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Bulgaria Infrastructure Report Q4 2011
Business Monitor International, Sep 2011, Pages: 66
Double-digit contractions in the Bulgarian construction market during H111 have done little to bolster our outlook for the Bulgarian infrastructure segment and have damaged the chances of a potential recovery over 2011-2015. Although we anticipate that positive investor sentiment will return, we believe that sluggish private demand and the public sector’s fiscal constraints will impede a robust recovery in the infrastructure segment.
Much of the gloom stems from the malaise impacting the residential and non-residential construction sector, which in past had been the dominant driver of construction industry value. Estimates from the Bulgarian National Statistics Institute (NSI) show that although nearly 742 new housing projects were completed in Q211 – a fall of 26% on a year-on-year (y-o-y) basis. With overall property prices continuing to trend downwards – falling 6.4% y-o-y in Q211 alone – we see little room for renewed investment in the sector.
Meanwhile, other sectors such as transport and energy and utilities are also likely to suffer, primarily due to the government’s significant fiscal constraints. However, the following developments instil confidence that the recovery from 2012 and beyond will be sustainable, albeit slow:
- In July 2011, the Hemus A2 consortium was awarded a contract to manage the construction of the Bulgaria’s Hemus Highway. The Bulgarian-Croatian consortium, which includes Constructor-Engineering AD and Trace Group Hold, is now part of the ongoing Hemus project, which so far involves over 443km of highway. The consortium is to build an 8.5km section linking Sofia and Varna.
- In August 2011, the government announced plans for high-speed rail projects connecting Plovdiv, Svilengrad and the Turkish border; Plovdiv-Burgas; and Septemvri-Plovdiv. The projects should be completed by the end of 2013.
- In September 2011, Energoni AD announced plans to build wind and solar parks worth BGN1.5bn (US$1.1bn) in the country over the next 15 years. Bloomberg reports that Energoni currently holds a 10-15 year portfolio which is estimated to generate 2,271MW of wind power and 400MW of solar projects.
Further evidence of an improvement in the country’s infrastructure segment can be seen from the fact that the annual rate of decline in the construction sector is beginning to slow. In June 2011 there was a 21.5% decline, an improvement upon the 28.7% contraction seen in April. As such, we expect modest 1.9% growth in 2011, and anticipate that the Bulgarian construction industry will grow by an average of 2.2% in real terms between 2012 and 2015.
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