KPMG has published the results of its latest survey of the construction industry in Russia and worldwide.
Both Russian and foreign companies see the need to make their production processes –especially procurement management more effective. The participants also named the introduction, use and improvement of information technology as pressing issues, while the Russian companies are paying increasing attention to management analysis, verifying tax accounting compliance with current legislation, and timely tax payment planning.
That said, there are a number of significant differences between the answers from the Russian respondents and those from their foreign counterparts. It is worth underlining that Russian firms continue to view residential construction and the construction of commercial real estate as promising in terms of revenue, whereas Western companies have shown considerably more interest in infrastructure investment this year. The appeal of the residential sector to Western companies continues to decrease. It is likely that PPP projects, as well as investment growth rates abroad, which are significantly higher than in Russia (especially in economically developed countries), play a role in this difference. In addition, PPP interest in Russia focuses mainly on the residential sector, whereas abroad it has long since moved on to infrastructure facilities.
Svetlana Fonareva, Partner, Infrastructure, Construction & Real Estate, KPMG in Russia and the CIS, commented: "As in previous years, the Russian respondents have been much more actively concerned by the strict regulatory environment and insufficient private sector interest in infrastructure investment than their colleagues from Western companies. Furthermore, unlike global companies, Russian developers and construction firms still do not see introducing advanced technologies into construction or improving the quality of their properties and ensuring environmentally friendly living conditions as priorities."
Commenting on the current state of business in their regions, a large majority of all the respondents, including those from Russia (71%), said that they were most concerned by the uncertain economic prospects. However, the foreign and Russian companies view the risk levels differently. For example, 12% of those in Russia versus 20% of those worldwide named growth of competition as a risk, 6% of those in Russia versus 13% of those worldwide named inflation, 6% of those in Russia versus 30% of those worldwide named a shortfall in the state budget, and none of those in Russia versus 4% of those worldwide named unemployment. Conversely, Russian firms are more worried by a lack of qualified professionals (41% versus 31% worldwide) and dependence on amendments to legislation (47% versus 11% worldwide).
As the results show, the 2010/2011 financial year was relatively successful for the construction industry: 56% of the global respondents said that their order portfolio had expanded, and just 18% that it had shrunk. In Russia, the figures were 60% and 33% respectively.
47% of the Russian respondents reported an increase of more than 5% in margins, while for 33% the margins on their order portfolio were unchanged.
Small and medium-sized construction firms also justified forecasts, showing a significant increase in revenue –15% or more for a third of the respondents.
A substantial proportion of the Russian respondents (35%) named insufficient process automation as their main barrier to cost saving, compared to only 29% of the respondents worldwide. Given the universal desire to cut costs, it is genuinely surprising that 17% of the global respondents and 41% of those from Russia say cost saving is not a priority for them.
46% of the global respondents and 76% of those from Russia said that less than a quarter of their projects produce returns higher than planned. This shows that the companies still have much to do to reduce such project risks as cost increases, supply bottlenecks, and shortfalls in financing, materials and work of suitable quality.