Construction sector to be hit hard, companies predict ({{contentCtrl.commentsTotal}})

Construction.
Construction. Source: ERR

Construction companies are predicting that the economic recession caused by the coronavirus pandemic will reach their sector in the quarters to come, once current projects start to be completed and aren't replaced with new ones.

The coronavirus crisis initially had little significant impact on the construction market. Office workers switched to working from home, and work at construction sites continued as usual, but following strict hygiene requirements, Astlanda Ehitus board chairman Kaupo Kolsar and Mitt & Perlebach board member Kristjan Mitt said.

Both Kolsar and Mitt are likewise members of the board of the Estonian Association of Construction Entrepreneurs (EEEL).

According to Mitt, the first quarter of 2020 has not shown signs of recession yet, however it will start to grow with each quarter, and be sure to continue through the first half of next year.

"Private orders accounted for nearly 80 percent and state orders for 20 percent of building construction," he said. "The state is considering how to move up its investments and increase its volumes. But private orders have to a large extent been postponed, and the drop will surely be significant."

The state's actions and future plans will thus become decisive — including how much and how well it is capable of directing support measures or investments," Mitt continued. He was unsure whether the Unemployment Insurance Fund's current wage support scheme is the best solution.

"Perhaps it would be wiser for the state to build," he suggested. "There are over 50,000 employees in the construction sector. If they are given work by the state, then the state will receive taxes, new infrastructure as well as new buildings."

He also found that the state's low debt burden also gives Estonia the chance to support its economy with a loan.

Astlanda Ehitus' primary contracts are with the public sector, and according to Kolsar, the company's private clients have continued placing orders thus far.

"Thankfully there have been no repercussions yet, but that cannot be said for this fall," he said. "Everything depends now on what's going to happen. We don't have a crystal ball."

What Astlanda has done is delayed the opening of some of its new properties. Some clients with whom the company was in talks have also delayed their final decisions until fallorwinter.

What will happen and how will construction companies survive if a gap crops up in orders on the construction market?

Kolsar said that at Astlanda Ehitus, the majority of their contracts run through next year, and the entire team is currently busy with work.

"We'll build less," said Mitt. "We'll cut back."

Construction companies also waiting for foreign labor

Just as in agriculture, there is a significant amount of foreign labor from third countries to be found in the construction sector, particularly from Ukraine. According to Kolsar, the closer of Estonia's state borders has impacted the construction sector as well. For example, some foreign labor returned to their home countries before the crisis deepened and are now unable to return. Subcontractors in particular are dependent on Ukrainian labor.

"Consider for yourselves if your staff was built up of people who are no longer being permitted to enter the country or can no longer get here," Kolsar said. "How this will more broadly impact the economy or Estonia's construction market is yet very difficult to assess."

Mitt, meanwhile, believes that the shortage of foreign labor isn't a problem, as it only accounts for some 15 percent of market share. According to forecasts, however, construction sector volumes will drop much more significantly.

He did note that a shortage may be felt when it comes to more specific jobs and fields. "If you need certified welders, you can't be retrained as one in half a year," he said. "Perhaps picking strawberries is easier in that regard."

Kolsar, however, found that Ukrainians not being able to return to Estonia would be unthinkable.

"When borders reopen and a third-country laborer has an EU work permit via Poland or some other EU country, then how would our country prevent this laborer from coming to Estonia?" he asked. "Rather, we should see to it that they are able to reach here as directly as possible, in such a way that their taxes reach us and they would be of more benefit to the state in addition to their labor."

People losing jobs, companies shutting down

Both Kolsar and Mitt believe that the wave of layoffs and company closures in the accommodation and catering sectors will reach the construction sector as well.

"Some people will end up losing their jobs; there is no doubt about that," Kolsar said. "Whether this was the direct result of the coronavirus or whether the coronavirus crisis has contributed to the speeding up of some kind of decision. It's possible that companies that were already struggling beforehand will now close their doors."

It isn't currently possible to assess what will start to happen, he said. Banks, for example, may become ultraconservative in issuing loans, which in turn would freeze the real estate market for a time.

Mitt added that to what extent the crisis will hit the construction sector will be determined by how quickly confidence in the economy is restored.

"Companies are capable of surviving a certain period on their reserves, but not indefinitely," he said.

Mitt expects the construction market to recover half a year to a year after the general economic situation bounces back. "Then people will dare buy apartments, and companies will dare build new warehouse spaces and apartments," he added.

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Editor: Aili Vahtla

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