BNN presents the opinion of the head of the Partnership of Latvian Constructors Gints Miķelsons
Efforts to find the best possible solutions to prevent consequences of the pandemic should be based on research-based information. This is why what economist Inna Šteinbuka said in an interview to Latvijas Radio – that the construction sector is ‘a hotbed of inflation’ and that some projects should be halted – is shocking.
It is understandable that Latvia’s Fiscal Discipline Council and its head have to respond to the fact that the state budget deficit is on a rise, but the continued emphasis on the construction sector having a great deal of influence on inflation creates a misleading impression.
Inflation is global, and when it comes to the increase of prices in the construction sector, this process is affected by global developments. Here are but some of them: interruptions with supply lines caused by the pandemic, rapid global increase of demand for raw materials and construction materials in the US and China, climate and geopolitical crises, surge of energy and transport prices, accessibility of domestic construction materials such as metal and lumber due to increase of exports, as well as increase of average wages, development of new standards in energy efficiency and green construction, general inflation and resource availability on Latvia’s market.
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The concern regarding the industry overheating is understandable as well. Nevertheless, the study performed by construction experts and Ministry of Economy mentions that between 2022 and 2024 the risk of the construction sector overheating will be moderate. To minimize the risk, monitoring is not enough – focused efforts from the state and the industry itself, as well as a dialogue to look for logical solutions is needed. And there are solutions.
Inflation is not the biggest problem for the construction sector – it’s balancing supply and demand.
Instead of halting projects, it would be better to consider a believable prediction of how much public investments could enter the economy this year and the next. The Ministry of Economy monitors volumes and prices. After that the Ministry of Finance should take over composition and maintenance of public investment outlooks.
Investments into the construction sector does not mean, as the economist put it, «burying money in concrete».
Investments into this sector promote economic activities in related sectors. The effect of stimulating the economy using investments multiplies – every one euro invested generates two euros in the general economy.
The growth of the volume of orders in the construction sector is moderate – 7-8% a year. It is also important to keep in mind that, especially in regards to competition with neighbouring countries, Latvia is already far behind GDP growth-wise. If investments into the construction sector slow down, the gap only increases.
Additionally, currently there is no accurate information regarding the volume of public investments. European Union’s new planning period’s and European Recovery and Resilience Facility’s fund implementation is one year late. The construction sector had previously mentioned that stable development requires balanced use of resources to avoid «congestion» and increasing construction volumes too much in a short period of time.
Instead of simply reducing public demand, potentially creating disruptions, we invite the state administration to employ multiple effective solutions: reduce the planned construction area, the volume, develop and use indexation of construction material prices, extend existing contracts, introduce quality control measures, and promote production of standardized solutions in Latvian.
Already it is necessary to come up with solutions to maintain and attract work force.
It is also necessary more beneficial conditions for regulated short-term attraction of work force from third countries while also promoting investments in national economy, but at reasonable prices.
Opinion | Investments in construction does not mean «burying money in concrete»
