building a three-star hotel network at a national level) All this big investments plan refer to a lot of places in the country. The funds for all these programs with prevailing economic impact will come both from international financing bodies and from internal sources. 4. Cooperation incentives We think that at least the big program presented above can be a very serious welcome for foreign partners. At the moment at the top of foreign investors in Romania is Holland with USD 1.5 Bn. in 1,566 enterprises. The next investors are in Table 5. Table 5 Mil. USD Nr. of enterprises Holland Germany USA France Austria and Italy Iraq It is well known that there were some cases when the buyers of different industrial objectives did not pay the money according to the signed contracts with the Agency for Privatization. The result was some visits to court and cancellation of contracts, that means a lot of losses: time, money, working places, discussions with the trade unions and so on. There is a trend, in the last time, that the investor prefers to buy or to hire from the state or from private ownership green-field areas and to erect there new production units, new industrial plants or warehouses. So, round Bucharest you can see, for instance, TUBORG, GEALAN, AUSTROTHERM, VOLVO, BAUMIT, PIONEER, so as a lot of companies with Romanian ownership. Other very interesting areas for new investment are the free zones from Timisoara, Giurgiu, Galati, Iasi and others, with the all well known facilities from a free zone. 161

164 162

165 BUDAPEST, JUNE 2003 Financing Projects Investment Opportunities, Experiences and Co-operation Incentives South East Europe George Tabakov President, Bulgaria Economic Forum Conference Budapest, Hungary June,

166 1. General overview Southeast Europe, one of fastest developing regions in Europe in terms of GDP growth, continues to be a challenge to the international business and investment community. It comprises 11 countries - Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Macedonia, Moldova, Romania, Serbia and Montenegro, Slovenia and Turkey, and one autonomous territory (Kosovo). The population of the region is growing continuously million people in 2001 (about 5% growth in comparison to 2000), spread on a territory of more than 1.5 million sq. km. Each year the region is getting closer to the European standards for market economy and the recently implemented economic and political initiatives have considerably contributed to the security of investment and have brought about the intensification of intra-regional commercial and economic cooperation. The external donors and international financial institutions continue to provide substantial financial support to the restructuring of economies and fund programmes aimed at, among all, reducing red tape and corruption, improving physical and legal infrastructure, and fostering the development of the SME sector. 2. Political environment in Southeast Europe Year 2001 was marked by the events of 11 September in the USA (with major implications in 2002 as well) and the global consequences of the fight against terrorism. In this rather unstable international political environment Southeast Europe remained a relatively calm place on the world political arena. The military crisis in Macedonia was successfully overcome in the second half of 2001 and the country returned to the road towards democratic society and market economy, proved by the free elections in the country held on 15 September A potential internal political conflict was blocked in the first quarter of 2002 when, after years of negotiations and with the mediation of the European Union, Serbia and Montenegro reached an agreement about resolving the future relations between the two republics within the Yugoslav federation. They formed a new federal state called Serbia and Montenegro. Although countries in the region stand at different positions in relation to the outside world (EU, NATO, Stability Pact, WTO, etc.) they all share the common creed of modern society for respect of personal freedoms, private property, and equal rights of minorities and religious believes. The forthcoming acceptance of some of the Southeast European countries to NATO is another stabilizing factor, which will have positive impact on Trans-Atlantic relations and on regional economies. 3. Foreign direct investment By the end of 2001 the FDI stock in the 11 countries from Southeast Europe (SEE 11) has reached USD 58.7 billion1. About 51% out of these investments have been attracted by Turkey and Greece. Despite the slowdown in the world economy foreign direct investments in SEE 11 went up by around USD 8 billion in Except for Bulgaria, FDI inflows in 2001 grew up in all the countries from the region. This implies that SEE 11 are viewed as a location of stability and promising opportunities. In the next few years the low cost basis in the region is expected to progressively shift foreign investments from Central European countries (Poland, Czech Republic, Hungary and Slovakia). 164

167 BUDAPEST, JUNE 2003 The EU investments are prevalent in the region except for Moldova where Russia is leading. Manufacturing, trade and finance are the sectors that account for the lion's share of FDI in most of the SEE countries. FDI/GDP ratio was 5.1% in Bulgaria, 7.4% in Croatia, 10.1% in Moldova and 11.7% in Macedonia for year On 18 July 2002 at an Investment Compact conference under the Stability Pact, SEE Economic and Trade Ministers signed a Declaration on Common Principles and Best Practices on Attracting Investment to SEE. In the Declaration, Ministers confirmed their good will to improve the overall investment climate. Particular attention will be given to clear regulations, a level playing field, good governance and application of the rule of law. 4. Economy Key indicators In comparison to 2000, GDP per capita in 2001 increased in 8 of the 11 SEE countries - namely in Albania, Bosnia and Herzegovina2, Bulgaria, Croatia, Moldova, Romania, Slovenia and Yugoslavia. In Greece and Macedonia the levels remained almost the same. GDP per capita in 2001 was in the same range as in the previous year - from about USD 1,000-1,900 in Albania, Bosnia and Herzegovina, Bulgaria, Macedonia, Romania, and Yugoslavia, USD 4,400 in Croatia, to over USD 10,500 in Slovenia and Greece. As a result of the financial crisis in Turkey, GDP per capita slumped to USD 2,160. Like in the previous year, Albania, Bosnia and Herzegovina and Yugoslavia, achieved quite high real GDP growth rate in around 5% to 7%. Moldova and Romania joined the group with 6.1% and 5.3% respectively. Annual inflation rates vary in the different SEE countries. In 2001 inflation remained alarmingly high (from more than 26% to 69%) in: Yugoslavia (40% in Serbia and 26.6% in Montenegro although falling from 116% and 30% respectively in 2000); Turkey % - reaching the level of year 1999; Romania % (decreasing from 40.7% in 2000). Moldova achieved a significant improvement - 6.3% from over 18% in In 2001, as in the previous 3 years, all other countries curbed inflation to moderate levels of about 3 to 8%. As an EU member Greece kept a level of 2.7%. Free trade with the European Union Greece is a member of the EU and Turkey has a Customs Union with the EU. Bulgaria, Romania and Slovenia have Europe Agreements (EA) with the EU. Under the free trade arrangements in these EAs, since 1 January 2002 trade in industrial goods with the EU has become duty free. 165

168 Macedonia and Croatia have Stabilisation and Association Agreements (SAA) with the EU. Albanian industrial products have duty free access to the EU market. Albania may soon become the third country to benefit from a SAA. Until the end of 2005 BiH can export duty free to the EU 15 and benefit from the lack of any quantitative restrictions for its goods that meet the EU technical-technological standards. Moldova benefits from the EU's General Preferences System. The EU has traditionally been the main trading partner for the Southeast European countries except for Moldova, the latter trading mainly with the CIS countries. For all the rest, the EU share in their total exports in 2001 is not less than 40% (BiH), reaching 90% for Albania. In 2001, like in the previous 2 years, imports from SEE 11 to the EU have exceeded exports from the EU to the region. The corresponding exports/imports ratio varied from 29% for Albania, increased to 43% (from 31% in 2000) for Bosnia and Herzegovina, and remained about 49-55% for Moldova, Croatia and Turkey, and 78-87% for Bulgaria, Macedonia, Slovenia, and Romania. Free trade with EFTA countries A Free Trade Agreement with EFTA countries have been signed by Bulgaria, Croatia, Macedonia, Romania and Turkey. Free trade with Central Europe Bulgaria, Romania and Slovenia are CEFTA members. Croatia and Turkey have FTAs with the Czech Republic, Slovakia, Hungary and Poland. A Free Trade Agreement between Yugoslavia and Hungary has been applied since 1 July 2002, and it will be in force by 1 January 2006, when their trade will be totally liberalized. Free trade with CIS countries Moldova and Yugoslavia have FTAs with Russia. WTO membership Albania, Bulgaria, Croatia, Greece, Moldova, Romania, Slovenia and Turkey are WTO members. Macedonia is in the phase of finalising the negotiations for WTO membership. A decision for WTO membership is expected in October Bosnia and Herzegovina has a status of an observer. Foreign trade regime of Bosnia and Herzegovina has been largely adjusted to the concept and system of the WTO principles. Yugoslavia (Serbia and Montenegro, respectively) has a status of an observer. Intra-regional trade is an important driving force for the economic development of Southeast Europe. Within the Group for Trade Liberalization and Facilitation under Working Table II of the Stability Pact, 8 countries of the region (Albania, Bosnia and Herzegovina, Croatia, Bulgaria, Romania, Macedonia, Yugoslavia and Moldova) signed a Memorandum of Understanding on Trade Liberalization and Facilitation on 26 June The Memorandum stipulates that all the signatory countries will conclude bilateral FTAs by the end of After 2002, a six-year adjustment period will follow, and thus a free trade market of Southeast Europe comprising 55 million consumers will 166

169 BUDAPEST, JUNE 2003 be created. As of 30 September 2002, 10 out of 21 bilateral FTAs have been concluded and 8 have been under active negotiations. Labour force issues The total workforce in SEE 11 has numbered about 53 million people in Although annual unemployment rate in 2001 has decreased in 7 of SEE 11, most of them are still suffering from high unemployment as a result of the restructuring of their economies. In 2001 unemployment rates ranged from 2-10% in Moldova, Slovenia, Romania and Greece, to about 14-22% in Albania, Bulgaria and Croatia, reaching 27-28% in Yugoslavia (Serbia and Montenegro), 30.5% in Macedonia, and 38% in Bosnia and Herzegovina. Some of the most attractive benefits of investing in the Southeast European countries are the high skills base and the comparatively low labour costs. The average gross monthly salary in the region is in the range of Euro The lowest level of average gross monthly salary is in Moldova (app. Euro 50), while the highest level, excluding Greece, is in Slovenia (app. Euro 900). The regional labour force has a strong background and good qualification in the fields of economics, engineering and IT, natural sciences, medicine, law, etc., obtained through high-school and university education adequate to European standards. The general direction of economic development in recent years has built a reliable pool of highly qualified bilingual professionals for an array of technical, client relations, marketing, PR, administrative, financial, sales, etc., positions. Nowadays, the labour market in SEE 11 has matured in terms of best business practices - there are high-caliber candidates with proven successful track record and skills sets. As a common feature of the workforce, people are generally career oriented, aiming at stability in terms of professional development. Employer-employee relations are regulated by an employment contract, which may be settled through a collective agreement. The main provisions of the work regulations are close to those in the EU. 5. Infrastructure Infrastructure development and improvement of transport links in Southeast Europe continue to be a top priority for SEE 11. The international donors and international financial institutions continue to pour significant amounts of money into the rehabilitation of roads and the construction of new ones, the railways sector, ports and waterways, energy sector, environment and water, as well as cross-border trade facilitation. The forthcoming Olympic Games in Athens (Greece) in 2004 also attract considerable investments in the improvement of infrastructure and have impact on neighbouring countries, which expect to benefit from the games as well. The infrastructure projects in Southeast Europe monitored by the Infrastructure Steering Group, jointly managed by the European Commission and the World Bank, comprise 46 projects with a total cost of Euro 3.46 billion. The 37 transport projects included in the list (incl. 23 road infrastructure and 6 cross border/trade facilitation projects) account for 70% (Euro million) of the total costs, followed by 4 energy sector projects (20% or Euro billion), and 5 water and environment projects (10% or Euro billion). 167

170 Substantial progress has been made in launching the projects, as the number of projects (23) started (by June 2002) has doubled in comparison to December Another 5 projects are expected to start by the end of Project summary by sectors Sector Ongoing Regional Infrastructure Projects as of June 17, 2002 No of projects Cost, EUR million % Transport 32 2, Roads 23 1, Railways Ports and Waterways Airports Energy Electricity Water and Environment Water Waste Environment Cross Border/ Trade Facilitation Total 46 3, Source: Office for Southeast Europe of the European Commission and the World Bank Information and communication technologies (ICT) remain the fastest growing sector in SEE 11 with an ICT market that exceeds USD 1 billion annually. The degree of digitalization of the fixed telephones network has increased rapidly during the past couple of years and exceeds 50% in most of the countries in the region, while being almost complete in some of them (e.g. Bulgaria, Croatia, Greece and Slovenia). Mobile telephones penetration is also growing progressively in the countries from the region (2001): Slovenia (75%), Greece (60%), Croatia (40%), Bulgaria (24%), Turkey (22%), Romania (20%), Macedonia (9%), and Bosnia and Herzegovina (5%). Internet penetration still remains relatively modest (2001), e.g. in Bulgaria it is 12.2%, in Slovenia - 12%, in Croatia - 11%, in Turkey - 3%, and in Macedonia - 2%. 168

171 BUDAPEST, JUNE 2003 Current and Future Development of Japanese Companies in CEEC Investment Opportunities, Experiences and Co-operation Incentives Hajime Suzuki Execute Director Research Institute for Construction and Economy, Tokyo Conference Budapest, Hungary June,

172 Current and Future Development of Japanese Companies in Central & Eastern Europe 1. Future development of Japanese manufacturers in Central & Eastern Europe There is a growing number of Japanese firms looking at Central and Eastern Europe for future overseas development. In a 2002 survey by the Japan Bank for International Cooperation (which obtained responses from 508 companies with overseas manufacturing bases) asking companies where they planned to strengthen and expand their medium-term overseas development in the next three years, the ranking was as follows: China (70.1%), North America (50.3%), Central and Eastern Europe (46.8%), ASEAN-4 (44.2%), and the EU (43.3%). According to an interview survey, many companies were planning to pursue development in step with their customers development in Central and Eastern Europe, and for the short-term, would establish supply bases in the region, with a view to carrying out local sales development in the future. With respect to the EU region, companies said that, although the competition is very intense there, they would strengthen their sales efforts through stronger marketing. In the same survey one year earlier (2001), 80.6% of respondents chose China, while 55.7% indicated ASEAN-4, which means that the intention to strengthen and expand in these two regions weakened by 10% or more. According to the interview survey, companies were attracted by the future potential and low labor costs in the Chinese market, but when considering the competition with local Chinese firms and the relative opacity of legal and tax systems, they were not sure whether it would actually increase profits, if they strengthened operations there. In ASEAN-4, many companies had already mostly completed outfitting their bases and had no plans for expansion. An increasing number of companies had finished their expansion into these regions and were merely maintaining their current operations. Looking at companies plans for overseas strengthening and expansion in the medium-term by region and principal industry, the top-three ranking regions for the electrical equipment and electronics industry were China (72.7%), Central and Eastern Europe (46.4%), and ASEAN-4 (44.5%), while in the automobile industry they were North America (71.2%), Central and Eastern Europe (61.1%), and China (59.6%). Regarding companies plans for overseas strengthening and expansion in the medium term by country, the ranking was as follows: 1) China, 2) Thailand, 3) USA, 4) Indonesia, 5) Vietnam 13) Germany, 14) Mexico, 15) Czech Republic, 16) UK, 16) Russia, 18) Poland, 19) Hong Kong, 20) Hungary, and 21) France. Therefore, Russia and the Central and Eastern European countries are found less than tenth place. Regarding these countries, many companies are looking at the size of the Russian market along with the comparatively low cost for quality labor there, while also developing interest in Central and Eastern Europe, as it is positioned to become the industrial hinterland of the EU through EU expansion. 170

