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The Czech Construction Industry Lacks Long-term Vision and Concepts

"The state should also adopt a pragmatic approach to investment with a special focus on conceptions and the promotion of anti-cyclical public investment policy,”

- Miroslav Linhart,
Leader of the group focused on services to construction businesses

Prague, 28 November 2012 – The construction industry in the Czech Republic lacks a clear, long-term and stable vision and concepts. Owing to the striking decline in demand of the public sector, the Czech construction industry has been in recession for nearly four years and compared with the neighbouring countries, it is showing rather negative tendencies. In order to improve the current situation, the government should formulate a clear investment policy and include the pro-investment policy in the new state budget. The co-ordination of such activities could be enhanced by creating a single ministry that would join the investment powers of the Ministry of Transport, the Ministry of Regional Development, the Ministry of Industry and Trade and the Ministry of the Environment. This is the outcome of the new report Sustainable Construction Investments in the Czech Republic, which was prepared by Deloitte in cooperation with the Association of Building Entrepreneurs of the Czech Republic (ABE).

The aim of the report was to compare the public investment development, the condition of infrastructure and other factors in selected European countries and to draw conclusions and make recommendations for the Czech Republic taking into consideration its economic situation and mainly the convergent process as well as the decreasing differences in the economic standards between the Czech Republic and more-developed EU countries.  

 “It should be noted that not only construction experts are highly concerned about the current development. The work demand of the public sector has dropped dramatically, the preparation of large infrastructure constructions has been virtually frozen, the funding of projects co-financed by the EU has not been ensured and there is no clear prospect for the coming years. Such situation has and will have a significant impact on the industry” said Václav Matyáš, President of the ABE.

 “The state has to realise the importance of the construction industry as well as its position in this sector. The state should also adopt a pragmatic approach to investment with a special focus on conceptions and the promotion of anti-cyclical public investment policy,” said Miroslav Linhart, Deloitte, Leader of the group focused on services to construction businesses. “It is necessary to start a professional discussion seeking a way to ensure high-quality life and sustainable development in the Czech Republic. We would like to reach a general agreement on more-effective building from the viewpoint of investors and suppliers as well as to continue with important projects,” added Václav Matyáš.

The current situation, where out of all segments, the most significant drop was seen in investment in transport infrastructure, results in a major problem across all segments of the construction industry. Companies from the transport infrastructure segment seek to win contracts in the field of building construction and large companies also compete for small-scale engagements. Small and medium-sized construction companies suffer the consequences of the current situation the most as they are unable to manage the price pressure in the oversaturated competitive environment over a long period. “They don’t have the financial strength to fund constructions as regards the due dates, guarantees and other conditions that are easily met by large companies that, however, often also struggle greatly to manage it. As a result, the market is substantially weakened to the detriment of small and medium-sized companies,” added Miroslav Mašek, Vice-President and CEO of the ABE.

The volume of construction work has been constantly decreasing since 2008 when CZK 547.6 billion in current prices was spent on construction. Thus, between 2009 and 2012, the estimated cumulative decrease in construction output amounts to CZK 277 billion, ie 20 % in total, without taking account of the impact of inflation.

The negative prospects for the coming years are especially disturbing. According to the available information, the situation is unlikely to change in the next year and compared with 2008, the construction industry may see a fall in its construction output of 24% in 2013.

The value of granted public contracts in 2010 (see the table below) was CZK 71.8 billion lower than in 2009, and compared with 2008, the difference amounted to CZK 86.1 billion. In relative terms, the total value of granted public contracts in 2010 dropped by 37% year-on-year, of which the amount of engagements for building constructions fell by 12.9%, for civil constructions by 46.2% and for transport infrastructure constructions by 75.7%. There was a further total year-on-year decrease of 3.3 % in 2011.

In the year-on-year comparison with the first half of 2011, the total value of granted contracts in the first half of 2012 dropped by 4.3 %; the value of engagements for building construction fell by 5.8 % and for civil construction by 3.4 %. A further total year-on-year drop from 4 to 5 % may be expected in 2012.

The lack of conceptions in the field of public investment is also related to the organisational structure of public investment within the public administration. In contrast to other countries, public investment and the construction industry in the Czech Republic are not managed adequately in terms of organisation. According to the Competence Act, the construction industry falls within the competence of the Ministry of Industry and Trade. However, this industry is not represented there in a way that corresponds adequately to its important position in the economy; moreover, it does not have its own European Commission representative for EU negotiations. “Public investments and the construction industry should be organised and managed by the state in all EU member states at the same level. Therefore, an office of the Deputy Minister for Industry and Trade for the construction industry should at least be established,” said Václav Matyáš.

Deloitte and ABE believe that the issue could be addressed by establishing a single ministry joining the investment powers of the Ministry of Transport, the Ministry of Regional Development, the Ministry of Industry and Trade, and the Ministry of the Environment. This functional model already exists, for instance, in Germany and Slovakia.

O společnosti Deloitte

Deloitte označuje jednu či více společností Deloitte Touche Tohmatsu Limited, britské privátní společnosti s ručením omezeným zárukou, a jejích členských firem. Každá z těchto firem představuje samostatný a nezávislý právní subjekt. Podrobný popis právní struktury společnosti Deloitte Touche Tohmatsu Limited a jejích členských firem je uveden na adrese www.deloitte.com/cz/onas.

Společnost Deloitte poskytuje služby v oblasti auditu, daní, poradenství a finančního poradenství klientům v celé řadě odvětví veřejného a soukromého sektoru. Díky globálně propojené síti členských firem ve více než 150 zemích poskytuje společnost Deloitte svým klientům světové možnosti a špičkové služby, které společnostem umožňují řešit ty nejnáročnějších obchodní a podnikatelské úkoly. Přibližně 182 000 odborníků usiluje o to, aby se společnost Deloitte stala etalonem nejvyšší kvality.

© 2012 Deloitte Česká republika.

Contacts

Name:
Lukáš Kropík
Company:
Deloitte Czech Republic
Job Title:
PR Manager
Phone:
+420 775 013 139
Email
lkropik@deloittece.com

 

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