Dmitry Baranov: ‘A fall in the population’s incomes can lead to a lower demand for construction materials’

A leading expert of Finam Management about the industry of construction materials amid sanctions

Russian citizens complained about appreciating construction materials. One in three respondents (33%) sees a considerable rise in prices for these products, Public Opinion Foundation provided the data. A survey was carried out among 1,500 respondents from 18 years in 53 regions of the country. “A complicated economic situation and falling incomes of the population can lead to a lower demand for construction and repair materials,” leading expert of Finam Management Dmitry Baranov in turn defined a topical problem for the sector. In an op-ed column for Realnoe Vremya, the analyst talks about how the industry of construction materials is surviving the new reality and what support it needs.

Restrictions influence the sector less

The current situation has affected the industry of construction materials the least but it has been hit too. Companies of the sector cannot borrow money from other states, they are divested of the chance of supplying their products there, limited to using foreign equipment. However, the fact that the domestic market is key for them supports the production of construction materials, demand for their products here is important for them, and different external restrictions influence the sector the least.

Producers still have access to different feedstock resources allowing making almost all types of construction materials. By different estimates, the share of construction materials made in Russia is 80-85%, the rest is imported.

So Russian Minister of Industry and Trade Denis Manturov claimed in February that imports of construction materials didn’t exceed 4%, and mainly ceramic bathroom products, tiles and dry mixes were supplied from other countries. The minister stressed that Russian manufacturers and localised companies accounted more than 80% of sales in these products.

Focus on equipment made in Russia

The industry of construction materials continues its work, but this doesn’t mean that it doesn’t have problems at all, moreover, in the current situation. Support for demand for its products is one of the problems of the sector, this will allow producers to plan the production better, which will allow implementing projects on time, not to propagate never-ending construction projects. Construction material manufacturers think that a rise in prepayment for constructors implementing public construction projects is topical, which will allow reducing the number of numerous intermediaries and buy construction materials directly from producers.

The continuation of modernisation remains a hot-button issue for the sector, which will favour ramp-up of the production and expansion of the product range. Moreover, given the current circumstances, the main focus should be made on equipment made in Russia to rule out the dependence on supplies of both equipment itself and different components and consumables for its maintenance from abroad.

The tough economic situation and a fall in the population’s incomes can lead to a lower demand for construction and repair materials, this is also a burning problem for the sector. Perhaps, there will be needed support measures to save these consumers who are important for construction material manufacturers.

The correction of regulation is also significant for the sector nowadays, which will provide a chance of saving the economic stability of enterprises, provide their competitiveness both in the domestic and foreign market. In particular, the amount of mandatory payments for companies can be reduced, different preferences, state guarantees can be provided. These measures should be provided on a repayable basis, which will allow manufacturers of construction materials to go through the difficult period but at the same this won’t let them relax because the support will not be provided “forever.” The current situation hasn’t yet seriously influenced the operation of the industry of construction materials in the country, their products are in demand.

Here is just one example. In the first quarter of 2022, the production of construction materials in Volgograd Oblast rose by 9,6% compared to the same period last year. So the production of ready-mix concrete in the region increased 2,5 times, road concrete mixes did 2,4 times, construction mixes did 2,5 times, bricks — by 45,5%, lime — 48,6%, building blocks — 32,5% against the same period last year. However, it isn’t ruled out that in the next months the production of different construction materials in the country can be lower, even despite the “high” season in construction. This can be caused by the influence of various imposed restrictions, lower demand from both businesses and the population.

Support for demand for construction materials needed

The industry of construction materials has prospects because people in the country will not stop repairing homes, roads, flats, gardens and many other things, which means that different construction materials will be needed, they will still have to be produced. However, in the tough situation in the economy with reduced incomes and the desire to save money, support for demand for construction materials is needed. First of all, the support can be expressed in purchases of these products by the state for its own needs. Many construction materials have a long shelf life, contractors working at public facilities can buy them directly or sign an agreement on intention to buy them, all this will back the producers, provide their financing.

Also, the state can support other consumers by allocating targeted funding only to buy construction materials made in Russia. Steps taken to develop the production of Russian equipment for the sector, stimulate the producers to make more of such equipment can be another support measure for the industry of construction materials. It has export potential because nobody has cancelled the task of increasing sales revenue of sophisticated equipment.

Other support measures will help the sector too: for instance, finer adjustment of regulation, temporary exemption of fiscal duties. I will repeat that the industry of construction materials has prospects. Both with it and without it, different construction and repair materials are always needed. The sector will get out of this difficult situation faster only with support, augment the contribution to the economy faster, provide thousands of people with jobs, provide orders to enterprises of other sectors, that’s to say, all this help will pay back in spades, it should be provided.

Dmitry Baranov

The author’s opinion does not necessarily coincide with the position of Realnoe Vremya’s editorial board.