Poland Infrastructure Report Q2 2008

On November 16 2007, Poland's Council of Ministers amalgamated the Ministry of Construction, the Ministry of Maritime Economy and the Ministry of Transport together and created the Ministry of Infrastructure.

There are 310,000 construction enterprises active in Poland and the industry employs nearly 1mn people.

There has been an influx of foreign contractors in recent years, leading to the formation of around 3,000 joint ventures with foreign contractors and consultants. German contractors have by far the largest foreign presence in the country, and major German construction names such as Bilfinger & Berger, Hochtief and Strabag are all to be found in the market. Other international contractors, including Bouygues and Skanska, have also been targeting the country over the past three years. At the same time, Germany is the most important export market for Polish contractors, which are also active in Russia, the Czech Republic and former Soviet states.

Past recession in the nation's construction industry has led to many of the big Polish construction companies looking abroad for work. On the other hand, the three largest contractors operating in Poland are either part or wholly owned by international groups, and foreign construction companies have become increasingly active in the country in the past two years.

There are plenty of small Polish firms, but the majority of the industry output is generated by a few big players. The dominant players in the Polish construction industry are Skanska, Budimex, Mostostal, Polimex, Energopol, Elektrobudowa and Warbud. Polish contractors have a good international reputation and a strong skills base of qualified tradesmen, although the industry itself is known for its bureaucracy. Difficulties can be encountered in securing accreditation for certain building materials and meeting local construction codes.

Poland's economy has picked up since European Union (EU) accession in 2004. Assisted by a rise in the value of industrial output, and the competitive advantages conferred by the structural reforms programme, Polish industry has begun to show signs of sustained recovery in 2007. During January -May 2007, the number of new residential construction starts increased by 54.5% year-of-year (y-o-y). Today, there are over 300,000 construction enterprises active in Poland. There has also been an influx of foreign contractors in recent years, with German contractors having, by far, the largest presence in the country.

Infrastructure in general, and the transport segment in particular, comprises the prime area of focus for the Polish government in preparation for the EURO 2012 Football Championships, which are being cohosted with Ukraine. Here, more than US$40bn is expected to be spent on construction and repair of roads, motorways and expressways alone over the forecast period. Other key projects underway in Poland include the high-speed railway from Lodz to Warsaw, and the Rail Baltica project. Also, with an estimated housing backlog of 1.5mn units, the government is committed to increasing spending on new homes.

However, a few areas of concern can still be identified and probably the most important among them would be the shortage of skilled labour and the rising wage bills that go with it. Increasing prices of building material may also prove to be a hindrance in the medium term. EU accession also has its downside: VAT on building materials has increased from 7% to 22%, adding substantially to the cost of construction. Also, in spite of visible changes, overseas investors continue to complain of complex government regulations and lukewarm government support.

In a bid to spur construction activity, the Polish government had decided to refund 15% of the VAT due on building materials purchased between May 1 2004 and December 31 2007. Ultimately, the country has huge potential for infrastructure development. BMI forecasts the industry to log an average growth rate of 4.04% over 2008-2012, to reach a value of US$111.63bn by the year 2012.