Building for Better Times?
The summer of 2010 has ended and hopefully, along with it, the woes of the construction sector. Many feel that if the September rains have to wash something away, it may as well be the struggles large companies in this critical sector have been experiencing. After all, the economy could not survive the failure of such key players; such a torrent of unemployment would certainly end the current positive outlook.
It may have been discussed ad nauseum, but the case of Vegrad remains the best place to start when analysing the state of Slovene construction - primarily because it was the closest to collapse. After many weeks and months, the firm's exact fate remains unclear, but there is definitely much greater hope. Highly criticised general manager Hilda Tovšak has finally been replaced (by Boris Medved); the company is still proceeding with a plan to restructure its debt; and most importantly, workers have received almost all of their back pay. Certainly, Vegrad's troubles are far from over. But it is getting back on to the road to recovery - and it is not alone.
Reversing the trend
The second largest construction company in Slovenia, Primorje, has been affected by the economic downturn in the same fashion as its competition. It even had to resort to applying for state subsidies for sending a third of its workers on forced leave. When asked how they would describe the state's crisis measures, they stated that they "are welcomed and evaluate them as positive" adding that "only the state is that, which can alleviate the crisis...it is crucial that the state will continue to promote investment activity".
It seems that the subsidies have indeed made a difference. Primorje has not only managed to stay away from the kinds of problems that have been affecting Vegrad, but is even in the black. Under the leadership of Dušan Črnigoj, the firm has posted just under EUR 5m in profit.
Why has Primorje flourished where Vegrad has struggled? Primarily because of the type of construction projects it has undertaken. Vegrad was, and many argue still is, too heavily exposed to the real estate market. Primorje has a much more diverse portfolio. The firm is in the process of building a container terminal in the Port of Rijeka, a waterworks in Belgrade, and a bridge across the Bojana River in Montenegro.
As is evident from this list, Primorje is seeking projects outside of Slovenia "believing that a significantly higher proportion of construction activity abroad is currently central to coming out of the crisis".
Primorje is not the only construction firm looking for work outside of Slovenian borders. SCT, the country's largest construction company, is also seeking international contracts - with some success. It has already secured a group of projects in Libya, possibly worth up to EUR 2bn. If the business plan is realised, then the company's stable and prosperous future is all but guaranteed. This development would be in stark contrast to its current yearly loss.
The deal in Libya was achieved with major support from the government, including the Prime Minister. It has been hailed as a victory; not only for SCT, but for a possible consortium of Slovenian construction companies because of the vast size and vast funds. But to prevent this so called 'deal of the century' stalling, SCT needs guarantees from Slovene banks. And even banks that are majority state-owned are questioning whether to support the firm.So while there are promising developments, the Slovene construction sector certainly isn't out of the hole quite yet. Most are now desperately hoping that this will be a fruitful Autumn and not the Fall.