Scarce road density aside, in 2015 Ukrainians have no choice but to seriously consider thermal modernization

Oleksandr Pietushkov, Chief International Officer at Ukrainian Union of Building Materials’ Manufacturers, continues to fill us in on Ukraine’s industry prospects on the international markets.

This month we caught up with Mr Pietushkov in Brussels where he and colleagues take part in a UFEMAT, a European merchants’ association, meeting to identify ways of integration with European constructors as far as energy-efficiency and sustainability are concerned.

  1. First category roads with a central safety zone and 2-4 lanes in each direction amount to only 2,200 km (1,3% of the total hard-surface roads in Ukraine). Road density is 280 m per 1 sq.km. Whereas in the EU it is an average 1,8-2,0 km per 1 sq.km. Your country lives in a truly historical time. There is a huge anticipation of new projects coming up in the next five to ten years. Big projects require both patience and a belief in history. Which of these two does the Ukrainian business community lack more? How good are Ukraine's construction material manufacturers on the collaboration spirit, technocracy?

I believe we all are “anticipating” our future projects, so to say. But finally we start realizing that we have to count on ourselves first of all. This is the change that took place in Ukrainians’ heads lately. The Ukrainian nation has proven it strives for sovereignty and European values. So we can say now that we do believe in our future more strongly.

Oleksandr Pietushkov (second from left), Chief International Officer at Ukrainian Union of Building Materials’ Manufacturers, discusses technical regulations, investments, sales with colleagues in Brussels, Belgium.
Oleksandr Pietushkov (second from left), Chief International Officer at Ukrainian Union of Building Materials’ Manufacturers, discusses technical regulations, investments, sales with colleagues in Brussels, Belgium.

Constructors have been developing their capacities. Technical upgrade of construction industry is carried out using European and world-class technologies. This includes supply of equipment as well as setting up new production units. But we observe the process to go quite sluggishly. We still have a lot to learn to successfully implement the knowledge and expertise we get from the world leaders in the industry.

  1. Interestingly, despite the calamities of last year in Ukraine, 2014 saw an increase in residential construction completions -- by 4.9% compared to 2013 -- does it overall mean that 2015 is to become even more dynamic?

Yes, in fact we can say so for a specific segment in certain regions. However the increase was merely caused by the internal population displacement from Donbass (as a result of the ongoing war) and because of devaluation of the Ukrainian hryvnia. Once withdrawn from the banks, people wanted to keep their hryvnia savings safe by investing in real estate and stashing US dollars under their mattresses. Policy of the NBU — Ukraine’s central bank — also resulted in the recent real estate investment surge. But the commissioning of new housing dropped in 2014 from the 23-year high of 2013.

Large-scale housing construction in Ukraine. Courtesy of the Ukrainian Union of Building Materials’ Manufacturers
Large-scale housing construction in Ukraine. Courtesy of the Ukrainian Union of Building Materials’ Manufacturers

General construction volumes in 2014 were only 78,3% of 2013.

Change of construction volumes in Ukraine (1990-2014) Courtesy of the Ukrainian Union of Building Materials’ Manufacturers
Change of construction volumes in Ukraine (1990-2014) Courtesy of the Ukrainian Union of Building Materials’ Manufacturers

The fact that in 2015 our GDP growth forecast is minus 5-6% we do not expect positive dynamics in construction in 2015, regretfully. It will come as no surprise that the government doesn’t have money for roads and infrastructure — a usual driver for construction sector in a crisis — since it has to be spent on defence. [Ukraine spends $5-7 mn daily on war in Donbass.]

The good thing is that we have no choice but to consider thermal modernization seriously this year because these expenses for private sector are growing 3-5 times. This could give us some positive dynamics in renovations works.

Thermal modernization in Ukraine. Courtesy of the Ukrainian Union of Building Materials’ Manufacturers
Thermal modernization in Ukraine. Courtesy of the Ukrainian Union of Building Materials’ Manufacturers
  1. What are the top three challenges facing construction product marketers in your part of the world?