173 BUDAPEST, JUNE Recent relations between Japan and Central & Eastern Europe (1) Trade relations between Japan and the region According to Japanese trade statistics (based on customs data), exports from Japan to Central and Eastern Europe amounted to US$ 1,537 million in 2001, a decrease of 14.4% over the previous year, while imports from Central and Eastern Europe to Japan totaled US$ 967 million, up 8.6%. Therefore, Japan s trade surplus with this region in 2001, plunged by 37.0% over the previous year to US$ 571 million. The main causes for this include the 50.8% decrease in automobile exports from Japan to Poland over the previous year, the 138.5% increase in machinery (motors, etc.) imports from Poland to Japan, the 36.4% increase in automobile imports from Slovakia (Volkswagen, etc.), and the 64.2% decrease in electronic component exports to Hungary. Japan s largest trading partner in Central and Eastern Europe is Hungary, which accounts for 48.4% of Japanese exports to the region, and 40.8% of imports from the region to Japan. After Hungary, Japan s next largest trading partners in the region are Poland, followed by the Czech Republic, for exports, and the Czech Republic, followed by Slovakia for imports. These four Central European countries make up 90.3% of exports and 85.8% of imports between Japan and Central and Eastern Europe. (2) Investment by Japanese companies in Central & Eastern Europe Although investment by Japanese firms in Central Europe is accelerating, the share of total Japanese foreign investment received by the region is small. Foreign direct investment (FDI) made by Japanese companies in Poland in 2000 amounted to US$ 476 million, placing the country in 18 th position as a Japanese investment recipient, and receiving a 1% share of total Japanese investment made. Similarly, Hungary was in 12 th position, also with a 1% share. The Czech Republic took in US$ 66 million, and had just a 1.4% share. (3) Overseas Development Aid (ODA) to Central & Eastern Europe Since 1989, the countries of Central and Eastern Europe have continued to make progress towards democratization and market economy creation. In order to provide support for this effort, Japan has been providing assistance for promoting market economies, rebuilding economic infrastructures, and helping to address environmental problems in the region. Japan is providing support on a country-to-country basis, with emphasis on economic infrastructure building, skill improvement, small and medium business promotion, and environmental protection. The feature of this aid is that it increases the level of technical cooperation and grant aid. Recent Japanese loan aid includes \25.6 billion for the two countries of Albania and Romania in 2000, and \12.9 billion for Bulgaria in The total amount of country-to-country Japanese ODA in Central and Eastern Europe is certainly not large, and it accounted for just 1.2% of all Japanese ODA worldwide in Originally, ODA was intended to support the economic development and independence of developing nations, and in that sense Japan no longer recognizes Central and Eastern Europe as a region in need of aid. 171

174 3. Background and reasons for Japanese companies expanding into Central & Eastern Europe (1) Change in number of manufacturing firms expanding into the region by country * Table 1: Expansion into Central & Eastern Europe by country (JETRO) In recent years, there has been a rapid increase in the number of Japanese companies setting up production bases in Central and Eastern Europe. According to a survey by JETRO, 111 manufacturing companies had located in Central and Eastern Europe by the end of The relation between Japan and this region has become closer than ever, and this trend is expected to accelerate in the future. The Japanese company that pioneered the region was Toyota. With the aim of increasing market share in Europe, Toyota chose the Czech Republic in December 2001 as the place to build a joint production plant for compact cars with the Peugeot Citroen Group. Table 1: Number of Japanese manufacturers expanding into Central & Eastern Europe by country Poland Czech Republic Slovakia Hungary Romania Lithuania 1 1 CEEC total (2) Recent characteristics of expansion into the region A recent characteristic of Japanese overseas expansion is that many Japanese firms with existing bases in Western Europe are now expanding into Central and Eastern Europe. Furthermore, among the 111 Japanese companies that have entered this region, about 90% are selling their products to the EU, while companies selling to Japan account for no more than 15%. Currently about 85% of these companies are procuring raw materials from Japan, but in the future, 60% are planning to reduce procurement from Japan, and 80% intend to expand it in the country in which they are located. In addition to Toyota, other large companies like Suzuki, Isuzu, Matsushita, and Sony have entered Central and Eastern Europe, which has brought the arrival of related parts manufacturers. The Japanese automobile-related industry is most noticeable here, and accounts for 21 of the 25 Japanese companies that have entered the Czech Republic since 2001, 4 of the 5 companies that have entered Hungary, and all 5 Japanese companies that have arrived in Poland since that time. A trend can be seen for the arrival of non-manufacturing Japanese firms as well, including distribution, financial, and service companies that are targeting these Japanese manufacturers already established in Central and Eastern Europe. Nippon Express has opened offices in Hungary and the Czech Republic, while the Tokyo Mitsubishi Bank has established a branch in Poland, and has begun corporate sales there. 172

175 BUDAPEST, JUNE 2003 (3) Background and reasons for expansion into the region 1) Low labor costs There is a trend among the Japanese manufacturers in Europe to shift their production bases from Western to Central and Eastern Europe. One of the reasons for this is that, despite the high level of worker skills in this region, labor costs are low. In a 2002 survey by the Japan External Trade Organization (JETRO), the average monthly salary in EU member countries was US$ 1,569 for a worker, US$ 3,005 for an engineer, and US$ 3,977 for a middle manager. By contrast, in the three Central European countries excluding Slovakia, workers earned US$ 404 per month (25% of the EU level), engineers earned US$ 969 (32% of EU level) and middle managers US$ 1,864 (47% of EU level). The average monthly salaries for the ten countries of Central and Eastern Europe were US$ 309 for workers (19% of EU level), US$ 645 for engineers (22% of EU level), and US$ 1,152 for middle managers (29% of EU level). 2) Importance as a production base for the EU As they see Europe as a single market, Japanese firms are entering Central and Eastern Europe to build production bases for the EU market, as part of an effort to build optimal networks, and to locate the functions of survey, research, development, procurement, production, distribution, business unification, and R&D most efficiently. In addition to the close proximity to the EU, the trend towards upgrading economic and legal systems to EU standards by Central and Eastern European countries in preparation for future admission into the EU is another reason behind the building of production bases there. 3) Improving the business infrastructure Although there are some deficiencies remaining in some of the roads and other areas, on the whole the infrastructure in Central and Eastern Europe, including airports, roads, telecommunications, and energy, is at a level that does not pose problems for business activities. In particularly, Central Europe provides advantages of proximity and distribution in the areas of the region bordering the EU. Also, the concentration of industrial development offers advantages for the construction of inter-company networks and distribution efficiency. Through the privatization of national enterprises including banks and telecommunications, the benefits of free competition are penetrating into the regional and organizational structures. 4) Attraction of potential markets Central and Eastern Europe is beginning to attract attention not just as a production base, but also as a consumer market. The market size comprised by the ten countries of Central and Eastern Europe is 80 million people, and although its GDP is currently only 5% of that of the EU, economic growth is expected in the medium to long term. According to a JETRO survey, although over 40% of Japanese manufacturers in Central and Eastern Europe are not carrying out sales in the countries in which they are located, a great many of these companies are placing importance on Central and Eastern Europe, including the countries in which they are located, as a future market. In addition, they are also 173

176 considering these countries as places to create footholds toward the Commonwealth of Independent States (CIS) and the Balkans. For example, Poland is in sixth position after Spain for new car sales, and the size of its domestic market has become very attractive. It is also the country in the region that has attracted the most Japanese sales companies. Furthermore, although the number of Japanese manufacturers in Poland is less than in Hungary or the Czech Republic, they have mostly large-scale production sites. 5) Investment incentives and active promotion policies Through active introduction of foreign capital, the countries of Central and Eastern Europe have been achieving export-driven economic growth. They have accomplished this by implementing various investment promotion systems including funds for worker training and subsidies to new employees, as seen in the Czech Republic, as well as reduction of or exemption from corporate, real estate, and other taxes in order to attract foreign companies. For example, the minimum investment amount was set rather high in the Czech investment incentive system in the 1990s. This was one of the factors blocking the arrival of Japanese companies. However, the Investment Incentive Law was newly enacted in May In addition to the system being revised along EU standards, the minimum investment amount was lowered to about one billion yen (0.5 billion yen in some regions). This is the main reason behind the boom in Japanese production plants being located in the Czech Republic since As an example of an active investment promotion policy, the Czech government established an investment promotion agency called Czechinvest, which has created a one-stop investment office with access to the government and a Japaneselanguage Website to attract Japanese investment. 3. Management conditions for Japanese companies in the region * Based on JETRO s 18 th survey report entitled, Actual Management Conditions for Japanese Manufacturers in Europe and Turkey (1) Profit conditions According to a 2002 JETRO survey of Japanese companies concerning their operations in Central and Eastern Europe (46 respondent companies), 40% said they expected to turn a profit in 2001, while 45% predicted a loss in that year. In their forecasts for 2002, 60% saw an improvement, and expected to move from a loss to a profit situation through increased exports, more local domestic sales, and reduced labor costs. (2) Future production systems According to a 2002 JETRO survey of Japanese companies concerning their operations in Central and Eastern Europe (46 respondent companies), 70% had plans for production expansion. Although 20% indicated they would maintain current levels, and the remainder planned to downsize, none of the companies said they would pull out of the region. 174

177 BUDAPEST, JUNE 2003 (3) Management issues faced by Japanese companies in the region * Table 2: Management issues Concerning management issues (48 respondent companies, multiple responses permitted), the most common problem cited by companies was finances, followed by labor problems, the trading system and procedures, and the investment system and procedures, in that order. Table 2: Management issues for Japanese manufacturers in Central & Eastern Europe Finances Labor issues Trading system and procedures Investment system and procedures Raw materials and parts procurement Tax system issues Standards, certification, and regulations 0% 10% 20% 30% 40% 50% 60% 70% March 2002 JETRO survey: 48 company respondents, multiple responses 1) Finance issues Among the 31 Japanese companies that reported concerns about finances, close to 80% cited worries about exchange rate fluctuations and local currency instability. The remaining 20% were concerned about procuring financing. Regarding the effects of the single European currency (the euro) on their operations, 80% reported that it was not a problem. 2) Labor issues Among the 30 companies that reported concerns about labor problems, the majority, or 65%, cited problems with securing personnel, followed by labor costs (40%), and labor skills (35%). As wage levels have been gradually rising in Central Europe recently, there has been a shift in production to Eastern Europe. For example, Yazaki Corporation, which is involved in the automobile industry, began production in Lithuania in July Furthermore, Japanese companies are now looking at Southeastern Europe and the three Baltic nations as possible production bases. 3) Issues with the trading system and procedures Among the 29 companies that reported concerns about the local trading system and procedures, the most common problem cited was customs (90%), which affected almost all companies. The next largest concern was rules of origin (30%). 175

178 4) Issues with the investment system and procedures Among the 27 companies that had concerns about the local investment system and procedures, the most common problems were visas and work permits (75%), followed by permit approval procedures (45%), and government procedures (35%). 5) Raw materials and parts procurement issues Among the 23 companies that were concerned about raw materials and parts procurement, the largest problem was quality (60%), followed by delivery time (50%), and cost (45%). 6) Tax system issues Among the 18 companies citing problems in dealing with the tax system, the most common issue was complex procedures (70%), followed by the tax rate (30%). 7) Issues with standards, certification, and regulations Of the 12 companies citing standards, certification, and regulations, 11 of them indicated environmental regulations, and 3 companies cited CE marking. (4) Expectation for EU standardization As is shown in section (3) above, Japanese companies in Central and Eastern Europe are faced with a range of management issues. Many of these companies are hoping for stability in currency fluctuations and in the local currencies, as well as the improvement and simplification of trading, investment, and taxation systems. There are high expectations for simplification, abolition, and improvement of regulations and procedures that have been enacted based on the laws and situations in each country, through conformity to EU standards in preparation for formal entry into the EU on May 1, Along with EU standardization, there are also expectations for the continuation and further promotion of the current incentive policies, including the investment promotion systems for foreign capital. 4. Future directions With EU standardization, the movement of people, materials, and money will be facilitated, and there will be a freer exchange of foreign capital. Japanese companies are further strengthening their awareness of the importance of Central and Eastern Europe as a production base, when considering their European strategies. Investment in Central and Eastern Europe by Japanese companies is bound to increase in the future. The pattern of investment in Central and Eastern Europe will diversify in the future to include not only investment merely attracted by low labor costs, but also investment in service businesses catering to Japanese companies in the region, as well as investment in high value-added areas and in the region as an important consumer market. Geographical terms used in this presentation Central Europe: Poland, the Czech Republic, Hungary, Slovakia (4 countries) Eastern Europe: Remaining countries in this region ASEAN-4: Thailand, Indonesia, Malaysia, and the Philippines NIES: South Korea, Taiwan, Singapore, and Hong Kong 176

179 BUDAPEST, JUNE 2003 National Development Plans Investment Opportunities for East and West Conference Budapest, Hungary June,

180 178

181 BUDAPEST, JUNE 2003 National Development Plans Investment Opportunities for East and West Poland Mariusz Sochacki PAB, Polish Euroconstruct Partner Conference Budapest, Hungary June,

