The FINANCIAL -- The construction business has been massively developing in Georgia for the past decade. Foreign and local companies alike have been swiftly constructing new residential and/or commercial buildings. This rapidness did bring its inevitable drawbacks,for instance the rights of end consumers were not regulated properly and the control of architectural, visual and quality issueshave often been neglected.
According to the National Statistics Office of Georgia, the largest share of FDI covers four main sectors: Transports and communications, Financial, Energy, and Construction. Foreign direct investment in the construction sector for the first and second quarters of year 2016 amounted to USD 38 million. As for the distribution of the labor market by sector, construction remains one of the leading destinations in terms of job creation and employment.
It should be noted that the increased active involvement of the FDI drawn into the construction business has drastically changed the structure of the market and the utilized approach helped approximate construction standards to those of international. The implementation of modern construction approaches has resulted in growing interest towards the real estate market of Georgia not from locals only but Georgian expats and foreigners in general.
“Since 2013 there was a notable slowdown in real estate sector but by year 2015 the market regained its former vitality. For example, the second quarter of 2016 the turnover in construction business totaled GEL 1,354.5 million and the amount of production reached GEL 1,436.2 million – quite high indicators for Georgia. Of course, we should not forget that the development of the construction business is heavily linked to the purchasing power of end users. I believe the revitalization of the real estate sector was caused by the active involvement of the banking sector to finance the projects”, stated Mr. Vasil Kikutadze, Doctor of Economics and Expert in Construction Management.
In parallel with the construction boom, we wondered what construction materials the companies in Georgia use and to what extent do they utilize the local materials. The development of the construction sector in turn significantly contributed to the increased activity of the local construction materials producers. Compared to previous years, the demandfor Georgian construction materials has increased. In particular, the Georgian brick is especially popular.
A building brick is an artificial stone, which is formed by mineral materials and its hardness, harsh weather resistance and waterproof qualities are acquired in a firing kiln. The bricks are divided into two main groups: ceramic and silicate. Ceramic bricks are used to build fireplaces, facades and trails. As for the silicate bricks, they possess characteristics for strong resistance towards fire.
The main players on the given market are both local as well as importer companies. Their major sales share unsurprisingly goes to the real estate developers and construction companies. Georgian brick manufacturing companies offer a wide range of building materials and the cost is competitive compared to corresponding foreign products.
In brick production, one of the strongest players on the Georgian market is Metekhi Ceramics. The company, operating since 1986, is currently utilizing modern European production lines, allowing them to manufacture high quality ceramic constructionmaterials. Metekhi Ceramicsproduces high-quality ceramic bricks and blocksthat provide insulation and resilience towards humidity. Technical Director of the entity, Mr. Zaza Chichua told Experto Consulting that, “the brick heat conductivity coefficient is 0.3 W/m °C. Because of this and many other positive qualities of the bricks they are in demand in all the countries of the world. The bricks produced in our facility are of superior quality and stand out with a very competitive price. Our main consumers are individual house constructors that would like to live in environmentally friendly and energy efficient homes”.
Brickfield, a producer of building materials located in Mestia, Svaneti, has been operating on the Georgian market for the past 6 years. Director of Brickfield, Mr. MurtazRatiani revealed to Experto: “Right now, the construction market is growing and is becoming more and more innovation-oriented.The demand for construction materials, in Upper Svaneti for example, has increased by 20-30% compared to previous years. It is noteworthy that this indicator is very particular, as in the mountainous region the construction season lasts for 6-7 months only. In turn, the state is actively supporting the construction sector, as its actors are exempt from VAT, profit and income taxes. Besides, we plan to present our enterprise to the mountain development program, which is another kind of encouragement of entrepreneurs from the State”.
The Director of StoneArt, Mr. Vazha Nakhutsrishvili also talks about the positive trends of the construction materials business development: “Based on our company’s example, I can say that for the past 3 years the demand has been increasing by 30-35% annually which is partially caused by the support from the state programs as well. I think the loan interest financing state program within the Produce in Georgia initiativecan serveas a good illustration of such support”. According to Mr. Nakhutsrishvili, the company is actively cooperating with the US construction companies and thus, their products are exported to the United States. This successful collaboration is mainly due to having a high quality product and still being able to offer 30-50% less price compared to competitors in the US. StoneArt has been operating on the construction market since 2007 and the company’s main direction is the production of decorative paving tiles.
A brick market research conducted by Start-Business Solutions in February 2016 revealed that the main players on the Georgian market are local manufacturers, as well as importer/seller companies. Due to the growing trend of the construction business in Georgia there is a high demand for bricks and blocks. For the past few years, the import of bricks and blockshas declined due to the appreciation of the US dollar that resulted in the increase of the selling price of the product by almost twice as much. On the other hand, to offset this discrepancy, the indicator for the local production has increased and several local production facilities have been launched.
According to the Head of Research Department, Ms. Elene Bezhashvili, the State tries to actively support the entrepreneurs in creating new enterprises, expanding the enterprises, as well as in modernizing the existing production lines: “The Produce in Georgia program, for example has given out a USD 1.5 million cheap loan for building a construction materials plant in Rustavi. The total cost of the project amounts to USD 1.8 million”. The main importer countries for bricks are: Turkey, Ukraine, China and India. In years 2011-2014 Turkey used to be by far the leading importer of bricks to Georgia. In 2015, compared to last year, the amount of bricks and blocks imported by China has increased noticeably.
The given research showed that there is a significant demand for bricks on the Georgian market. Should a locally produced brick be of high quality and according to EU standards, it can easily compete with the imported counterpart. After all, the price of Georgian bricks is notably less compared to the imported bricks. Almost all raw materials needed for brick and block production is found locally, which makes the production less costly in essence. The state also tries to support the sector development, and the market has further growth potential, which makes it an appealing sector overall. Brick by brick…