RATIO ANALYSIS OF CONSTRUCTION INDUSTRY OF KAZAKHSTAN

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JSC Rating agency of the Regional financial center of Almaty office 904, floor 9 136, Dostyk avenue, 050051 Almaty, Republic of Kazakhstan RATIO ANALYSIS OF CONSTRUCTION INDUSTRY OF KAZAKHSTAN

1 JSC Rating agency of the Regional financial center of Almaty office 904, floor 9 136, Dostyk avenue, Almaty, Republic of Kazakhstan RATIO ANALYSIS OF CONSTRUCTION INDUSTRY OF KAZAKHSTAN Analyst: Gaukhar Shinkeyeva Tel: (727) (727) shinkeyeva@rfcaratings.kz Any form of copying, reproduction, distribution and forwarding of texts, graphs and other types of materials posted on the website of the "Rating Agency of the RFCA" must be accompanied by a hyperlink to the website and indication of the author of the material. 1 Almaty 2015 Copyright JSC Rating Agency of the RFCA 2016

2 Ratio analysis of key indicators of Kazakhstan s construction Construction industry in Kazakhstan is the leading economic sector that has a considerable impact on numerous related sectors of economy. Construction industry in 2015 contributed almost 5.3% to the GDP of Russia and 8.3% to the GDP of Belarus. In Kazakhstan the value of construction industry to GDP accounts for nearly 6.5% in The indicator peaked up to 9.8% in 2006 due to prevailing speculative trends at the real estate market at that period and had led to housing price uptrend and finally to mortgage crisis. Diagram 1. Construction industry to GDP of Kazakhstan,% % 7% % 8% 7% 5% 4% 3% 2% 1% 0% GDP of Kazakhstan, KZT bln. Total construction output, KZT bln. Construction industry to GDP, % The total construction output in the period of amounted to a little more than KZT 14.2 bln., annually increasing by 8%. Construction and installation work accounted for about 85% of the total output, 9% - capital repairs and - current repairs. Almost 80% of the total construction output were commissioned by private constractors, 19% and 1% - by foreign and state constractors. In 2015, the total construction output distributed as folloing: biulding and storage (38%), industrial bases (34%) and real estate (17%). Being a leading indicator, the total construction output is correlated with the new construction output which annual growth accounted for 105% in by medium. The total new construction output commissioned in was nearly 63 thousand sq. meters and about 65% of it or 41.1 thousand sq. meters that are residential buildings. The annual growth of average actual expenditures for 1 meter of the total square of residental buildings including private residental buildings accounted for. In 2010 the expenditure amounted to KZT 69.4 thousand increased up to KZT 92.6 thousand in The volume index of construction output has also uptrend. At the time of this analysis, the Committee on statistics of the Republic of Kazakhstan hasn t published data on the volume index of construction output yet that are most likely to account for 10 in Currently construction industry of Kazakhstan has quite numerous separate economic entities with different distinctive features. Thus, there are about 10.8 thousand contractors and construction companies in 2015 and most of them are private. There are only 23 state construction companies. 2

3 Diagram 2. Total square of new buildings commissioned , , , ,4 102, Total square of buildings commissioned, thous.sq.meters Total square of residental buildings commissioned, thous.sq.meters Volume index of construction output, % (right scale) , , , ,5 101 According to National Business ranking there are 86 companies engaged in construction and building materials production. companies Place on Ranking- 500 Table 1. The 10 construction companies on Ranking-500 of the Kazakhstan s largest Company Sector Operating income, KZT mln. 15 BI Group Construction and building 241,571 material production 34 «OGCC Infrastructural construction 108,097 «KazStroyService» JSC 46 «Subsidiary of Chinese Infrastructural construction 69,640 oil engineering construction group» LTD 50 Branch of Sembol Construction 61,320 Investments & Development 59 «Highvill Kazakhstan» Construction 53,240 LTD 76 «Imstalkon» JSC Construction 41, «Almatyengstroy» JSC Infrastructural construction 40, «Trest Sredazenergomontazh» JSC Infrastructural construction 32, «Kazakhdorstroy» LTD Highway construction 32, «Basis», Group of Residential and commercial 28,630 companies real estate Source: National Business 3

