Ascension To Unlock Considerable Growth Potential
Whilst the volume of construction work dropped by 8.5% y-o-y in April 2013 according to the Bureau of Statistics, we see this as a temporary decline, highlighting that many projects will have been postponed until EU ascension is complete to benefit from greater competition. In any case growth will begin to pick up with the EUR10bn available now Croatia is an EU member, of which the government is looking to spend half on six major infrastructure projects and the remaining on municipal level infrastructure such as sewerage, transmission grids and smaller roads. The major infrastructure projects which are likely to benefit from this money and provide upside to our infrastructure forecasts include:
The overhaul of Croatia's railways and connect them to the European network
A 9km bridge along Croatia's Adriatic coast to avoid having to travel through Bosnia-Herzegovina to access the southern part of the country
The completion of the Corridor VC highway, of which there is a 40km stretch left to build, which joins Hungary to Bosnia-Herzegovina through Croatia
Irrigation systems to develop Croatia agricultural land, of which currently only 2% is properly irrigated
Croatia has previously garnered the support of the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB). The (EIB) estimates that it has provided some EUR2.5bn in loans (including current loans) to Croatia since 2001, to help implement projects that have developed the country's accession prospects. Another EUR85mn was provided by the EIB in September 2011 alone to help support infrastructure projects in the country. In 2010, the EBRD provided EUR60.6mn for the Corridor VC project. Since its first investment in the Croatian motorways in 2001, the EBRD has committed to date over EUR400mn for the modernisation of Croatia's transport sector.
Croatia has become a tourism hotspot in recent years, with estimated 10.2mn arrivals in 2012. BMI forecasts that this figure will rise to 11.2mn by 2015 and as such there is considerable investment being made to facilitate tourist numbers. For example, construction work on Zagreb's new terminal at the Zagreb International Airport is to begin in September after the project secured EUR120mn in financing from the EIB and loans from Zagreba?ka Bank and Erste Bank worth EUR65mn. Zagreb International Airport is a good example of the opportunities on offer for international firms as Croatia attempts to increase its infrastructure capacity; a Turkish firm is expected to build the new terminal with a Belgian company taking on the facade. The French Aeroport de Paris signed a concession with the Croatian government worth EUR1.9bn to operate the facility for thirty years. As transparency in banking, financial services and the tendering process, which have all improved markedly on Croatia's path to EU membership, increase further, we expect more European construction firms to enter the Croatian market in an attempt to escape the slower growth countries elsewhere in Eastern Europe such as Poland.
|Membership Realised, Now For Growth|
|Construction Industry Value (US$bn) and Real Growth (% y-o-y)|