182 POLISH NATIONAL DEVELOPMENT PLAN (PNDP) 2 1. Introduction After accession to European Union, in Poland will be covered by the Goal 1 of the community s regional policy. The Goal is supporting of the development and structural adjustment of the under-developed regions. This policy consists in cofinancing of the countries and regional programmes, accepted by European Commission, by the structural funds and the Cohesion Fund. At present, Poland fully meets the criteria of qualifying to the goal 1 the level of the gross domestic product per capita, calculated for last three years according to the buying power, is less than 75% of the average level in EU. For the aim of programming of the community s support and ensuring its effective implementation, Poland has prepared a National Development Plan (NDP) for The National Development Plan (NDP) - The document adopted by thecouncil of Ministers of 14 January 2003 is a complex document, determining Poland s socioeconomic strategyduring the first years of the membership in European Union. This document was prepared on the basis of directives included in the Council s Regulation No of June 21, 1999 (1260/99/EU), which has introduced general provisions referring to the structural funds. The National Development Plan presents the socio-economic situation of Poland and its regions on the threshold of the accession to EU. It formulates objectives and contains description of the strategy, aiming at achievement of the social, economic and spatial cohesion with countries and regions of European Community. The NDP assesses both the expected effects of the planned interventions and their influence on the course of development processes. It indicates directions and the volume of the planned engagement of the structural funds, the Cohesion Fund, and the State s resources, and determines the co-ordination and implementation method for the structural assistance during the period of the NDP execution. The National Development Plan will serve as a point of reference for development activities undertaken exclusively with the use of national resources. It will serve as a basis for elaboration of the Community Support Framework for Poland, i.e. as a document determining directions and quantity of support from structural funds for execution of development plans. The National Development Plan will enable to determine the quantity of the Cohesion Fund and the Community Initiatives (EQUAL, INTERREG) interventions. 2. The National Development Plan objective The objective of National Development Plan and the strategy of its achievement shall make allowance not only for the horizon of the several years after Poland s accession to the European Union but it also refers to the challenges, which will be common for all EU countries in the following period of programming, i.e. at least up to The document adopted by the Council of Ministers of 14 January 2003 amended to Decision of the Council of Ministers of 11 February

183 BUDAPEST, JUNE 2003 The strategic goal of National Development Plan stated from this perspective is defined as follows: The strategic goal of the National Development Plan is to develop the competitive economy based on the knowledge and entrepreneurship capable of long-term harmonised development to ensure employment growth and improvement of social, economic and spatial cohesion with the European Union at regional and national level. Meeting the above objective, Poland will endeavour to assure high level of the environmental protection under the entries in the treaty to constitute the European Union and accession obligations. The attainment of the strategic objective will go on through meeting of partial objectives defined in the response to global competition challenges, which Poland faces together with EU countries, as well as according to the conclusions resulting from the strengths and weaknesses analysis of the Polish economy. The opportunities and threats faced with in the first years of membership in EU are also taken into consideration. The National Development Plan will be implemented under the Community Support Framework (CSF), agreed with the European Commission, the operational programmes resulting from this document and also the Cohesion Fund projects. Programmes implemented under such Community Initiatives as INTERREG (economic co-operation of the border regions), EQUAL (promotion of equal opportunities) and national programmes not co-financed from the Community s funds will also contribute to the attainment of objectives and priorities defined under the NDP. Community Support Framework for Poland in years will be implemented by five mono-funded sectoral operational programmes (SOP), relating to the improvement of competitiveness of the economy, the development of human resources, the restructuring and modernisation of the food sector and the development of rural areas, the fisheries and fish processing, transport infrastructure and maritime economy. Next to the sectoral programmes, the multi-funded Integrated Regional Operational Programme (IROP) will be implemented. It will be managed on the national level, but implemented in the de-centralised system on the level of voivodships. Additionally, the operational programmes for technical assistance have been prepared - it will be used to support the structural funds implementation. Table 1. List of operational programmes and institutions responsible for their preparation PROGRAMME INSTITUTION PREPARING THE PROGRAMME SOP IMPROVEMENT OF COMPETITIVENESS OF THE ECONOMY MINISTRY OF ECONOMY, LABOUR AND SOCIAL POLICY SOP HUMAN RESOURCES DEVELOPMENT MINISTRY OF ECONOMY, LABOUR AND SOCIAL POLICY SOP RESTRUCTURING AND MODERNISATION OF THE FOOD SECTOR AND RURAL DEVELOPMENT SOP FISHERIES AND FISH PROCESSING SOP TRANSPORT-MARITIME ECONOMY INTEGRATED REGIONAL OPERATIONAL PROGRAMME (IROP) OPERATIONAL PROGRAMME TECHNICAL ASSISTANCE MINISTRY OF AGRICULTURE AND RURAL DEVELOPMENT MINISTRY OF AGRICULTURE AND RURAL DEVELOPMENT MINISTRY OF INFRASTRUCTURE MINISTRY OF ECONOMY, LABOUR AND SOCIAL POLICY (IN CO-OPERATION WITH REGIONAL AUTHORITIES IN VOIVODSHIPS) MINISTRY OF ECONOMY, LABOUR AND SOCIAL POLICY 181

184 The structure and subject of operational programmes result from the targets and strategies of their achievement, defined in the National Development Plan. The distribution of structural funds engaged in the implementation of the individual programmes reflects their significance in establishing foundations for the improvement of competitiveness and social, economic and spatial cohesion with European Union countries and regions, and takes into consideration the actual absorption capacity. A detailed description of the scope of individual interventions will be presented in the operational programmes. 3. Financing The total amount of public funds (structural funds, Cohesion Fund, national funds) for the implementation of the National Development Plan will reach about million, of which about million (76.3 % of the total amount) will be the Community funds contribution. These funds will be utilised from 2004 to 2009, and in case of the Cohesion Fund even till 2010 During the NDP implementation period, there will be utilised (till 2006) the pre-accession funds (programmes of Phare, ISPA, SAPARD) and the next (for years ) structural policy development programme will start being implemented (from 2007). These funds will reinforce a positive economic effect generated due to the implementation of the Plan. From the total amount of about million being the Community contribution to the NDP implementation, about million (67.2 %) will be given as the structural funds (ERDF, ESF, EAGGF, FIFG) contribution. From this amount, about million will be utilised for the implementation of Community Support Framework (operational programmes), and about million for the implementation of Community Initiatives (INTERREG, EQUAL). In order to implement the co-financed by structural funds development activities there will be given the public national funds contribution of about million. It means that the total amount of the public funds assigned for the implementation of the co-financed by structural funds programmes will amount to about million. The average level of the co-financing from the Community funds will reach 72.7%. During the NDP implementation period there will be additionally utilised in Poland about million from the Cohesion Fund for supporting the development actions. This amount will be allocated for the projects in the field of transport (50%) and for the projects in the field of environmental protection infrastructure (50%). In order to implement the co-financed by Cohesion Fund projects, there will be given the public national funds contribution of about million. The total amount of public funds for the implementation of Cohesion Fund projects will reach about million. The level of the co-financing from the Community funds will reach 84.9%. For the implementation of the environmental protection measures there will be allocated apart from resources of the Cohesion Fund also the resources of the European Regional Development Fund. The ERDF resources co-finance under SOP Improvement of competitiveness of the economy the measure related the support for adjustment of enterprises in the field of environmental protection (12.6% of total amount of the Community funds for the SOP). The ERDF resources also co-finance under IROP the measures related to the environmental protection infrastructure (14% of total amount of the Community funds for the IROP). Apart from the public funds, there will be given also the private funds for the NDP implementation. The total contribution from private entities funds is expected to be 182

185 BUDAPEST, JUNE 2003 about million. It will increase the total amount of funds involved in the NDP implementation to about million. It is estimated that the EU funds contribution to the implementation of structural policy objectives in Poland (about million), in the breakdown to individual Structural Funds, in will be allocated as follows: a) Structural funds in total 67.2% (about million) of which: ERDF 60.9% (about million), ESF 22.9% (about million), EAGGF 13.8% (about million), FIFG 2.4% (about million), EAGGF 14% FIFG 2% ESF 23% ERDF 61% Figure 1: The share of EU structural funds (in %) b) Cohesion Fund 32.8 % (about million). As for the individual operational programmes implementing the Community Support Framework, the resources from the structural funds (about million) will be allocated as follows: SOP Improvement of competitiveness of the economy 17.8% of total structural funds (about 1300 million), SOP Human resources development 17.3 % of total structural funds (about million), SOP Restructuring and modernisation of the food sector and rural development 14.4 % of total structural funds (about million), SOP Fisheries and fish processing 2.4% of total structural funds (about million), SOP Transport Maritime Economy 8.6% of total structural funds (about million), Integrated Regional Operational Programme 39.2% of total structural funds (about million), OP Technical assistance 0.3% of total structural funds (about 20 million). 183

186 OP "Technical assistance" ,9 178,6 Share of national funds Share of EU funds SOP "Transport and maritime economy" 265,1 627,2 263, SOP "Human resources development" 485,4 536,7 1270, Integrated Regional Operational Programme (IROP) , Figure 2: The share of EU and national funds in financing of individual operational programmes (in EUR million) For the Community Initiatives implementation there will be allocated (in total) 4.1% of total structural funds. Under the NDP (structural funds, the Cohesion Fund and the Community Initiatives), the expenditures co-financed from structural funds by individual domains of intervention will be expected as follows: 51.9% basic infrastructure, including particularly the transport infrastructure (29% of total structural funds), 22.3% human resources, 23.9% productive environment, including 10.9% industry and services, 10% the development of agriculture, rural areas and fisheries and 2.9% tourism. 184

187 BUDAPEST, JUNE Expected results of the national Development Plan Realisation of the above presented strategic and partial goals of NDP should lead to: ensuring the constant improvement of Poland s competitiveness, creating the conditions for improvement of the level and quality of the society s living, creating of the job offers for hundreds thousand persons entering the labour market, ensuring the protection for the groups and regions, which cannot fully benefit from the structural changes in the Polish economy due to their structural misfit. From among the expected effects of the National Development Plan , the following should be counted into the most important ones: increase of the GDP level per capita in relation to average of EU after enlargement, increase of the share of hi-tech industries in industrial gross added value, increase of the share of employed in the market services, decrease of the unemployment rate and decrease of differences of the unemployment rate between voivodships. The estimation of macro-economic effects of inflow of the EU structural funds on the Polish economy, based on the HERMIN model, shows that the most significant results regarding to GDP change can be expected in 2007, when realisation of NDP shall give the additional increase of GDP by 3.33 per cent, while the unemployment rate will be lower by about 2 per cent. In this period the potential influence of the NDP will also be the most significant for the real production volume in the industry, market services and public services. Realisation of the NDP will cause the lowering of the public sector deficit (the biggest in 2006 by 0.81% of GDP). Moreover, the public debt will be lowered by 2.89% of GDP and the net surplus in the trade will be lowered by 0.96 of the GDP (see table below). 185

188 Table 2. Objectives and control indicators of the National Development Plan Index No. Objectives Index 1. General objective Objective 1: Support for achieving and maintaining high long-term economic growth GDP per capita, (EU 15=100) Annual average GDP growth rate, (previous year=100) Employment rate (population aged 15-64) Value at the end of the base year (2001) Assumed value of indicator at the end of % 54-55% 4. Objective 2: Increase in Unemployment rate (BAEL) employment and educational level Educational level (primary/ secondary/tertiary) 17.6/70.8/11.6 (2000) 15.0/72.0/ Objective 3: Inclusion of Highways / expressways) (in km) 398/ / Poland into European Modernised railway lines transport and information (in km) (number of hosts /100 inhabitants) infrastructure network Access to Internet 1.2 (2002) Employment share by sectors of 19.1/30.5/50.4 the economy (I/II/III) 3 (in %) 17.5/30.5/ Objective 4: Intensification of the process to increase the share of high-added-value sectors in the economy structure Objective 5: Supporting the participation of all regions and social groups in Poland in the development and modernisation processes Expenditures on research and development activity in % of GDP Internal diversification of GDP per capita between NUTS II regions Differentiation of unemployment rate (at the NUTS III region - corresponding to the NUTS II level) 0.65 ca ;2.2 less than 1:2.2 1: 7.1 Less than1:6 3 Economy sectors: I - agriculture, forestry and fisheries, II industry and construction, III - services 186

189 BUDAPEST, JUNE 2003 List of the planned infrastructural investments in NDP the range of Sectoral Operational Programme Transport Maritime Economy Table 3. Highways construction provided for co-financing by Cohesion Fund in No. Road No. Name of the sector Length in km Cost in mln of EUR from to 1. A 2 Konin Koło A 2 Koło Dąbie A 2 Dąbie Wartkowice A 2 Wartkowice Emilia A 4 Zgorzelec w. Godzieszów (Krzyżowa) A 1 Żory Gorzyczki A 1 Stryków Tuszyn A 18 Olszyna Golnice A 1 Nowe Marzy Toruń A 2 w.wiskitki Konotopa ( Warszawa) A 1 Radomsko Częstochowa A 4 Kraków Tarnów A 4 Wrocław construction of ring road Source: MINISTRY OF INFRASTRUCTURE 187

190 Table 4. Highways construction provided for co-financing by Cohesion Fund in No. Road No. Name of sector Length in km Cost in mln EUR from to 1 S 22 Elbląg Grzechotki S 7 Płońsk construction of ring road S 17 Garwolin - construction of ring road S 5 East ring road of Poznan (Łubowo - Iwno) S8 Wrocław Oleśnica S 7 Plońsk Ostrzykowizna S 1 Pyrzowice Podwarpie S 7 Radzikowskiego Modlnica S 11 Oborniki Poznań S 7 Czosnów Kiełpin S 11 Poznań Kórnik S 8 Bralin construction of ring road Source: MINISTRY OF INFRASTRUCTURE 188