4 The percentage of employed population in construction industry remained stable in and accounted for around 2. by medium. The number of employees in the industry totaled thousand people in 2015 increased by 12% compared with The average monthly wage in nominal terms increased from KZT in 2010 to KZT in ,00 8,00 7,00 6,00 5,00 4,00 3,00 2,00 1,00 0,00 Diagram 3. Wage productivity and wage intensity of construction industry 8,33 8,57 8,56 8,25 7,81 11% 7,58 7% 5% 4% 0,12 0,12 0,12 0,12 0,13 0,13 Wage productivity Wage intensity Annual growth of labor productivity, % (right scale) 12% 10% 8% 4% 2% 0% The analysis of wage productivity in 2015 reveals that 1 tenge of wage produced about 7.6 tenge of total construction output. In the period of , there was a decline in the economic efficiency of the funds allocated for wage payments. The capability of annual wage fund to generate profit per 1 tenge of wage decreased. Thus, labor profitability determines that profit of construction companies generated with their employees exceeds the annual wage fund by 8 times. The relative stability of capital intensity reveals that generally nominal wage increased but slightly. The nominal wage in the construction industry of Kazakhstan corresponds to the average one in all sectors of economy. The high growth of labor productivity was in 2010 and then began to decrease due to mortgage crisis in and decline in investments and construction companies equity as a consequence. Calculation of capital productivity and capital intensity was based on the original value of fixed capital of construction industry instead of annual average value of fixed capital. We don t exclude inflation influence as we use KZT in calculation of fixed capital revaluation. However, the influence of such errors is infinitesimal as inflation was high only in On average, without inflation of 2007 it amounted to 7.2%. Capital productivity of fixed capital in construction industry demonstrates upward growth. So, in tenge of fixed capital produced 1.26 tenge of final product and 1.9 tenge in This fact reveals the efficiency of fixed capital in construction industry. Decrease of capital intensity reveals that an amount of 0.79 tenge of fixed capital required to generate 1 tenge of output in In 2014 the ratio amounted to 0.53 tenge per 1 tenge of output. It is noteworthy to mention that the efficiency of fixed capital in construction industry increases. 4

5 2,00 1,80 1,60 1,40 1,20 1,00 0,80 0,60 0,40 0,20 0,00 Diagram 4. Capital productivity and capital intensity of construction industry 1,26 0,79 1,63 1,61 0,61 0,62 1,90 1,90 0,53 0, Capital productivity Capital intensity Construction companies preferably use own funds as the source of fixed capital investments which average annual share accounts for about 54% of total investments. The share of bank loans for Kazakhstan s construction industry was insignificant for the past two years and accounted for about 9% of total investments Diagram 5. Residential construction investments % 24% 22% 25% 17% 27% 54% 61% 50% 54% 59% 4 27% 25% 29% 19% 22% 17% Budget funds Own funds Borrowings The annual state subsidies were unevenly distributed and accounted for 23% of the total investments by medium. According to the preliminary data published by the Committee on statistics of the Republic of Kazakhstan state subsidies allocated for residential construction amounted to KZT bln. The annual investments increased. In 2015 circa KZT bln. or USD 3.2 bln. were invested in the construction industry. The ratio analysis of Kazakhstan s construction industry will be reverted to during 2016 as baseline data and other statistics accumulate. 5

6 Published by JSC Rating Agency of the Regional Financial Center of Almaty (Rating Agency of the RFCA) Any form of copying, reproduction, distribution and forwarding of texts, graphs and other types of materials posted on the website of the "Rating Agency of the RFCA" must be accompanied by a hyperlink to the website and indication of the author of the material. Copyright JSC Rating Agency of the RFCA 2016 JSC Rating Agency of the RFCA 136 Dostyk avenue, Floor 9 Business Center Pioneer Almaty Telephone: (727) , Fax: (727) info@rfcaratings.kz Website: 6

THE BANKING SECTOR OF THE REPUBLIC OF KAZAKHSTAN

JSC Rating agency of the Regional financial center of Almaty office 904, floor 9 136, Dostyk avenue, 050051 Almaty, Republic of Kazakhstan THE BANKING SECTOR OF THE REPUBLIC OF KAZAKHSTAN Analytical department