Small is beautiful – and has the potential to grow!

The Slovenian economy has strongly rebounded after the recession. This is finally improving the construction industry – and might even result in the implementation of some large construction projects

Written by Ales Pustovrh, Bogatin, EECFA Slovenia

Dragon Bridge, Ljubljana -source: http://www.visitljubljana.com

GDP is forecasted to grow by 3.6 % in 2017 – its fastest growth in the last decade. However, Slovenia’s GDP has been growing steadily for three years without lifting the construction industry. This time, it might also lead to an increase in construction output in Slovenia.

Construction output has been steadily decreasing since its peak of EUR 4.6bln in 2008 to EUR 2.3bln in 2016. However, it is almost certain that construction bottomed out in 2016 and has already begun to rise. The vibrant economic growth has increased demand for residential housing, especially since the credit flows started to go up last year following several years of a severe credit crunch. At Bogatin, EECFA Slovenia, we are forecasting the increase of residential construction by 30% until 2018, but the latest growth in credit to households hints that growth might even be faster!

The main driver for the development of construction in Slovenia in the next few years will be civil engineering projects. After several years of stagnation, these projects have recently grown due to the availability of EU funds from the Structural&Cohesion Funds. As these funds will increasingly be available in the new financial perspective, they will also be coupled with other national funding sources and potential private sources of financing. Increasing availability of these financing sources will mean a major rise in civil engineering construction in the future. Since Slovenia has a dismal record in attracting private capital investments into the construction of its infrastructure, there is a lot of potential for BOT or similar public-private partnership structures in the country.

The first such project is already under consideration. The expansion of the existing railroad network connecting Port Koper with the hinterland is a construction project estimated at more than EUR 1bln. Private partners are welcome to join the Slovenian government and a consortium is already starting to form. However, due to a large size of the investment and a lot of political meddling (especially due to election year in 2018), partners will face challenges working together with public partners in such a consortium. Other sizable civil engineering projects might be easier to manage and implement. They include the construction of new hydroelectric power plants on River Sava (estimated at over EUR 1.3bln) and the construction of the new regional roads (called the 3rd axis) with an estimated value of EUR 1bln.

The increased availability of funding and a strong economic recovery means that Slovenian construction output is destined to significantly grow in the future. Since the severe recession has resulted in a number of bankruptcies of domestic construction companies, this creates opportunities for foreign construction companies, especially if they can bring private financial investors into high-volume construction projects that might be open to private-public partnerships. This will help bring about the next wave of construction in Slovenia.

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