191 BUDAPEST, JUNE 2003 Table 5. Construction or modernisation of railroads lines provided to co-financing by Cohesion Fund No. Project name Range of works Total cost in mln Euro Modernisation of railroad line C-E 20: 1. modernisation of energetic and traffic systems of the sector Siedlce Terespol 2. modernisation of 3 stations of the sector Siedlce Terespol 120 km of facilities stations 40.0 Modernisation of railroad line E75: 3. sector Warszawa - Rembertów Zielonka 8.5 km sector Zielonka Małkinia 73 km sector Małkinia Białystok 90 km sector Białystok Sokółka 41 km International Terminal in Sławkowo 14.5 Modernisation of railroad line C-E 20: 8. modernisation of 3 stations of sector Siedlce Terespol 3 stations 40.0 Source: MINISTRY OF INFRASTRUCTURE It is assumed, that the share of co-financing the qualified costs by Cohesion Fund will be equal to 85%. Table 6. Indicative table of large scale projects under SOP-TME ( Sectoral Operational Programme Transport Maritime Economy) (over 50 million Euro) Item Project km Total cost ERDF contribution National public contribution Railway projects 1. Modernisation of railway line Warszawa Łódź 2. Modernisation of railway line Warszawa Radom Roads projects 3. Reconstruction of national road No. 4 Machowa - Rzeszów 4. Reconstruction of national road No. 4 Rzeszów - Radymno Source: MINISTRY OF INFRASTRUCTURE ,7 150,9 63, ,6 53,9 22, ,3 55,0 22, ,0 63,7 21,3 The above values of project are only indicative and shall be not considered as grounds for rejection of a project during selection process or approval for implementation. 189

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193 BUDAPEST, JUNE 2003 National Development Plans Investment Opportunities for East and West Hungary Anna Gaspar Build&Econ, Hungarian Euroconstruct Partner Conference Budapest, Hungary June,

194 : the first years of EU accession and its framework the National Development Plan of Hungary Hungary is joining the European Union on 1 May Following that she will be entitled to gain support from the EU's Structural and Cohesion Funds. These funds are primarily aimed at helping differences between the state of development of member states and their regions decrease in order to reinforce economic and social cohesion. Between 2004 and 2006 the European Union is expected to grant financial support in a value of 1973 million Euro for the implementation of the National Development Plan from the Structural Funds, which will be supplemented by Hungarian state-, municipality- and private resources. Besides Operative Programs supported by Structural Funds, large transport-related and environmental infrastructural projects will also contribute to the achievement of Hungarian goals. The expected amount of these projects is 250 billion HUF for the 3 years. So in total, a circa billion HUF (approx. 5-6 billion Euro) development could be realised in 3 years, including home financing as well. This volume corresponds to circa one year's construction output. That is, the National Development Plan and Cohesion Funds will be able to extend resources for development approximately by an annual one-third between 2004 and In terms of a EU Council decree on general guidelines of the Structural Funds, to receive funds, member states of the 1st programme who have less developed regions (where GDP per capita does not reach 75% of the average of the Community) have to draw up their development objectives and priorities within the framework of a National Development Plan (NFT) as well as to present them to the European Committee. The National Development Plan is a national strategic document the Government of the Hungarian Republic is responsible for. This document serves as a basis for future negotiations with the EU Committee, as a result of which the Community Aid Budget, a legal framework of financial support, will be created. The Community Aid Budget includes the financial obligation of the EU and the Hungarian Government undertaken to how much they will spend on each field of development co-financed from the Structural Funds between 2004 and Hungary submitted the National Development Plan on 31 May, 2003, on the basis of which negotiations have started about community support. The Aid Budget will have probably been completed by September, Hungary's first National Development Plan was made for the period and includes only the development programs and measures which are supported by the European Union. The EU and domestic resources provide development funds for that in a total value of circa 200 billion HUF every year. The National Development Plan does not cover purely domestic state-financed, municipality-financed or privately financed developments. The National Development Plan, which is based on an evaluation of the situation of the Hungarian society and economy, has set the improvement of living standards, Hungary's catching up with average EU level of development and the reduction of regional disparities within the country as its long-term goals, which include the following objectives: creating a healthy, innovative, qualified and solidary society, a reviving, competitive economy, a well-balanced, sustainable territorial development. 192

195 BUDAPEST, JUNE 2003 For the achievement of these long-term goals, the Hungarian National Development Plan includes the following sectoral and regional Operative Programs (with the responsibility of the respective ministries) - Economic Competitiveness Priorities: Encouragement of investment Development of small and medium-size enterprises Encouragement of research-development and innovation Development of an information society and economy - Environmental Protection and Infrastructure Priorities: Environmental protection Development of transport-related infrastructure Development of health-care infrastructure Development of telecommunications infrastructure - Development of human resources Priorities: Supporting active labour market policies Fighting against social segregation Education, training, learning for a lifetime Development of business skills Infrastructure development related to the development of human resources - Agrarian and Village Development Priorities: Competitive basic material production Modernisation of food-processing Development of regions of the countryside - Regional development Priorities: Reinforcement of regional economies (tourism, regional information centres) Development of regional infrastructure (settlement-rehabilitation, brown-field investments energy supply, waste-water treatment etc.) Improvement of renewal ability of the society, modernisation of local public administration The resources for supported projects within the operative programs, the EU s Structural Funds are awarded via properly drawn up and accepted tenders. During the short time until Hungary's EU accession the Hungarian Government will help municipalities and non-profit organisations prepare by means of a so-called Project Generation Fund (PGF). In accordance with that, the tender announced on 1 April, 2003 calls for ideas of projects, for the elaboration of which consultancy is provided. As a result, ideas accepted and fit for the framework of the National Development Plan will become complete tenders ready to be submitted on 1 st January or May, Besides development concepts of the next few years, the National Development Plan Strategy for points out the directions of development. The framework to realise these will be given by the next National Development Plan for the EU budget period between 2007 and These concepts will be outlined by a future image until 2015, which unites the 3 years' National Development Plan under construction and the second, 7 years' National Development Plan in one framework. 193

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197 BUDAPEST, JUNE 2003 National Development Plans Investment Opportunities for East and West Czech Republic Barbora Menclová URS Praha, Czech Republic Euroconstruct Partner Conference Budapest, Hungary June,

198 THE PLAN OF DEVELOPMENT IN THE CZECH REPUBLIC Consequences of the accession of the Czech Republic to the EU will be of the fundamental significance to the Czech economy, to be comparable with impacts of the transformation changing from the centrally controlled system to the market economy system after the year Connection of countries with unequal economic level raises certain risks. Therefore, economic balancing makes an assumption of the trouble-free course of integration, i.e. achievement of the highest level of real convergence in the period of time before the accession to the European Union as well as after it, as possible. Dynamic economical growth represents the fundamental priority and it is preferred more than any other economic targets. The Czech Republic approximates slowly to the European average value in the economic level, and it ranks among the most advanced countries in the region of Central and Eastern Europe. Gross Domestic Product achieves currently about 60 percent of the average in EU countries per capita. The Czech construction industry achieves comparable level to a line of membership countries. The global objective of the National Development Plan may be specified as follows: Sustainable development, which is based upon the competitiveness. The global objective so specified includes in itself achievement of economic growth that is faster than average of European Union countries, improvement of the competitive position of the Czech Republic in the European Union and acceleration of qualitative changes in the economic system. The global objective of the National Development Plan and the strategies used to reach it will concentrate on the achievement of the following specific objectives: Creating conditions for economic growth by strengthening internal factors; Improving the skill level, competitiveness and mobility of the labour force, along with simultaneous levelling of the impacts of economic growth on disadvantaged groups of population; Approximating to the EU environmental standards; Balanced development of regions. The basic development areas, implementation of which will lead to the fulfilment of the specific objectives, are defined as the so-called priority axes. The National Development Plan defines a total of six priority axes: 1. Increasing Competitiveness of Industry and Business Services; 2. Development of Transport Infrastructure; 3. Human Resources Development; 4. Protection and Improvement of the Environment; 5. Rural Development and Multi-Functional Agriculture; 6. Development of Tourism. 196

199 BUDAPEST, JUNE 2003 T1 Links between strategies/specific objectives and priority axes specific objective priority axis Creating conditions for economic growth by strengthening internal factors xx xx x x Improving the skill level, competitiveness and mobility of the labour force, along with simultaneous levelling of the impacts of economic growth on disadvantaged groups of population x xx Approximating to the EU environmental standards xx x Balanced development of regions x x x xx xx x Note: x medium link xx strong link The second, fourth and fifth priority axes are the most important ones with respect to the largest construction industry, particularly the Development of Transport Infrastructure and the Protection and Improvement of the Environment. Development of transport infrastructure Objective of priority axes To increase the qualitative level of the infrastructure of transportation, to improve the integration with the European motorway network and improve the quality of territorial transport accessibility with further decrease of negative impacts of transportation to the environment. Increase the qualitative level of transport infrastructure, improve links to the European networks, and increase quality of transport serviceability of the territory while decreasing negative environmental impacts of transport. Description of the priority axis Increased labour force mobility (in the geographical sense) and an increasing competitiveness of entrepreneurial entities will be supported by improved regional transport infrastructure, in particular construction and modernisation of roads and routes for service to areas, development of mass transport, improved transport services in regions and development of infrastructure and services for information and communication technologies. These measures will be implemented in compliance with environmental requirements. Means from the Cohesion Fund will be used for implementation of large-scale projects of international importance and those located in the trans-european transport corridors. The largest volume of funds will be allocated to modernisation of railroads and to 197

200 modernisation and construction of roads. Smaller part of the funds will be used also for projects for modernisation of water routes and for extension and modernisation of international airports. The priority axis will be implemented by: Cohesion Fund projects Operational Programme Infrastructure Joint Regional Operational Programme Specifically, it concerns of completion the domestic highway network and its interconnection with adjacent states, completion of railroad corridors and improvement of conditions of navigability to the Labe (Elbe) river waterway. Further, it concerns of enforcing justified requirements regarding the acceleration of clearing goods on the frontier crossings. In the group of constructions of the infrastructure of transportation, which solved the problem of accessing to the EU in the year 2002 belonged: Modernisation of the first and the second. Transit railroad corridor. Constructions at forth. Transit corridor in the section České Budějovice Horní Dvořiště, which were built in advance. The railway-track radio system, which significantly increases safety of the railroad transportation, particularly at regional railroads. Erection of new ways through towns Ždírec nad Doubravou, Heřmanův Městec, Lidečko, and bypasses of Pečky, and Slaný. Significant constructions, planned for the year 2003 belong: Modernisation of railroad station Prague hlavní nádraží (Main station) with the term of its completion in the year The pass through the railroad junction Děčín, the connection of railway and road network, and modifications, which had been caused by, floods in August Modernisation of the second. Transit railway corridor with the term of its completion in the year Electrification of the railroad between Kadaň and Karlovy Vary Motorway D3 (Prague - České Budějovice - Austrian frontier crossing) in the year 2003, the largest capacity of work in the sector between Mezno and Stoklasná Lhota; the assumed deadline of the interconnection between Prague and the Austrian frontier crossing in the year Motorway D5 (Prague - Pilsen - Rozvadov), the bypass of Pilsen and examination of new bridges, which were built in consequence of floods in August Motorway D8 (Prague - Ústí nad Labem German frontier crossing) has been operated in a major part, preparatory galleries for tunnels. Motorway D11 (Prague - Hradec Králové), the construction has to be accelerated due to the connection of newly arisen industrial zone in Kolín. Highway R6 (Prague - Karlovy Vary - Sokolov - Kamenný Dvůr) Highway R48 (Bělotín - Příbor - Frýdek Místek - Český Těšín) 198

201 BUDAPEST, JUNE 2003 Improvement of navigability on the Labe river in the sector Ústí nad Labem German frontier crossing, and reassessment of the construction taking in respect the experience of the last year s floods. Reconstruction of lock chambers subsequently upon the dimensions of vessels, given by international conventions, and further as consequence of August floods, i.e. water-works in Roudnice, České Kopisty and Štětí. Protection and Improvement of the Environment Objective of the priority axis Improve qualitative status of the environmental elements while enforcing the sustainable development principles. Description of the priority axis Support within this priority axis will focus on investment projects that lead to fulfilment of standards of the European Communities and on improvement of the conditions of the environmental elements, increased level of waste management and renewal of environmental functions of the landscape, especially an increase in its retention ability and revitalisation of the rivers. Most of the attention focuses on the issues of wastewater building wastewater treatment plants, the sewerage system and facilities for modification of sludge in the municipalities. The measures in the area of air protection will lead to decreased emissions from incinerating facilities and emissions of volatile organic substances. The support also includes building integrated systems for collection and usage of certain types of waste and redevelopment and recultivation of old burdens. Within the modern educational concept, higher emphasis will be put on environmental education, which will constitute a part of the lifelong learning programmes. The priority axis will be implemented by: Cohesion Fund projects Operational Programme Infrastructure Joint Regional Operational Programme This area includes reconstruction of waterworks and new constructions of water-station buildings, sewage disposal plants, and the landscape reclamation. Prepared industrial zones, new hypermarkets and at the last but not least constructions, supporting the housing, belong among planned constructions. The Government is engaged in this problematic at present time, already. Financing these constructions is implemented through the state funds and incentives: SFIT The State Fund of Infrastructure of Transportation SFHD The State Fund of the Housing Development SFE The State Fund of Environment The State investment incentives, particularly in the area of new industrial zones Global and specific objectives of the National Development Plan (hereinafter NDP ) will be reached by implementing five operational programmes. Four operational programmes focus on individual sectors: Industry and Enterprise, Infrastructure, Human Resources Development, Rural Development and Multi-Functional Agriculture. The Joint Regional Operational Programme has a regional focus. Priorities of the socio-economic 199

202 development assuming implementation of large projects in the area of the environment and infrastructure will be implemented with the support of the Cohesion Fund. Axes of priorities will be implemented with help of those operating programmes, by contribution of which the individual specific objectives will be reached. T2 Level of Contribution of the Implementation of Operational Programmes to the Fulfilment of Specific Objectives of the NDP Operational Programmes Specific Objectives Creating conditions for economic growth enhancing internal factors Improving the skill level, competitiveness and mobility of the labour force, along with levelling of the impacts of economic growth on disadvantaged groups of population Approximating to the EU environmental standards Balanced development of regions OP Industry and Business XXX X X XX OP Infrastructure XX X XXX XX OP Human Resources Development OP Rural Development and Multi Functional Agriculture Joint Regional Operational Programme XXX XXX X XX XX XX XX XX XX XX XX XXX Note: XXX strong influence; XX medium influence; X weak influence T3 Allocation of Structural Operations for the Czech Republic in by Support Areas Areas of Subvention Allocation of structural operations for the Czech Republic ( millions, prices 1999) Total Cohesion Fund Maximum 932,1 319,2 262,8 350,1 Minimum 740,5 253,2 208,4 278,9 Average 836,3 286,2 235,6 314,5 Structural Funds 1491,2 371,4 498,1 621,7 Objective ,4 307,0 431,1 548,3 Objective 2 63,3 21,1 21,1 21,1 Objective 3 52,2 17,4 17,4 17,4 Community initiatives INTERREG 60,9 19,0 19,0 22,9 EQUAL 28,4 6,9 9,5 12,0 Total Structural Operations 2327,5 657,6 733,7 936,2 Source: European Commission, January

