Serbia – An Outlook Of The Construction Sector

January 22, 2021

Executive Summary

Serbian Construction sector experienced a serious growth for 2020, and even the Covid-19 related crises seemed to have a limited impact on this growth.
Because of the large number of projects and ongoing works, the construction sector seems to bring stability and resilience to Serbian construction industry.
Serbian construction sector is one of the most internationalized from the region, with the largest number of international actors present on the ground.
Most important international actors active on Serbian construction market are Austrian, Azerbaijani, Chinese, French, German, Russian, Turkish, and EU-level actors.
Covid-19 impact and recovery capacity
- Investment in road and railway infrastructure and housing will continue to drive the growth of the construction sector even higher in the second half of 2020 this year.
- It is estimated that the new investment cycle “Serbia 2025” worth more than 15 billion euros, will contribute to the further development of the construction industry, which will be driving the growth of the country’s GDP.
- The construction sector is one of the sectors least affected by COVID-19 in Serbia.
- The impact of COVID-19 on the industry was caused by the movement restriction imposed by the Serbian authorities, which prevented foreign workers from entering the country and arriving on time.
- As some construction sites relied strongly on foreign workforce, delays in the realization of some projects are expected.
Construction sector resilience and economic prospects
- There are 16,000 more construction sites in 2020 compared with the same period of 2019, with the value of construction works also growing.
- As a result, the number of employees in the construction sector grew by 10%, compared to the same period last year.
- Big infrastructure projects will provide resilience and support the growth within the construction sector.
The country experienced a lockdown in the midst of economic and construction growth. With economic capital to build a resilient response to the crisis, fast recovery is expected.
International participation in Serbia:
- China is the leading foreign actor if we are to look at the total number of construction projects where Chinese companies are involved (60).
- There are over 410 involved actors in the Serbian Construction Sector, from 34 countries.
- The European Investment Bank (EIB) is the leading financing institution by number of projects financed (91).
- In terms of financing, EU entities are providing the most foreign financing in the Serbian construction sector.
- Austrian, Chinese, Russian, Turkish and French construction companies are the most influential actors in Serbia’s infrastructure sector.
- There is a large number of ongoing infrastructure projects. Approximately 50% of those are financed through loans from the Export Import Bank of China (CEXIM) and built by Chinese construction companies.

Serbia outlook prior to COVID-19

In 2019, the economy experienced a real GDP growth of 3.2%.
Unemployment was at 10.5%, its lowest level for the past decade.
General government debt stood at 52.1% of GDP.
In December 2019, government projections for 2020 expected a 4.0% growth for 2020.

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Serbia outlook post COVID-19

The National Bank of Serbia expects that COVID-19 and global recession will have a less severe impact in Serbia than in other European countries. This is mostly due to achieved macro stability, growth momentum, fiscal space created in previous years, large and timely monetary and fiscal package, and favorable structure of the economy.
GDP growth in 2019 continued with strong economic expansion reaching a rate of 4.2%, driven by investments.
The trend continued in Q1 2020 with growth of 5% y/y, despite first effects of COVID-19.
Pandemic effect on the economy peaked in Q2, but the recorded GDP decline of 6.5% y/y was one the smallest in Europe, due to a sizable, timely and comprehensive monetary and fiscal support package.
On the back of Q2 results and expected recovery by the end of the year, the National Bank of Serbia kept the projected annual growth at -1.5% for 2020 and +6% for 2021.
Serbia adopted economic measures (EUR 5.8 bn, around 12.2% of GDP) which is expected to allow GDP to return to pre-crisis levels by the end of the year and sustainable growth of around 4% in the medium term.
The coronavirus pandemic is expected to lead to a slowdown in the economy, which strongly relies on trade and investment from the EU (62.7% of Serbia’s total foreign trade), as imports from its main European trading partner, Germany (13.1%) respectively Italy (8.1%) are expected to be affected.
Foreign investment in the first 5 months of 2020 was 26% (EUR 201 Million) less than in the same period last year.
It will take some time for the economy to recharge, but the negative effects are not expected to last beyond Q2 2020.

Serbia Construction Sector 2019 outlook

In 2019, the growth of construction amounted to 35%, which gave this sector the greatest contribution to the economic growth of Serbia.
The construction sector accounted for 6% of the GDP.
The booming cycle encompassed practically all construction segments, with strong performance in both buildings and civil engineering.

