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Poland construction boss warns on industry outlook

Budimex CEO says companies will suffer without more help to tackle labour shortages

Poland’s construction industry could be lossmaking next year if the government does not do more to help the sector cope with the impact of labour shortages, the head of the country’s biggest construction group has warned.

Like much of central Europe, Poland’s economy is in the grip of a multiyear economic boom, fuelled by rock-bottom interest rates, surging private consumption and billions of euros in funding from the EU. However, with unemployment reaching record lows, labour shortages are emerging in some sectors. This, in turn, is leading to sharp wage increases which, together with rising materials prices, are putting mounting strain on companies’ margins.

Dariusz Blocher, chief executive of Budimex, majority-owned by Spain’s Ferrovial, said that the situation was particularly acute in Poland’s construction sector, where a rush to spend by European infrastructure funds before the end of the EU’s current budget period was driving a surge in activity.

“The situation is becoming harder every day,” he said, estimating that the Polish construction sector was short of 150,000 workers. “We [are facing] a peak of production. So for a relatively short period of time, like three or four years, we will need a mass of people.” In an attempt to ease the pressures on the country’s labour market, the government has already loosened the conditions on bringing in certain foreign workers on short-term contracts, and Poland has taken in more than 1m Ukrainian workers since 2014.

However, Mr Blocher said that the government should go further and consider allowing workers on short-term contracts from countries such as Ukraine to stay in Poland for up to three years, rather than the current maximum of one year.

He also called on the government to take into account the increasing labour pressures when setting project deadlines, and to introduce price indexing on public contracts, which typically merely pay a fixed fee. “Wages are growing something like 9 per cent a year in construction, and . . . our expectation is that double-digit growth in wages will come in the next few years — a cost which is not compensated by the government,” Mr Blocher said. “So what we are saying to them is: please make an agreement with us to introduce real price indexation.

Wages are one thing, but raw materials, services are another: everything is growing faster than we were expecting.” Mr Blocher said that if the situation did not ease, he expected Poland’s construction sector — which generates about €25bn in revenues each year — to slip into the red in 2019. “The profitability of the sector is going down. Last year the margin on [earnings before interest and tax] was 2.9 per cent.

This year it will be between 0.5 and 1 per cent, and we are expecting that if nothing changes, next year will be below zero,” he said. Mr Blocher said that big construction groups, and those supported by large shareholders, would be able to cope with the pressures.

But he warned that smaller groups, or those that had taken excessive risks, could go out of business. “Some of them of course may go bankrupt because the contractual conditions in the construction sector in Poland are quite difficult . . . If you are not performing on time, the penalties are huge, they can kill you within one month,” he said.

“Maybe some companies are more careful, more clever [than in the past]. But . . . we have Italian, Chinese [companies] who are entering the market, and they are offering crazy prices. So really we are aware about the situation and what can happen.”

Source: ft.com

 

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