203 BUDAPEST, JUNE 2003 T4 Allocation of Structural Funds among Operational Programmes (in 1999 prices) Share to OP Currency Total OP Industry and Business 15,0% mil. 45,889 64,439 81, ,285 OP Infrastructure 13,5% mil. 41,300 57,995 73, ,057 OP Development Human Sources of 21,0% mil. 64,244 90, , ,199 OP Rural Development and Multi-Functional Agriculture 12,0% mil. 36,711 51,551 65, ,828 Total JROP 38,5 % mil. 118, , , ,032 - of which TA CSF mil. 1,074 1,508 1,918 4,500 Total OP 100,0% mil. 307, , , ,400 Source: Data of the EC and calculations of the Ministry of Local Development, February

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205 BUDAPEST, JUNE 2003 National Development Plans Investment Opportunities for East and West Slovak Republic Vladimir Lenko UEOS, Slovak Euroconstruct Partner Conference Budapest, Hungary June,

206 National Development Plan (NDP) of Slovak Republic The strategic objective of the NDP for the period of is expressed as follows: To ensure, while respecting sustainable development, a GDP growth whereby by 2006 the Slovak Republic would reach a level over 50% of the average GDP per capita (expressed in purchasing power parity) in the EU countries Specific NDP objectives in order to achieve strategic objective: 1. To increase the competitiveness of industry and services 2. To develop human resources and increase their adaptability 3. To increase effectiveness of agricultural production and the quality of life of the rural population 4. To support balanced regional development The global Operational Programme Basic Infrastructure objective can be characterised as a system of three specific objectives: 1. Modernisation and development of transport infrastructure This priority is focused on modernisation and development of the transport infrastructure outside the main international corridors, on the removal of unsuitable parameters of the transport infrastructure, as well as on creating conditions in order to increase transport system efficiency and quality at a regional and national level, while reducing the adverse effects of transport on the environment. Measure 1.1: Modernisation and development of railway infrastructure Final beneficiaries: Railways of Slovak Republic (ZSR) Measure 1.2: Modernisation and development of road infrastructure Final beneficiaries: Slovak Road Management Authority (SSC) and Regional Self- Governments Measure 1.3: Modernisation and development of air transport infrastructure Final beneficiaries: Slovak Airport Management Authority (SSL) 2. Improvement of the status of environmental infrastructure The priority is focused primarily on completing the construction of environmental infrastructure to ensure health protection of the population, as well as preserving, protecting and restoring the natural environs of the Slovak Republic. Measure 2.1: Protection and Rational Use of Water Final beneficiaries: Water companies and municipalities Measure 2.2: Air Protection Final beneficiaries: Municipalities, business entities, specialised organisations Measure 2.3: Waste Management Final beneficiaries: Municipalities, business entities, specialised organisations 204

207 BUDAPEST, JUNE 2003 Measure 2.4: Protection, Improvement and Regeneration of the Environment Final beneficiaries: Professional organisations, business entities, non-governmental organisation 3. Building up and developing local infrastructure This priority is oriented to improve the quality of infrastructure of schools and educational institutions, social and health infrastructure, focused on reconstruction and building of objects and their technological equipment. The priority is to resolve the problem of moral and physical obsolescence of technical equipment and the deficiency of modern technologies. Measure 3.1: Building and development of civil, social and medical infrastructure. Final beneficiaries: Self-governing units, medical and social facilities, schools and educational institutions, non-governmental organisations, citizens, associations and foundations and religious societies, business entities. Measure 3.2: Building and development of information society Final beneficiaries: Citizens and entrepreneurs institutions in regions, public administration Financing Operational Programme Baisic Infrastructur financing will be from public sources and EU sources; the possibility of private funding is taken into account too. Public funding will be from the state budget and partially from sources of regional and local selfgoverning authorities. Assistance for OP BI from structural funds of EU will be provided from European Regional Development Fund (ERDF). The level of resources from Structural Funds and the Cohesion Fund was confirmed on the Copenhagen Summit (December 2002). For the Slovak Republic (for the shortened programming period ) was confirmed the amount of EUR 1,560 million. Assistance from the European Regional Development Fund (ERDF) amounting to EUR million, from this for OP Basic Infrastructure million EUR (the amount of EUR million (42,90 %) is allocated for the priority Transport Infrastructure, EUR million (32.06%) for the priority Environmental Infrastructure and EUR million (23.04%) for priority Local Infrastructure). For the Cohesion Fund were allocated million EUR. Cohesion Fund Large infrastructure projects are carried out as part of the Cohesion Fund with the minimum size of projects of EUR 10 million in the fields of transport and the environment. Focus of Cohesion Fund for the field of the environment Water drinking water (estimated indicative ratio for water 45 %) Construction and/or reconstruction of drinking water preparation plants and of distribution system for drinking water supply Water - waste water Reconstruction of existing waste water treatment plants and sewage system, connection to waste water treatment plants that correspond to EU standards Completion of the sewage network to waste water treatment plants meeting EU standards. 205

208 Building of new waste water treatment plants in municipalities with over 2000 inhabitants. Anti-flood safety measure Air protection (estimated indicative ratio 35 %) Supporting investments that are aimed for air quality improvement in polluted areas Waste management (estimated indicative ratio 20 %) Waste prevention and limiting waste production Appreciation of wastes by recycling and re-using Use of wastes as an energy source Disposal of wastes in a manner that is not dangerous to human health or harmful to the environment Dealing with old environmental burden Focus of Cohesion Fund in the field of transport Road transport The main priority is the construction and modernisation of road infrastructure for approved routes of multimodal corridors passing through the Slovak territory. These are corridor No. IV (Berlin/Nuremberg - Prague - Budapest Constanta(Thessalonica) Istanbul, corridor No. V branch A (Bratislava - Žilina - Košice Uzhorod), No. VI (Gdansk - Warsaw - Katowice Žilina) and corridor No. VII (River Danube). The MoTPT SR approved the Strategy of the Cohesion Fund for the sector of Transport for the period which defines specific projects for the period from the area of road and railway infrastructures on the routes of the international corridors V/A a VI. Railway transport By way of Government resolution No. 963 from 10 October, the Slovak Government took note of the Railway Development Programme till 2010 and the draft financing of investments till 2010, as one of the documents concerning railway modernisation. The modernisation of the railway section Kúty - Štúrovo (corridor IV), Bratislava Žilina (corridor V), completion of reconstruction of the Čadca Railway Station and railway construction of Čadca Zwardoň (corridor VI), are being prepared, and in the long term modernisation process, also the north-south interconnection of corridor IX (Plaveč - Košice - Čaňa). On the section Púchov Žilina, modernisation of tracks to a speed of 160 km/h. Outlook for : To continue on the sections: a) Trnava - Nové Mesto nad Váhom, 2nd stage Piešťany - Nové Mesto Nad Váhom b) Nové Mesto nad Váhom Púchov, track modernisation to a speed 160 km/h c) Púchov Žilina, track modernisation of the speed from 120 to 140 km/h d) Žilina - Čadca, track modernisation of the speed from 100 to 120 km/h 206

209 BUDAPEST, JUNE 2003 Combined transport (CT) Operation will require four CT terminals of international importance (Bratislava as part of the future TCND, Žilina, Košice and Dobrá pri Čiernej nad Tisou) and three additional terminals Zvolen, Ružomberok and Nové Zámky. Civil air transport Intentions in the field of investment construction in civil air transport are focused on technological and constructional investments for Bratislava, Košice, Poprad - Tatry, Sliač and Piešťany airports. Water transport Development of water transport is linked to the international Danube watercourse route. Over the medium-term, the development of the transport infrastructure is mainly focused on gradual realisation of stage II. of the River Váh Watercourse on the section between Sereď Púchov covering a length of 107.2km. The gradual implementation of the River Váh Watercourse Route will enable a connection as far as Žilina by about There is also the possibility of channel connection with the Polish River Oder. 207

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211 BUDAPEST, JUNE 2003 National Development Plans Investment Opportunities for East and West Spain Josef Ramon Fontana I Uson ITeC, SPAIN Conference Budapest, Hungary June,

212 National Development Plans in Spain The general framework of current infrastructure investment policy in Spain is based in two large plans: the Infrastructures Plan of the Ministry of Public Works and the Hydrologic National Plan of the Ministry of Environment, both designed on the basis of considering public infrastructure investment as a priority in public spending and a fundamental Government policy tool to stimulate the economy and foment regional equilibrium and territorial cohesion. Both Plans in turn form part of the Government s General Investment Plan and include the participation of other ministries and public administrations. The Infrastructures Plan of the Ministry of Public Works involves major investments of approximately Euros 102,900 million, representing a jump in public investment ratios from 1% of GDP from 1995 to 1999 to 1.33% and 1.37% of GDP from 2000 to The Plan foresees indirect effects on the economy and the generation of 550,000 new jobs and 5.2% growth in GDP. In order to achieve the Plan s targets, the estimate is that disbursement of the investment of the aforementioned Euros 102,900 million will extend beyond Besides, the Hydrologic National Plan of the Ministry of Environment aims to the regulation of the transfer of the hydraulic resources between the different river basins. It is scheduled for execution during the period 2001 to 2008, and it will involve an estimated investment around Euros 22,800 million. The Infrastructures Plan of the Ministry of Public Works can be broken down into 5 major action blocks: 1. Motorways and toll motorways, which represent 38.7% of total planned investment, an amount of Euros 39,800 million, and which goal is to complete a network of high capacity roads, extending the current network from 8,000 to 13,000 km. The public budget for this work for totals approximately Euros 15,800 million for the general roadways programme (24.2% allocated to maintenance and improvement of existing roads), Euros 4,000 million for the extension of the toll motorway network and Euros 1,200 million for the first generation motorway programme. 2. The railroad programme is scheduled to receive the largest budget of the 5 blocks (39.4% of the total investment) which means a total amount of Euros 40,800 million. Its aim is to modernise rail communications, including, first and foremost, the High Speed rail corridors in Andalusia and the Northeast (Madrid Zaragoza Barcelona French border), the East Coast and Mediterranean Line, the North-Northwest Line, and the Extremadura line and its connection with Portugal; secondly, the city commuter rail programmes; and, thirdly, improvements to the conventional rail lines (improvement of infrastructures, installations, signalling, etc. etc.). 3. The airport programme represents investments totalling Euros 9,000 million (11.1% of the total), allocated to the creation of new airport infrastructures and the expansion of the Madrid and Barcelona airports. 4. The port and harbour programme receives investments of Euros 7,500 million (7.3% of the total), and includes new investments in Government ports and harbours. 210

213 BUDAPEST, JUNE And a series of other programmes that include, amongst other objectives, the expansion of the most advanced telecommunications networks. In order to meet these targets the Plan foresees allocating financial resources directly from public bodies (58% of the total), European Funds (between 22% and 26%) and private capital (between 15% and 20%). The financing formulas, in order to allow for a greater integration of the different agents, are rather varied, and range from direct non-deferred public financing (direct investment through Spanish public budget monies or in collaboration with European structural funds) to deferred direct financing with deferral of payment (management service contracts, hidden-toll financing) and also include indirect public financing, with transfer of capital or financial contributions to companies and public entities or government companies; collaboration between administrations with the creation of consortia; public non-budget financing provided by public business entities and government companies which are self-financed out of their own capital and reserves, taxes and capital transfers; and even mixed financing under the form of public participation in the concessions, or under the form of government companies with private shareholding or mercantile companies with shareholding of government companies. 211

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215 BUDAPEST, JUNE 2003 National Development Plans Investment Opportunities for East and West Ireland Annette Hughes DKM, Irish Euroconstruct Partner Conference Budapest, Hungary June,

216 The Implementation of Structural Funds for Ireland and the National Development Plan 1 Introduction The National Development Plan (NDP) for Ireland is the basis for negotiations on the Community Support Framework this is the document agreed between the European Commission and the Irish Government, through which Structural Fund 4 assistance is paid. The CSF includes an outline of priorities for action, quantified objectives and targets, and anticipated financial resources for investment, as well as monitoring, evaluation and control systems. In addition to the CSF, Structural Funds are generally committed to regions by means of Operational Programmes, which are developed in partnership between Central Government, Regional and Local Government, economic and sectoral interests and the Commission. 2 History Prior to the current National Development Plan, which covers the period, two previous rounds involving a programming approach to EU resourcing of socioeconomic development in Ireland took place and Under these last two rounds Ireland qualified as a single Objective 1 region at NUTS 115 level. The investment priority areas identified at that time reflected the fact that the State had both a low income and output level, a population structure which resulted in a rapid growth in labour force supply, a high dependency ratio with inadequate employment generation, severe budgetary constraints and poor infrastructure. The economic background on these occasions was significantly different from the round now being implemented. 3 Criteria for Designation The European Union classifies different regions into three different categories for Structural Fund purposes. For the period, the BMW Region in Ireland is classified as an Objective 1 region (defined as regions whose development is lagging behind). The S&E Region in Ireland is eligible for Objective 1 in transition status. This is due to special arrangements whereby regions which were eligible for full Objective 1 status in 1999, but did not meet the criteria for , can receive support on a phasing out basis from Collectively the European Regional Development Fund (ERDF); the European Social Fund (ESF); the European Agricultural Guidance and Guarantee Fund (EAGGF); the Financial Instrument for Fisheries Guidance (FIFG) make up the Structural Funds. The Cohesion Fund is not considered a Structural Fund. 5 Nomenclature of Territorial Statistical Units a system of classification of regions across the EU used by the European Commission. For the purposes of Structural Funds, the most important are the so-called NUTS II regions and NUTS III regions. 214