I would say first is the challenge of manufacturers’ preparedness. To market their products in the EU and other non-CIS markets they need to comply with the regulations. And this process has just started. We don’t have enough authority and equipment to do all the testings, our legislation is being adopted to EU norms…so still a lot of work ahead.

Secondly, for political reasons we’ve lost a vast part of our usual market: Russia, Belarus, Kazakhstan, and we need to path our ways to “unknown” and unfamiliar markets. Which of course requires large investments and extra human efforts. I cannot think of the third one because our product itself in many ways is a very good and competitive one. And the potential for developing new products is huge, both domestically and abroad.

  1. Over the last 50 years almost every successful US industry has found a way to climb aboard Moore’s Law of semiconductors and take advantage of its exponential growth curve.  This has inevitably rewarded pure digital plays, such as the internet, while only conferring partial advantages on physical – analog – industries: medicine, automobiles and construction.  The IT industry in Ukraine is praised as a great investment opportunity. At the same time, the country needs big projects that tend to be very physical activities. Do you have the feeling that Ukraine's economy now directs smart players elsewhere to more immediate rewards?

You don’t need much investment to develop an IT business in Ukraine, really. You don’t have to invest US$30-40 millions  into a new factory or infrastructure. You just use people’s brain and talent in the first row. This works well for a country that provides its citizens with a decent well-being level.

Oleksandr Pietushkov: the visit to Brussels and UFEMAT meetings there helped us to look at ourselves from a fresh perspective, to see things in a more realistic and critical way.
Oleksandr Pietushkov: the visit to Brussels and UFEMAT meetings there helped us to look at ourselves from a fresh perspective, to see things in a more realistic and critical way.

For Ukraine, IT — as well as agriculture — are additional drivers which can provide you with short-term rise. But you also must consider long-term. One job created within the construction sector generates three-four new jobs in other sectors of the economy, and let me repeat it again: the potential of construction market in Ukraine is really huge. We need to construct, modernize, restore and repair nearly everything and at a large scale: infrastructure and industrial facilities, housing and municipal buildings, social and cultural facilities. Again, more than half of deposits of rich mineral resources in Ukraine are not being processed and more of the working quarries need new technologies in processing. These will enable import substitution and growth in exports.

  1. What can the industries in which you possess unique local expertise (construction, construction materials, agriculture, infrastructure) contribute to move Ukraine up in the investment attractiveness index in the next two-three years?

Actually these industries already do it. We are ready for joint projects and growth. I would rephrase the question to ask, ‘What do politicians need to do to stabilize the situation with the on-going war in the East and to provide speedy recovery?’

  1. What are the two legislation decisions by Verkhovna Rada -- Ukraine's parliament -- that your industry awaits to boost investor confidence, reassure international customers and partners?

The main two issues that hinder development in Ukraine are corruption and current judicial system. Deregulation and decentralization reforms have been launched recently, but watch carefully the exact practical steps.

Oleksandr Pietushkov (left) with colleagues in Brussels
Oleksandr Pietushkov (left) with colleagues in Brussels
What is your favorite building in Brussels? Why?

I adore Art Nouveau; and my favorite for many years has been Old England former shops (Musical Instrument Museum since 2000)  by architect Paul Saintenoy. The movement was a great inspiration for the generations of architects and designers to come. I cannot explain why – I just like it!

What are the top two practical outcomes of the Brussels trip that you can share with us?

We established contacts with the merchants for construction materials and second — but not least important — we clarified the strategy for ourselves: how to move further in technical regulations, investments, sales in construction and building materials sector.

The visits and meetings helped us to look at ourselves from a fresh perspective, to see things in a more realistic and critical way. Ukraine is regaining its sovereignty, striving for improvements in citizens’ welfare, developing the building and construction industry. We certainly build our Ukraine today but we have to scale up for a truly historical progress.

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