Serbia current construction sector outlook

COVID-19 impact on the construction sector

The construction sector was affected by the movement restrictions during the quarantine period.
The damage caused by the movement restrictions imposed is believed to be minimal as operations never halted.
Delays are expected in the realization of some construction projects, as certain construction sites relied on foreign workforce and encountered problems during quarantine and border closure period.
The impact of the restrictions imposed by the state of emergency was also felt in the residential sector, where the quarantine interrupted the regular market flow, particularly on the demand side.
As a result, the Serbian real-estate market, in the period following the state of emergency, registered a drop in prices recorded across the country.
Prices in the residential sector dropped by 4% in comparison to the beginning of the year, and by 10,5% in comparison to March 15.
Despite the drop in prices in the residential sector across the country, prices in Belgrade have gone up to 9%, a significant increase compared to the beginning of the year.
The average real estate prices in Belgrade, in the first quarter the average price of old apartments was 1,450 € / m2, and in the second quarter 1,585 € / m2. At home, the average price increased even more - in the first quarter they were around 860 €. / m2, and in the second quarter € 1,000 / m2

Construction sector current conditions

Despite a visible drop in prices in the residential sector, strong market conditions are believed to prevent serious effects of the crisis.
Strong market conditions are provided by growth accumulated during the past several years, a new construction law which designed a new system of issuing construction permits and the decision of the government not to halt any publicly funded construction and infrastructure projects.

In the retail segment almost all large pipeline projects are already underway, with possible small delays, outputs will likely remain strong this year.
Big infrastructure projects will be one of the factors providing resilience to the construction sector.
Large infrastructure projects continued realization unabated, with special transport and separate accommodation for workers helping mitigate effects of the quarantine restrictions.
Among the projects that have contributed the most to the growth of the construction sector construction are large infrastructure projects such as the construction of high-speed Belgrade-Budapest on sections from Belgrade to Novi Sad, construction of bypass around Belgrade, as well as the construction of residential and business complexes in Belgrade and Novi Sad, which took place without interruption during the state of emergency.
So far, there are no COVID-19 related requests from contractors to extend the deadline for major projects.
For multi-annual projects, one month of interruption caused by the Covid-19 crisis is bearable and will not cause major disruptions.
Serbia is currently completing several capital infrastructure projects:
- Corridor 10 and Corridor 11 - will begin construction of five new highways - Moravian Corridor, highway to Bosnia and Herzegovina from Sremska Raca to Kuzmin, then Ruma-Sabac and Sabac-Loznica.
- The construction of Corridor 11 from Preljina to Požega will continue, while the construction of the first section of the Niš-Merdare-Priština highway, from Niš to Plocnik, will start at the beginning of next year.
The construction industry is the sector of the economy least affected by the COVID-19 crisis in Serbia.
I mmediate effects on the construction industry in general are expected to be limited.

Construction sector performance outlook

In the first quarter of 2020, there was a growth of 24,4%, namely 35.2% in civil engineering (infrastructure) and 13,2% in the residential and non-residential buildings, than in the same period last year.
In the second quarter of 2020, the construction sector recorded a growth of 20%
The number of construction sites has increased from April 2020 to August 2020 by approximately 4000, totalling 61.433. This in turn has also led to an increase in the number of employees in the construction sector.
The number of employees in the construction sector is 10% higher compared to the same period last year.
The increase in the numbers of employees was registered in the construction of apartments, road and railway sector.
According to Minister Zorana Mihajlovic, the country is on the right track, the construction will remain an important factor of GDP growth until the end of the year.

Serbia Construction Sector Forecast - Summer 2020

The total construction growth in 2018 (real growth rate) was at 13.8%. By 2019 it reached 31.2%.
For 2020 the total construction growth is forecasted at -2.5%, with a rebound in 2021 at 4.2%.

General pandemic assumptions are that:

The next wave of pandemic in 2020 will not bring countrywide lockdowns
No restrictive measures whatsoever in 2021.

Largest construction projects

Project Name	Sector	Stage	Location	Main Actor	Name of main actor	Other Actors	Name of other Actors	Type of contract	Estimated value (CAPEX) EUR
Pumped-storage HPP Iron Gate III	Energy and Utilities	Formulated	Iron Gates Gorge	Russia	RusHydro	Germany	RWE	Works	6,000,000,000
Belgrade Metro	Transport and Infrastructure	Pre-tender negotiations	City of Belgrade	China	Power Construction Corporation of China (Power China)	France	Egis Group and Alstom	Works	4,400,000,000
Belgrade Waterfront	Buildings	Ongoing	Belgrade City Center	Serbia	Belgrade Waterfront, a venture between Government of Serbia (32%) and Eagle Hills (68%)	Serbia	Novkol PMC Inzenjering Millennium team RAS Inzenjering Masinoprojekt Kopring Energoprojekt Visokogradnja Gradina Strabag Impresa Pizzarotti Starting and Roberts Constructions	Works	3,500,000,000
Tesla City	Buildings	Formulated	Belgrade Suburb of Makis	Serbia	BK Tesla, a subsidiary of BK Group	China	China Metallurgical Construction Engineering Group (MCC)	Works	3,000,000,000
Sumadija Corridor	Transport and Infrastructure	Designing	Starting points - Lajkovac and Mali Pozarevac	Turkey	Kaylon Group	China	Power Construction Corporation of China (PowerChina)	Works	2,000,000,000