217 BUDAPEST, JUNE Objectives Broadly, the NDP lays out the foundation for Ireland s continuing economic and social development into the future. It sets out the priorities for future investment. The key national objectives, which underpin the strategy for the NDP and which apply to both the Objective 1 (BMW) region and the Objective 1 Region in Transition (S&E), are to (i) ensure that Ireland remains competitive in the global international marketplace; (ii) continue sustainable national economic and employment growth; (iii) foster balanced regional development; and (iv) promote social inclusion. 5 The Current National Development Plan The current NDP was submitted in November Unlike previous Plans, drawn up exclusively for the purposes of securing the use of Structural Funds, the NDP was designed to address the State s development needs. The current Plan is, therefore, much broader in scope and size than previous plans. It is being implemented as an integrated investment plan and strategy for economic and social development for In advance the Department of Finance commissioned independent consultants 6 to undertake a study to identify Ireland s priorities for investment over the period. That report, which has been published, served as a basis for debate on the priorities for the National Plan. The NDP is intended to reflect the broad consensus following an extensive consultation process, which involved the Social Partners and regional interests. 6 Overview of the National Development Plan In total, the Plan involves investment of 51.5 billion ( 40.6 billion) in 1999 prices, and investment throughout is broken down by Regional Assembly area between the Border Midlands and Western Regional Assembly (BMW Region) and the Southern and Eastern Region (S&E Region). The overall breakdown proposed in the Plan is as follows: Table 1: National Development Plan (Overall Expenditure) Billion / Billion Per Capita S&E Region 34.6 / 27.3 (67.2%) 13,015 / 10,250 BMW Region 16.9 / 13.3 (32.8%) 17,513 / 13,793 Total 51.5 / ,212 / 11,193 The NDP provides for Structural Fund cofinanced Operational Programmes (OPs), along with substantial non-cofinanced expenditure, as well as a separate CAP Rural Development Programme as follows: 6 National Investment Priorities for the Period The Economic and Social Research Institute et al. Dublin,

218 Table 2 : Breakdown of NDP Investment Economic and Social Infrastructure OP 22.3bn. 43% Employment and Human Resources OP 12.6bn. 24% Productive Sector OP 5.7bn. 11% Regional OP - BMW Region 2.7bn. 5% Regional OP - S&E Region 3.8bn. 7% PEACE OP (to 2004 only) 127m. 0% CAP Accompanying Measures 4.3bn. 8% Total 51.5bn. 100% The Structural Funds contribution to the OPs is approximately 4 billion or almost 8% of the total investment under the NDP. 7. The Main Infrastructure Priorities Infrastructure is a major priority of the Plan because of the urgent need to expand the capital stock in this are to sustain economic activity and to enhance the potential of less developed areas. The main infrastructure priorities are included in the Economic and Social Infrastructure OP. The breakdown across the main priority areas is as follows: Table 3: Infrastructure Priorities National Roads 5,968m. 27% Public Transport Greater Dublin Area 2,012m. 9% Regional Public Transport 825m. 4% Environmental Protection 3,213m. 14% Energy 185m. 1% Housing 7,619m. 34% Health 2,539m. 11% Total 22,361m. 100% of which PPP Projects 2,349m. 11% There is investment in national roads, public transport, and environmental services, as well as investment in social housing and health services infrastructure. Under the Employment and Human Resources OP, there is also a provision of billion for capital expenditure on education and training infrastructure for investment in primary and second level schools, further education centres and third level institutions. Thus the total investment in infrastructure amounts to billion which represents 47% of the total investment under the NDP. 216

219 BUDAPEST, JUNE 2003 The planned profile of the investment over the six-year period is illustrated in the next chart. The financial progress on the ESIOP to end 2002 shows that the total investment reached 10,358m. by end 2002, about 300m. more than planned. The physical progress is a critical issue, however. It is currently being assessed as part of the ongoing evaluation process of the individual Operational Programmes. The Mid-Term Evaluation of the NDP is currently underway. A key issue to be addressed is the fact that individual NDP projects have seen project costs double in nominal terms in some instances. There has been extensive media discussion of this issue. 8 Public Private Partnerships (PPPs) The NDP also provides for Public Private Partnership (PPP) type investments which are intended to increase private sector involvement in the provision of public infrastructure. There is a minimum target for PPPs in the Plan of 2.35 billion. The PPP process is being developed on a pilot projects basis. The first project involving a bundle of 5 postprimary schools was launched in July 2000, the contract was signed in November 2001 and the first school was formally opened in early December There are currently some 40 projects at various stages of procurement ranging from roads to environmental services, public transport and third level education (See Table x). Projects in the Courts and non-acute health services sectors are also being investigated. 9 Major Capital Projects Details of a number of the larger infrastructure projects under the main headings are set out in the next table. The table shows the anticipated outturn cost for each project. 217

220 Table 4 Major Construction Projects completed and/or under construction in NDP and estimated final outturn cost Public Transport million Housing million LUAS (Light Rail Network) 806 Ballymun Regeneration 607 Heuston Station 117 Area Regeneration Schemes 135 DART Upgrade 164 Inner City Regeneration Roads Education Dublin Port Tunnel 625 Veterinary School, UCD 40 Southern Eastern Motorway* 640 Library & IT Building, GMIT 29 (part of C-Ring around Dublin) National College of Ireland (relocation) 25 Northern Motorway (Drogheda By-Pass) Monasterevin By-Pass 140 Kildare By-Pass 157 Health 537 Mayo General Hospital (Phase 2) 48 Water Services Tullamore (Phase 1&2) 140 Cork Main Drainage Scheme 266 Community Nursing Unit, Cavan 9 Dublin Bay Projects 268 Acute Psychiatric Unit, Ennis 6 Limerick Main Drainage Scheme Water Conservation in Greater Dublin Area Total Estimated Cost of Above = 3,697 million Table 5: Selected PPP Projects Public Transport LUAS - Lines A&B Roads M50 Second West Link Brdge N25 Waterford By-Pass N4 Kilcock-Kinnegad N7 Western River Crossing Limerick Education National Maritime College ( 57m.) 5 Post Primary Schools ( 70m.) Cork School of Music ( 38m.) Housing Local Services Alternative Energy Local Services Urban Development Water And Waste Water Solid Waste Notwithstanding the major investment made under the two previous rounds and plus the investment made to date under the existing NDP, Ireland continues to have an infrastructure deficit, which could, unless it is addressed, prevent the economy from achieving its full potential. The current Mid-Term Evaluation of the NDP will consider (i) whether the original balance in terms of the infrastructure priorities identified in the NDP is right and (ii) whether the changed economic circumstances warrant revisions to the list of priorities. For further information see:

221 BUDAPEST, JUNE 2003 National Developing Plans Investment Opportunities for East and West Portugal Fernando Paes Afonso ITIC, Portuguese Euroconstruct Partner Conference Budapest, Hungary June,

222 National Development Plan Portugal The National Development Plan 1.1. A Global Overview The National Development Plan for the period sets the master guide lines for social and economic development options for Portugal in the medium term and constitutes the basis document in the negotiation process on which Portugal and the EU settled the financial support from the European Community in the framework of the European Regional Policy Main Goals Recognizing the need to implement profound structural changes in the Portuguese economy in order to achieve a new Economic Growth Model for the 21st Century, the National Development Plan considers to be indispensable the fulfilment of the following main goals: increase the qualification of the Portuguese labour force, promote the employment and the social cohesion; change the productive structure towards the activities of the future; promote the territory and its geoeconomic position; promote the regions sustainable development, the quality of urban life and the rural development; the improvement of social protection. 2. The Community Support Framework (CSF) 2.1. The CSF macroeconomic impact on the period7 A study carry out by DPP Departamento de Prospectiva e Planeamento (Department of Perspective and Planning) in 2002 analysed the macroeconomic impact of the CSF on the period reaching significant results: the CSF accounted for 2,4% of GDP and 1,9% of employment; the GFCF Gross Fixed Capital Formation was the GDP component on which the CSF impact was felt the most: 8,2%; in the Construction Sector the CSF accounted for 10% of both gross value added (GVA) and employment, being therefore the Sector on which the CSF had a greater impact. 7 Avaliação do Impacto Macro-económico do QCA em , DPP, 2002 (a demand side perspective) 220

223 BUDAPEST, JUNE Programmed Investment The Programmed Investments in the CSF framework are the following: Value (Million Euro) 1. Community Support Framework III ( ) ERDF European Regional Development Fund ESF European Social Fund EAGG European Agricultural Guidance and Guarantee Fund FIFG Financial Instrument for Fisheries Guidance 235 National Public Resources Central Regional 524 Local Others Private Financing Cohesion Fund (+ National funds) = Others (EIB+other financial instruments+community Initiative = Source: Quadro Comunitário de Apoio, Portugal, The Structural Funds represent 41% of total investment planned for the period ( million euro), of which approximately 65% correspond to ERDF-European Regional Development Fund. The Cohesion Fund represents 7% of total investment in the period Understanding CSF III for Portugal I - Priority Intervention Domains - Human potential valorisation - Support of productive activities - Territorial structuration III - Operational Programmes 1. Increase the qualification of the Portuguese labour force; promote the employment and the social cohesion - Education - Employment - Science - Information - Health - Culture II - Priority Axes 2. Change the productive structure towards the activities of the future; 3. Promote the territory and its geoeconomic position - Agriculture - Fishing - Economy - Transports - Environment 4. Promote the regions sustainable development and national cohesion - Norte - Lisboa e Vale do Tejo - Alentejo - Algarve - Açores - Madeira + Technical Assistance Source: Quadro Comunitário de Apoio, Portugal,

224 3. Major Projects 3.1. Supported by Structural Funds Approved Projects Economy Operational Programme (22,2% of CSF) More than projects in 2000 and 2001 Total Investment: 2.751,6 million euro Main Measures (in % of the Economy Operational Programme): Encourage Modern and Competitive Business Strategies: 1.664,3 million euros Promote Small Business Initiatives: 366,9 million euro Foster new Areas of Economic Development: 319,8 million euro Use Energy Potential and Streamline Consumption: 121,5 million euro Região Norte Operational Programme (11, 0% of CSF) Projects Total Investment: 2.108,3 million euro Main Measures (in % of Região Norte Operational Programme): Accessibilities and Transports:1.023,2 million euro Empregability: 196,3 million euro Territorial Qualification: 160,6 million euro Local Transports Systems and Networks: 151,6 million euro Accessibilities and Transport Operational Programme (8, 0%) 114 Projects Total Investment: 1.887,6 million euro Main Projects (in % of Accessibilities and Transport Operational Programme): Sá Carneiro Airport expansion (Porto): 332,7 million euro Train acquisitions Grande Porto : 141,9 million euro Faro Airport expansion (Faro) : 78,6 million euro Railway Modernisation Beira Baixa (Mouriscas/C. Branco) : 45,9 million euro) Sines Port (Ampliation) : 47,9 million euro 3.2. Supported by the Cohesion Fund The Cohesion Fund is a financial instrument created with the strict purpose of reinforce the Economic and Social Cohesion of the State members with a GNP per capita below 90% of the European average. The Cohesion Fund for the period for Portugal is planned to amount to million euros (community and national funds) and supports two sectors: Accessibilities and Transports and Environment. Approved Projects in the 2000/2002 period Accessibilities and Transports In the 2000/2002 period 16 projects were approved in a total investment amount of 1.186,6 million euro of which near 80% were supported by community funds. Ports: 68 million euro Railway Network: 721,8 million euro, of which: - Algarve (Ermidas/Faro) 174,0 million euro - Norte (Entroncamento/Albegaria) 142,1 million euro - Norte (Quintans/Ovar) 125,7 million euro Public Transports: 265,1 million euro, of which: 222

225 BUDAPEST, JUNE Metro Chiado/S. Apolónia 133,0 million euro - Metro RTE 132,1 million euro Road Network: 131,6 million euro Environment Solid Waste: 299,3 million euro, of which: - Madeira 2 nd phase - 68,0 million euro - Lipor 53,5 million euro Water Supply: 113,2 million euro Waste Water (drainage and treatment): 194,1 million euro Supply/Waste Water: 194,3 million euro, of which: - Raia, Zêzere, Nabão 1st phase 63,7 million euro - Zêzere, Coa 1 st phase 54,9 million euro Alqueva Hydro-electric Station (2nd phase) 62,2 million euro Sources: Avaliação do impacto macro-económico do QCA em , DPP, 2002 Portugal Uma Visão Estratégica para vencer o Século XXI PNDES , SEDR, MEPAT, 1998 Quadro Comunitário de Apoio , (and related links) 223

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227 BUDAPEST, JUNE 2003 EU-Action Plan for Competitiveness in the Construction Industry Investment Opportunities for East and West J.A. Campos European Commission, Construction Unit of the DG Enterprise Conference Budapest, Hungary June,

228 EU-Action Plan for Competitiveness in the Construction Industry Why the Commission is interested in the problems of the sector, whose final outcome is the adoption of a Communication on the competitiveness of the construction industry? There are 3 main reasons. FIRST REASON, the dimension of the sector as it has been demonstrate here yesterday. I can complement the Euroconstruct data saying that construction employs 11 million workers, that is 7% of the active population of the European Union. It is an industry in which SMEs are predominant. Out of a total of 2 million enterprises, 97% have less than 20 workers and 93% less than 10. There are only 100 companies with more than employees. SECOND REASON, its capacity to generate jobs. In fact, for each direct job in construction, 2 indirect jobs are created in related sectors. This means that we have in Europe 33 million people linked to the construction sector. THIRD REASON, the influence of construction on the whole of the European economy. Construction represents a basic input for the competitiveness of the rest of industrial sectors and services. For them, their competitiveness is highly dependent upon the efficiency of the infrastructures they used (roads, railroads, airports, harbours, ), with industrial buildings in which they manufacture and with the offices where they work. And now, the SECOND QUESTION : What is the concept of competitiveness expressed in our Communication? We follow the definition given in the Communication of September 94 entitled "An industrial competitiveness for the European Union" in which the term is defined as "the capacity of enterprises being exposed to the international competition, to assure to production factors an high income and level of employment on a sustainable basis". Competitiveness is not an objective in itself but it is a powerful lever to reach a higher standard of living and growth of well being. There are not only salary aspects. This higher standard of living can only be reached as long as a higher productivity will allow. And THIRD AND LAST QUESTION : What is our understanding of the word "construction"? In our Communication, construction is considered in its widest sense: it includes the construction service with its classical division: housebuilding, nonresidential buildings, civil engineering and, always, new construction and rehabilitation. 226

