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Infrastructure investment. Construction

One of the reasons for recent bankruptcies and dissolutions of numerous major players of the Russian construction market was a severe shortage of public projects and contracts felt by the industry since 2014. The government is planning to start infrastructure construction on a massive scale in the coming six years but the InfraONE analysts consider it unlikely that the construction industry will be able to quickly adapt to the country’s new requirements and restore its lost capacities.

Although the volume of construction projects in nominal terms has grown nearly twofold in eight years, reaching 7.54 trillion rubles in 2017, the volume of works in real terms has been decreasing. According to InfraONE estimates, construction companies have managed to implement no more than 40-50% of all investments made in the country’s infrastructure in 2017, spending the remaining funds on needs which weren’t directly related to construction. This proportion is likely to last.

The construction market in Russia is notable for its non-uniformity, with the companies concentrated in a limited number of highly developed regions. The greatest share of all construction works carried out in Russia over the last 13 years (53.8%) is accounted for by as few as 13 regions. Most major contractors are located in these regions too.

The government pledges to invest an additional 3 to 6 trillion rubles in infrastructure before 2024; however, according to InfraONE estimates, construction companies in the infrastructure segment will be able to digest 2.8 trillion rubles at most, while contractors in related segments (oil and gas infrastructure and real estate construction) will implement another 2 trillion rubles. The most qualified segment of the Russian construction market comprises the top 170 construction companies and groups with a total revenue of around 3.55 trillion rubles in 2017, or 47% of the total volume of construction works. In actual fact, the qualified segment of the construction market is even narrower as 20.8% of the top 170 companies (in terms of revenue) is accounted for by non-market companies acting on behalf of parent monopolies and holdings or controlled by regional authorities or agencies. There are as few as 14 large and extra-large construction companies in Russia, while the highest total revenue is found in the segment of companies with yearly earnings of 10 to 50 billion rubles.

In addition, the authors mention that construction companies in Russia are operating with a marginal net profit, with the greatest losses shown by state-affiliated companies.

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