The FINANCIAL — The construction sector is considered as noteworthy segment of the Georgian economy: in 2015, it accounted for 5.5% of GDP. This importance can be partially explained due to several factors. One of the first reasons is related to the intensive development of infrastructure caused by Georgia being considered as the logistics hub, a crossroad on the way from Europe to Asia.
The logistical importance of Georgia as a transit country has been proved with a considerable role it plays in the development of New Silk Road, a development strategy initiated by the Chinese President Xi Jiping. Another point explaining the growth of construction sector relates to the implementation of large infrastructure projects: according to the Ministry of Energy of Georgia there are around 120 identified HPP projects either in the construction or feasibility study stage.
To render the image of dynamism even more explicit to the sector, we can mention the growth of retail sector and its positive impact upon the construction market in Georgia. In 2013, according to AT Kearney’s Global Development Index, Georgia was acknowledged to be the eighth most attractive developing country for retail expansion.
The construction of Axis Towers and King David Towers are among those stand-alone projects that reveal a progress in the field. Along with this continuous upgrading of standards and modernization, there is a ubiquitous need for new initiatives: for example, the projects related to the development of A-class office buildings.
The need for new construction projects also concerns tourism industry because success of Georgia as a touristic destination depends on meeting expectations of different categories of tourists. To become even more affordable and accessible, the country can extend its tourism infrastructure by building new middle class hotels. Furthermore, the Georgian National Investment Agency informs potential investors about various renovation projects, four-season resort sites and free tourism zones in need of investments and of further development.
Taking into consideration the mentioned facts, the overall picture of infrastructure development creates a favorable environment for the construction industry. In order to support the industry and stimulate its growth, Georgia does have at its disposal sources of raw building materials.
Mr. Noshrevan Liparteliani, Director of the building company Afsida confirms that the majority of raw building materials are of local production and only aluminum profiles are imported from Turkey. For instance, such necessary construction materials as bentonite, dolomite, sand, gypsum and limestone for cement production are to be found in Georgia. The country covers 90% of the local demand in cement and only 10% of this construction material is imported to the Georgian market from Turkey. Cement is mainly imported to Batumi as it is more cost-effective to deliver the products there from Turkey rather than from other Georgian regions because of high transportation costs.
As the exporter of construction materials, in addition to cement, Georgia also sells abroad such materials as wood and decorative stones. The main export market is CIS countries, namely, our closest neighbors – Armenia and Azerbaijan. However, decreasing prices for oil has its impact on the construction industry in Azerbaijan, pushing Georgia to think more about market diversification.
As far as import is concerned, Georgia is still dependant on trading in of semi-finished iron and steel products. This shortfall has turned to be an investment opportunity for JSW Steel Netherlands BV, wholly owned by JSW India, that has created in cooperation with Georgian Steel Group Holding Ltd (GSGHL) a joint venture GeoSteel.
Generally speaking, we can assume that Georgia is currently a net exporter of raw building materials, low value products, but an importer of construction materials such as plastic, roofing, ceramic products that are in need of a more elaborate manufacturing. And several visits to the shops of construction materials distributors and retailers, such as Domino and Gorgia, can be another vivid proof to this assumption as the sold goods of these retailers are mainly of a foreign production.
Georgia also imports a lot of finishing, surfacing and decorative materials. It can turn out to be a paradox since the country has a big unexploited potential: rich deposits of mineral resources among which granite, marble, porcelain, precious stones are to be found. The quest for the undiscovered mineral resources is also encouraged by the National Environment Agency that is a public body in charge of delivering licenses for the exploitation of the quarries. The Agency announces the reduction in a license price for all the entrepreneurs who have discovered some deposits due to their own geological research works.
However, the discovery of unexploited mineral resources and a consecutive development of the production of finishing, decorative materials are only among the first perspectives looming on the horizon of the Georgian construction market.
Reflecting upon the issue, Mr. Alexander Sokolowski, Director of Prime Concrete suggests several options for a market extension: “In my opinion, the market of construction materials will be geared with several driving forces – diversification, sustainable production and innovation”.
The process of diversification and its competitiveness can be exemplified with the entry to the Georgian market of Henkel that offers new products of adhesive with improved qualities under the Loctatite brand.
In terms of sustainable production, Georgia is not among the advanced countries because its production is still based on a “wet system” which is more energy-consuming. To illustrate this issue, we can refer to the production of clinker, poorly developed in Georgia. Small local producers manufacture clinker using the aforementioned wet system that is not an ecologically friendly way of production. On the other hand, the usage of a dry system is much more expensive, thus, less appreciated by the local producers. The detrimental impact on the environment is also explicitly shown with an asphalt production manufactured by the means of gravel extraction from the river beds. This extraction is accompanied with a general deterioration of the environmental conditions of these territories. To avoid a negative ecological impact, the companies offering solutions for a better effective production are more than welcome. According to Mr. Sokolowski, recycling of concrete is to be developed in Georgia. Presently, recycling industries remain a luxury feature of wealthy economies.
The Caucasian market is often described as conservative, with strong resistance to innovation and new materials. Recalling back the Baku residence building fire in 2015, it becomes clear that such conservatism can lead to tragedies.
This calamity might have been mitigated had the heat insulator used as a building material of the residence had been made of fire proof material and not foam plastic. It is obvious the market is in need of renewal, of new building materials, such as heat insulators. In Georgia, the production of heat insulators could turn out to be profitable because of abundant presence of necessary raw materials for manufacturing.
Innovative solutions have been also introduced to the Georgian market by Ytong. The company is the producer of energy efficient aerated concrete blocks which are exported to Azerbaidjan, Armenia and south of Russia.
The Georgian construction market is open to the companies offering innovative, environmentally friendly and efficient solutions. These attributes correspond perfectly to the business profile of the international company, Menard Vibro that has recently explored the potential of the Georgian construction market with the help of Experto Consulting.
Menard Vibro is a fully integrated ground engineering company with a wide spectrum of services such as designing, planning, installation and management of any soil improvement project. The Business Development Manager of the company, Mr. Adrien Michelin admits that their work methods do not seem to be common in Georgia despite being perfectly adapted to both soil conditions encountered and projects being developed.
“We have solutions to tackle soft soil conditions that are encountered in western Georgia. In more details, we know from looking at some projects that the whole E60 highway goes through soft clay soils where methods like PVD, Vacuum, CMC, and Stone Columns are applicable, while the Anaklia region seems to be featuring more loose sandy/salty soils where we can apply some compaction methods (DC or VC) and stone columns or others”.
The mentioned techniques are practical options to digging and replacing in layers, to deep piles, or deep concrete footings. Together with ground improvement works, the company brings the environmental solutions to the problem of brown-field development. Menard Vibro focuses on the questions of soil pollution and treatment of these lands so that they become suitable for a living. According to Mr. Michelin, the solution of this problem has become a key issue for ever-growing urban areas: “With the increased number of brown-field developments, there will be augmented the need for a strong pool of companies dealing with soil remediation solutions”.
Menard Vibro has all the chances to create its own success story in Georgia. In fact, the success story awaits all companies that are capable of bringing innovative and sustainable solutions to the current problems Georgia tries to deal with and to correspond to the future demands imposed by the constantly developing construction market.
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