229 BUDAPEST, JUNE 2003 it includes the full range of construction products going from the simplest materials to the more sophisticated systems. and also all the phases of the construction process: feasibility studies, pre-design, design, execution of the work, its use and maintenance and the final demolition. These are the answers to the three questions. On this basis, the European Commission has drafted and adopted a Communication on the competitiveness of the construction industry. Its content: it describes, from the beginning, the importance of the sector in the European economy it tries to explain why construction is different to other industrial sectors, what is its specificity. the Communication describes the key elements determining its competitiveness. I will come on to this in more detail later. finally, 4 big strategic objectives and 65 specific actions are spelt out, with the precise aim of improving the competitiveness of our industry. What are the key elements of competitiveness? The Communication identifies 10, all interactive. The first and most important one, quality for which this interactivity is evident: in fact, a better adapted regulatory framework, a bigger effort in training and education, more innovation have, as consequence, higher quality. As I do not have enough time today, I am not going to go into detail of all 10 elements. However, I will highlight some of the important points: quality: to invest more, yes. Systems assuring quality control, yes. But, in any case, to adapt all these measures to the real possibilities of SMEs. The key element is to create, through improved quality, more value for money. demand: to finish with the policies of stop and go that are using construction as short term anticyclical lever of the economy Beneficial effect derived from the adoption by public authorities of long term plans of infrastructures, social housing or non-residential buildings (schools, hospitals,..). These plans should then be respected. How fiscal measures could have an important influence on housing demand. competition: to fight against cut-throat competition and against the oligopolistic power of some big clients. 227

230 To set up mechanisms able to detect and eliminate abnormally low tenders. In short, to balance market conditions. construction process: more flexibility, more co-operation in all the construction phases. To imitate what other industrial sectors do in which designers, component manufacturers, producers and clients co-operate in the development of the final product. Partnering is the key word here. environment: a pro-active attitude. Environment constraints shouldn t be seen as threats but as new market opportunities. regulatory framework: to deregulate, yes, but maintaining a delicate balance regulation/deregulation in a sector touching one of the prime needs of the human being with very important consequences for safety and health human resources: more investment in education and training. For professionals, multidisciplinary and co-ordination aspects that become more and more important. To improve the image of the sector permitting it to attract young workers. Also to improve working conditions and health and safety on site. research and development: to invest more. European construction companies invest only 0.3 % of their turnover compared with 2-3% investment by Japanese enterprises. To improve the dissemination of the findings. In short, to transform research in real innovation. structure of the sector: to adapt legislation, regulations, procedures and systems to the real possibilities of SMEs. To develop a larger and more efficient co-operation between them. To balance subcontracting relationships. and finally, illegal practices: Difficult and very delicate subject. Two aspects: black economy and corruption. With respect to the black economy, a contribution to its elimination could be the lowering of the indirect cost of workers, which today is very high. This is a competence of Member States. In this field, the European Commission only can act as a catalyst. In relation to corruption, more transparency in the awarding of contracts, a better quality of projects, leaving less room for further changes, could minimise the problem. This is a short overview of the main elements shaping the competitiveness of our sector. 228

231 BUDAPEST, JUNE 2003 So, what the Commission proposes, with the backing of the European Council of Ministers of Industry, to improve this competitiveness? Four big strategic objectives The first one focuses on quality. Adequate measures have to be adopted to improve the quality of the sector, such as the setting up of systems of quality assurance adapted to the size of enterprises. The second strategic objective, the regulatory framework. There is a need to consolidate the legal aspects of the Single market applicable to construction products, public contracts and professions with the objective of eliminating barriers to trade which still exist. Third big strategic objective, human resources. We need to create the conditions for the growth of investments in education and training and also to adopt measures to improve working conditions. And the fourth and last strategic objective, research and development. There is a need to propose measures to reorient resources towards the real needs of the sector. These four strategic objectives are detailed in more than sixty recommendations to be endorsed by industry, Member States and the European Commission, recommendations that need to be developed. How do we deal with such a huge programme? The European Commission has set up a Tripartite Group composed of representatives of Member states, Industry and the Commission. This Tripartite Group has set up an action plan. A first group of 13 priority actions have been chosen. These actions are being developed, some of them via studies and most of them based on the work of ad-hoc groups with the presence of experts from all the mentioned parts of the sector. I will describe, in a short overview, the state of play of the work already achieved and of the work in progress. Firstly, I should mention a study launched by the European Commission on innovation of the sector. This study has described the conditions leading to effective resarch and has traced the factors influencing successful innovation from the creative idea to its practical implementation. A second study has been commissioned to explore the use of quality systems in construction. It has analysed the challenges, threats and opportunities of the implementation of such schemes in construction enterprises. And finally we have launched an exercise on benchmarking in which the key performance indicators adapted to the specificity of the construction sector have been defined. This study also describes how to measure, collect and compare these indicators and how to determine best practice. 229

232 At the same time, 4 working groups were set up. The first one "Information Technology" in which we have discussed the ways to accelerate the utilisation of IT throughout the construction process, with special recommendations for SMEs. The second one on the severe problem of abnormally low tenders in the award of public works contracts. The group has provided a definition of such tenders, examined their adverse effects on enterprises, employees and clients and the reasons why enterprises submit and clients accept abnormally low tenders. A set of recommendations has been given to prevent, detect and eliminate such offers. The group has also analysed the role of a system of contract bonds as a possible deterrent to this problem and has set up a sophisticated model to determine the economically most advantageous tenders permitting an equitable award of contracts. The third working group has focused on education, training and the image of the sector. This group has analysed how to foster a substantial and sustained growth in both the level and the quality of education and training provisions and how to improve the image of the sector. And last but not least, the most important working group has been set up on sustainable construction. The group has developed a European strategy for the use and promotion of environmental-friendly construction materials, energy efficiency in buildings and waste management, with the final aim of contributing to sustainability. We must not forget that construction, globally, is responsible of the 50% of materials taken from nature, with million tonnes per year, and generates also 50% of the total amount of wastes, with 450 million tonnes per year. Building alone is responsible for the 42% of energy consumption and 30% of CO2 emissions. The group has identified precise strategies for sustainability in construction and has put forward a programme for action. Work in progress: we now have two groups, made up of experts from industry, Member States and the European Commission, finishing their tasks. The first group has as an a objective to evaluate the situation in e-construction on the basis of e-commerce, e-collaboration and knowledge technologies, including e- learning, and to provide recommendations on how to develop it. The second group is now working in drafting recommendations and guidelines on Whole Life Costing of construction aimed at improving the sustainability of the built environment. The complete reports produced to date on all the different subjects mentioned in my presentation can be found on DG Enterprise Construction unit Internet site. Here is the address. In conclusion, I have to insist again on quality as the main and core key element of competitiveness of the construction industry. To improve it, different approaches could 230

233 BUDAPEST, JUNE 2003 be followed. I have explained today the Commission approach. There is another one. It was proclaimed by Hammurabi, King of Babilon around the year 1730 b.c. It appears in a Stella exhibited in the Louvre museum. You have a reproduction on the screen. It is written in acadian in cuneiform characters. The English translation is as follows: Whenever a builder designs a structure which collapses and puts the client to death, the builder shall be executed. Whenever the collapse of the structure causes the death of the client's son, the builder's son shall be executed. If one of the client's slaves is killed in such an incident, the builder shall replace this loss by a slave of equal value. I hope we will chose the Commission approach to improve quality rather than the Hammurabi one. 231

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235 BUDAPEST, JUNE 2003 Eastern Experience and Outlook Before Accession Outlook in West and East Janos Nagy Director Gerneral, ÉVOSZ Conference Budapest, Hungary June,

236 The Building Contractors of Central and Eastern European Countries at the threshold of the European Integration On 13th December 2002 in Copenhagen Hungary and other nine Central and Eastern counties closed all the chapters of accession and by this it was declared and announced that these countries would be the full members of the European Union on 1 st May What will bring, and what will mean the approaching accession for the building contractors? we may ask. Will it be a stronger competition, opportunity or rather threat? It can be surely told that we will have to face with a great challenge. Our expertise, opportunities, attitude, market knowledge as well as the information-andrelations will be decisive. In Hungary the economic changes first have touched the construction sector. The 13 years old Contractors Federation by today can show numerous results. It contributed to create substantial provisions of law, which contributed to serve the contractors interest, and it also has been a reliable partner of the government. Since from that time the sector does not have its comprehensive representative in the government (there is no ministry of the sector) we support the idea of the establishment of the responsible representation. The main expectations with regard to the EU membership: The differences of the regions will decrease; Many investments will have to be done: infrastructural, environmental (sewage, duct, garbage stores), road and railroad developments, industrial and institutional developments, housebuilding and refurbishments. So these will give a lot of work to the sector. The main difficulties of the contractors are: Lack of capital, Low salaries; Low profitability; Existing undeclared work; Decreasing payment discipline. What influences the competitiveness of the contractors? Ability of quality production; The level of craftsmen education, The level of the black market ; The determination of R&D; The level of the work-health & safety system, Ability of capital power; Human and company relations; References; Reliability, punctual, quality and time implementations of work; Knowledge of foreign languages; Knowledge of tendering for EU sources; Knowledge of IT, marketing, PR, and the other market disciplines. 234

237 BUDAPEST, JUNE 2003 Well, taking into consideration of the above points of competitiveness it is clear that there are a lot of things to solve and to do. We should also not forget the thing that the European Union is also in continuous changes. The whole integration seems to be a moving train which is difficult to catch. I think that the right way is the proper and continuous preparation. We shall have to get the knowledge to apply all the information and sources which serve our goal to be a member of a very challenging, stable and developing European Union. As ÉVOSZ, and the other CEE federations are the member of FIEC, the European Construction Industry Federation, we have the direct contact to the sources of information, opportunity of the active participation in the several interest groups such as technical, educational, social and CEEC Ad-hoc, which is aimed to prepare the integrating countries. We also learn and take over from the old federations the federations management techniques. It is especially important to study the several countries social dialogue systems and situation. It is vital to establish a sartorial collective agreement. It is also a great task and challenge to contribute to solve the ever-rising problem of the lack of skilled workers. One solution is to rise the image of the sectorial professions. Other opportunity is to organise or to give firm background of the re-education of employees knowing the fact that inside the EU countries the sector also faces with the same problem. To organise courses or give information by newsletters, Internet and professional publications are vital for the firms. Maybe, the safety regulations will be stronger in the EU as the existing ones and this will increase the expenses of the firms, but if we consider that the man is the most important value it is worthwhile to scarify energy, time and costs. It is also vital to know and take-over the existing European standards, the construction product directives (CPD) and to spread this knowledge all over the country. FIEC has been creating a favourable environment to swallow and understand the sector s requirements. It is also a great task for us to fight against the black-work which deteriorates the chances of the honourable contractors. There is one thing which we haven t touched so far. It is the free movement of labour force. This grade of freedom will give the opportunity of the firms to go abroad with their employees and undertake overseas contracts. But, is it real opportunity? How can a CEEC contractor be successful abroad? Do they speak the host country s language? Or, have they reliable contacts? Can they.?? Many questions to be answered! The other side of this issue is the threat the powerful big or the mobile small competitors will appear immediately. May they take-over the chance from the local firms. Yes, maybe, it seems to be a real threat. The big local firms can be degraded into medium-size ones or the big-brother comes over and purchases the local big ones with their market, relations, and manpower etc. Well, yes the European Integration will be a big challenge, not only for the candidate countries but the existing EU members as well. There are a lot of challenging tasks to solve, which will require properly elaborated information to spread and the good cooperation among countries. This is to be served by the Euroconstruct Conference in Budapest, Hungary. 235

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239 BUDAPEST, JUNE 2003 Western Experiences after Accession Spain as a Receiver of EU-Structural Funds Maria Carme Maltas I Freixas ESTRATEGIA I FORMACIO, SPAIN Conference Budapest, Hungary June,

240 THE INFLUENCE OF SPANISH ADHESION TO THE EUROPEAN UNION ON CONSTRUCTION MARKET Spain in 1985 When Spain was to enter EU in 1985 the economic perspective was really pessimistic as seen from the present point of view. By that time, the most relevant Spanish macroeconomic data were the following: GDP By analysing the GDP series for the first half of the 80s, it can be seen that, after the strong economic crisis at the start decade (-0,2 in 1981) the Spanish GDP kept very low activity levels, though it showed a clear way to the recovery. This evolution reached its peak in 1987 with a growth rate of 5,2%. However, as a consequence of the economic recession that started after the Gulf War ( ), Spain couldn t keep those rates of growth -as well as the rest of occidental economies. The Spanish economy reached the most negative growth rates in 1993 (-1,2%) CPI CPI went on showing negative growth paths after the increases of the late 70s, when the inflation rate was as high as 20% a year, whereas it grew at an annual rate of 10% during the beginning of the 80s. Unemployment Rate Activity levels were noticeably low. In spite of the enormous effort made by the Government, at the end of 1985 the unemployment rate was set beyond the 20% of active population specific plans to fight against unemployment were implemented during this period. Therefore, the Spanish economic perspective wasn t optimistic at the moment of its adhesion to the EU. The Construction market in 1986 Indicators have been selected so as to be able to compare the same information afterwards. Employed population in Construction The relevance of the construction sector as a generator of employment is a well-known fact. In of people were employed in construction, representing the 7,4% of all the active population; this was the lowest point in the cycle. Five years later, people employed in construction increased in people, reaching to represent the 10,2% of total active population. Therefore, occupation in construction has risen in more than 63% during this period. 238

