Construction is one of the driving forces of the economy, but due to rising costs, less construction will be done in Latvia, so building material producers should expect a decrease in demand and put even more emphasis on exporting , where they have to be able to compete with foreign producers who have access to cheaper energy resources than in Latvia.
In the interview Daily business for a special issue Real estate says Leonids Jākobsons, chairman of the board of the Building Materials Manufacturers Association. He admits that currently rising costs for producers have created a situation where EBITDA (profit before interest payments, profit tax) is approaching zero and many producers no longer have working capital to buy raw materials and finance production.
What is the situation in the sector?
In recent years, both in Latvia and in Europe and the world, there have been various events that directly and indirectly affected manufacturers of building materials in Latvia. The conditional period of peaceful development ended with the arrival of the Covid-19 pandemic in March 2020 and the decisions of national governments, including Latvia, on measures to limit the spread of this disease. Essentially, the first quarter of 2020 was still sort of a continuation of 2019, and then there was a record in production and also in revenue. Since March 2020, a completely different era has begun for manufacturers of building materials.
First of all, the manufacturers themselves were not given the opportunity to organize production according to the situation at the time. Due to the employees who fell ill with Covid-19, not only the patient himself, but also his colleagues, registered as contacts of the patient, were unable to go to work. He has stopped working mode. At the same time, under the influence of measures to limit the spread of Covid-19, raw material supply chains have been disrupted or their speed has significantly decreased. In a sense, many of the delivery systems used before simply didn’t work.
Therefore, in 2020, the net turnover of building materials manufacturers only reached 670 million. euros, which compares with the 695 million made in 2019. EUR was 25 million. smaller euro. The same trend was also shown by export income, which in 2020 was 480 million. for an amount of EUR, but in 2019 it was 482 million. EUR. Similarly, the number of people employed in the production of building materials decreased from 6,000 in 2019 to 5,804 in 2020-2021. In 2015 the governments of Latvia and other countries concluded that vaccines against Covid-19 are available and, at the same time, there was a desire to promote a faster recovery of the economy after the crisis caused by the pandemic.
That is to say, even in those countries where construction, which is one of the engines of growth, was paralysed, national governments and municipalities started carrying out ambitious projects that required not only builders, but also building materials. Since the demand for building materials has decreased in 2020 since March, it is also logical that their production volumes have decreased in Europe, but the rapid increase in demand in 2021 has caused another type of crisis: a shortage of materials, which in turn raised their prices, especially for metal, wood, chemicals, and thus significantly increased the prices of end products, which in turn were not very pleasing to consumers – real estate developers and builders.
Read the whole interview Daily business in special edition Real estate. Daily business subscribers receive the magazine for free.
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