241 BUDAPEST, JUNE 2003 Cement Consumption After de sharp falls in the early 80s, a new era in cement consumption started in 1985, achieving ,67 Tm. It was below consumption levels in the 70s and represented a 1,9% increase with respect to This positive stage finished at the end of 1992 due to the strong economic crisis. Number of housing starts per year: private and subsidised During many years, subsidised housing has starred housing starts. As can be seen in the graphs, from the 60s subsidised housing has represented more than 80% of this market. When Spain was to enter the EU in 1985, the number of subsidised houses represented 50% of total housing starts; years later, just in the middle of one peak in construction, they didn t exceed 15% of this market. Tendering / Public Investment Public investment was trying to ameliorate the negative Spanish economic situation. Tendering was close to M de, and even higher if new public housing were promoted to be built. New public investment was forced and it partially helped public investment double after Spain s entrance in the EU, which was notable in the building/edification market, although it was mainly addressed to civil engineering since public investment almost doubled in this market between 1984 and Total construction Gross Added Value. At the beginning of the 80s, the production in the construction sector went beyond M ; however, it didn t even reach M when Spain entered the EU, and kept decreasing activity levels. Several years later the Gross Added Value of total construction increased by more than 60%. Spanish economic conditions in 1995; 10 years after the adhesion to the EU The first stage of Spain s adhesion to the EU took place when the Spanish economy was in a positive economic moment. This fact was to enhance the advantages that the large European market would bring to Spain. However, the Gulf War broke the good predictions, its consequences lasting until the beginning of Spain also suffered this economic recession, which had an especial influence on construction market. This was a negative moment in construction since the lowest activity level was well below 1985 levels. Investment in civil engineering ameliorated this negative situation, mostly thanks to European Structural Funds. GDP After a long period of continued growth, in 1993 economic activity decreased at a rate of 1,2% with respect to GDP lived its highest moment in , after Spain s adhesion to the EU, when it grew at a pace of 5,6% and 5,2% respectively. However, this negative situation was rapidly overcome with the fundamental help of Construction Gross Added Value. 239

242 CPI One of the main handicaps of Spanish economy, the inflation rate, decreased below 5% for the first time in This was one of the goals pursued to harmonise Spanish CPI growth rates to those of the EU countries. Even though Spanish inflation has kept on being slightly higher than mean EU inflation rates, it can be stated that inflation wasn t a problem any more for the Spanish economy since Unemployment rate The 90s world economic crisis also made inactivity levels increase. It represented around people unemployed in Spain, meaning 24% of active population. This situation was, then, similar to that of the early 80s. The construction market in 1993 These negative economic pressures also influenced construction market. In 1989, this market achieved growth rates higher than 13%. After several years of strong activity, construction market went back to negative growth rates that were even stronger than GDP growth. This low activity level was due to the activity loss suffered in the building market - both residential and non residential -, since the civil engineering market resisted the negative influence of economic crisis. As will be seen later on, the activity held in the civil engineering market brought about by the co financing of EU structural funds - helped keep this production level. Employed Population Economic crisis affected every single activity branch. Population employed in construction was not an exception. However, the influence of economic recession on population employed in construction was not as deep as in other aspects of the Spanish economy; yet, more than people lost their jobs, representing 16,5% of total occupied population in construction in This moment can be said to be a peak in population employed in construction even though this occupation level was substantially lower than the levels registered in the early 80s, and population employed in construction rapidly surpassed people in Cement consumption In 1991 cement consumption achieved its maximum, but in 1993 sharply decreased at a rate of 23,5%. In 1991 the civil engineering market lived a moment of euphoria with the help of infrastructures built to support Seville s Universal Exposition, Barcelona s Olympic Games, Seville-Madrid High-speed Train Construction and the new Highways Plan. In spite of this decrease, the civil engineering market kept a minimum activity level that was high enough the set cement consumption back to 1987 levels. Continued public and structural funds investment helped surpass this minimum and opened the second period of Structural Funds in 1994 to avoid breaking the process: without their influence the recuperation of the construction market starting in 1994 would not have occurred. 240

243 BUDAPEST, JUNE 2003 Number of housing starts per year: private and subsidised Just by looking at on housing starts data for the beginning of the 90s, it can be seen that 1993 points to the start of a new era after several years of strong activity and a short crisis during the period In this new era, housing starts will exceed units a year at the end of the 80s, and new housing starts in the late 90s. The implementation of the Housing Plan can be considered to be mainly responsible for the maintenance of housing starts in , a period of strong crisis in the economy and the construction market, since it supported private initiative and helped overcome the problem of subsidised housing scarcity in Spain. Tendering/ Public Investment As has been previously said, Structural Funds influence was crucial as an incentive for Public Investment which went from M in 1980 to M in This investment was kept in the early 90s and mainly in the civil engineering market marks the lowest point in the economic crisis: global investment levels achieved M, M being addressed to civil engineering construction. It has to be kept in mind that EU Structural Funds added to this investment. Total construction Gross Added Value. In 1993 construction market was at one of its minima in the business cycle, as it happened for the general economy. Nevertheless, this market overcome the weakness: activity levels contributed at a 7,6% to GDP growth. Additional contribution of EU Structural Funds to public investment Main Goals of the Funds Attending to the investing effort made by the EU, the focuses of Structural Funds Objectives are mainly two: integration on the one hand; land articulation and valuation of human resources on the other hand. Regarding the first one, the objective consists of endowing Autonomous Communities with basic transport and communications infrastructures to avoid the existing bottlenecks and take advantage of every possibility. The second objective is constituted by the will of raising the education levels of human capital to get to higher professional qualification and to coordinate with firms needs. How The Goals of Structural Funds are concreted in Spain in As has been mentioned, transports and communications infrastructures constituted a real bottleneck in the stable and sustained development of Spanish regions. Hence, EU expenditures were mainly devoted to the iprovement of this kind of infrastructures during the period

244 Jointly, in EU Structural Funds constituted an annual finance help of 0,8% GDP, which increased to 1,6% if we add national private and public funds. Measured in terms of employment, the EU s contribution is estimated to be approximately new jobs in Increase of investment in construction: infrastructures, etc. Focusing on the most important objective from the perspective of investment levels, Objective 1, and specially on transports infrastructures, two interventions are worth being mentioned: on the one hand, roads net, which widened 5,5% between 1987 and 1994; on the other hand, highways and motorways net that by the end of the period was three times as high as in the beginning. As can be seen in the following table, EU investment also helped improve other infrastructures. Railways net also benefited from EU Funds, having a noticeable increase of electrification and construction of new lines. Additionally, telecommunications improvement was reflected in a considerable rise in the number and quality of telephone lines. 242

245 BUDAPEST, JUNE 2003 FEOGA s Orientation Section has contributed as well to the promotion of construction activity by means of the approval and implementation of Programs that have caused collateral benefits in that they have helped sustain around jobs: Infrastructure Improvement Programs (tracks, electrification, water supply), Programs for Improving systems of irrigation, for fighting against erosion and for preventing forest fires. 243

246 Total increase of construction sector The influence of Structural Funds on the Spanish economy is also clear if we analyse the evolution of internal production in construction. Whereas it was slightly beyond M in 1985, it surpassed M five years later and was close to M in 1993, respectively representing a growth of 60,8% and 36,4%. Concentrating on construction sub markets, civil engineering has markedly received the influence of EU Structural Funds as the evolution of internal production in this sub market shows, going from M in 1985 to M in 1991, meaning a rate of 120% in a five-year lapse. By 1993, internal production in civil engineering exceeded M, representing an increase of 66,6% when compared to Evolution of GDP and Construction Gross Added Value during the period The following graph alone is enough to show the evolution of Spain s GDP and Construction Gross Added Value that has been previously mentioned, where the first period of EU investment in Spain has been specially remarked. 244

247 BUDAPEST, JUNE 2003 International Experiences: Competitiveness and Co-operation Conference Budapest, Hungary June,

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249 BUDAPEST, JUNE 2003 International Experiences: Competitiveness, Co-operation Atille Beder Horváth Marketing Director, KÉSZ Conference Budapest, Hungary June,

250 Central-European Building and Construction Ltd. Hungary KÉSZ managed to cope with the political and economic changes of 1989, this new situation of joining the EU generates new challenges and tasks to our company. As of the early 1990s KÉSZ performed outstanding growth, which are to be presented with our references. The short overview of KÉSZ history and its services reflects the effective and successful company environment. Out of the different governmental, industrial and company concerns I am focusing on company matters in this presentation. Different questions might raise whether KÉSZ can repeat this great achievement and what competitive advantages can help KÉSZ to be successful in an international environment. Despite of KÉSZ being a top Hungarian building constructional company, facts show that compared to leading EU constructional companies its performance is not relevant. EU accession has always been considered as strategic question in the preparation procedure. During last years we put emphasis on developing the areas, as follow: Actions fulfilled in the past for preparation 1. Quality and environmental management In the field of quality and environmental management we found important to introduce ISO 9001 and and to unify the documentation procedures of both to create simple and easy coordination of the integrated areas 2. Human policy Not only the language education and other post-graduation possibilities are being continuously developed, but a team was formed in order to centralize and coordinate the EU-related tasks. 3. Financial and legal area Both fields are having of high importance as without complying both areas with EU standards the company has no choice to participate in EU competition with positive results. As mentioned before KÉSZ provides specialized training for leaders and workers, so they can get familiar with taxation, accounting and public procurement procedures as well as legal actions. 4. Strengthening our regional position We also pursue the strategy of winning market position in the region, we established subsidiaries in Romania, Slovakia, Ukraine, Serbia and Montenegro and Croatia. 5. Participating in the Magyar Építő Kht. (Hungarian Building Kht.) KÉSZ focuses on supporting the cooperation with Hungarian companies in building constructional industry. 248

251 BUDAPEST, JUNE 2003 Future possibilities and ways: We will move forward on the preparation path, we already entered, with special view on the dual market situation: - we are targeting the EU market - we will have to concentrate on making good progress in the domestic and regional markets. As member of the Magyar Építő Kht. we take part in building out the cluster system within the building industry. We look for potential cooperation possibilities with Western-European companies. KÉSZ strengthens its positions in the Central-Eastern European countries and provides substantial support to its subsidiaries. The product and service line has to be examined and reevaluated in order to see if our present wide-range of offers are all competitive after accession. For example we have high-value designing softwares and technological steel structures, which can be immediately introduced to EU markets. KÉSZ, Central-European Building and Construction Ltd. Hungary 6721 Szeged, Szilágyi str. 2. Phone: Fax: kesz@kesz.hu Web:

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253 BUDAPEST, JUNE 2003 International Experiences: Competitiveness, Co-operation Almos Karsa Technical Director, ZÁÉV Conference Budapest, Hungary June,

254 ZÁÉV Rt. Az építő mester BAKSA Attila President-General manager 8900 Zalaegerszeg, Kossuth Lajos str Telephone: / Telefax: / zaev@zaev.hu The ZALA GENERAL CONSTRUCTION INC., (ZÁÉV Rt.) one of the determinant building and construction companies with its high-quality performance has been shaping our environment and everyday life for over 50 years. Our sphere of activity mainly takes place in Transdanubia and Budapest; however, our reference jobs may be found in the eastern part of Hungary as well. In last year our turnover exceeded 20 billion HUF, therefore our company can co-operate as a general constructor in significant investments. Our objective is that we complete our contracts in due time, at a suitable price with our expertise and high -quality, reliable projects. We increase our turnover by strengthening our market position on the basis of our results. With a wide spectrum of our activities: constructional and general contracts, carrying out mixed building construction and renovation jobs, monumental and other reconstruction, building construction and foundation engineering constructive works, we are able to fulfil any requirements on behalf of our clients in such a way that they are not only abiding and wright but also aesthetic and human centred. Our versatile knowledge and constant professional training guarantees that we can leave for our descendants valuable constructed monuments with the help of our clients. Our predecessor, the Zala County National Construction Company whose activities between 1950 and 1990 was façade-forming not only in the Zalaegerszeg-Nagykanizsa- Keszthely triangle but also on the whole West- Transdanubian area. Our company became incorporation on 31 st December 1991, then its ownership structure also changed in the first quarter of 1993 due to the privatisation processes. Our registered company name: Zala General Construction Inc. The number of our registration: Its date: 17 th March 1992 Its place: Zala County Court, Zalaegerszeg The head of our incorporation: Baksa Attila President-General manager Our group of owners: OWN Ltd. (major ownership) Our joint capital: HUF. The owners of the company and the top management following the alteration have decided to establish a building construction company conform to the market position, which remains determinant in this branch of industry in Hungary. 252

255 BUDAPEST, JUNE 2003 Recently our company has been able to complete more contracts due to its reorganisation, high-quality work and excellent reputation, therefore our annual turnover since 1996 has constantly, significantly increased. Nettó returns of ZÁÉV Co. between 1996 and mft , , ,8 6473,2 2934, Our financial position is well balanced. We always meet our payment liabilities. By means of a state budget, we do not have any debts towards the National Healthcare Service Our organisation has established companies of different profiles, which provide highstandard services in the different field of the building construction industry. Among our clients, there are entrepreneurial and civil partners as well. Members of our group: Z-VILL A Producer, Repairer and Seller of Electrical Equipment Ltd. ZÉGÉP Constructional Repairer and Seller Ltd. ZÁÉV-SZER A Building Services Engineering, Mounter Service Ltd. ZÁÉV-ELEKTRO Building Electricity Ltd. Z-SPED Highway Transport Ltd. ZÉBETON Ltd. ZALAFÉM Building Steel- work Manufacturing Ltd. READYMIX Zala Concrete Manufacturing Ltd. (50%) MÍVES Ltd. 253

256 We see our objectives become realised in those acknowledgements and awards which our company, ZÁÉV Inc. has received as a sign of honour. Our recent official client feed -backs reflect that at the times of the accomplishment of each establishment our company can well cooperate, beyond the construction process itself, with all the participants of the projects through the client and the planner and can achieve all the aims and ideas through teamwork. The locations of our sites, main engineering offices and offices are geographically close to our partners, therefore, beside the electronic and telecommunication means of information exchange, keeping contact face-to-face is not impossible without travelling long distances. Our co-operation with the partners is based on several pillars: Our Company Management directs the activities of price quotation and preparation jobs, and their realisation according to the contracts. Our Constructional Department prepares the price quotations and if it s necessary, in form contract-plan, after signing the contract it hands over the plans, descriptions and information in connection with the project. The Project Directories, who become familiar with the aims and ideas of our clients and accomplish them in co-operation in harmony with as stated in the contract-, realize them. Our Production Management with its professional expert team, our companies belonging to our Group or with our qualified sub-contractors. Our Company included or so 500 employees. The vocational supplier services are great mass with superlative qualification (computer, quality control, supply and operation, labour- and fire safety, environmental protection, marketing activity, together with economical, financial and accountancy operations) works under control of Technical and Finance managers. The ZÁÉV Co. in order to dependence of the Clients further enhancement was developed and expanded its quality assurance system (MSZ EN ISO 9002:1994) and has been introduced its Integrated Organization Management System (its Hungarian short name is: ISZIR) since 15. Oct

257 BUDAPEST, JUNE 2003 International Experiences: Competitiveness, Co-operation Péter Kemény CEO, FOBER Conference Budapest, Hungary June,