BMI View: The fortunes of the Slovenian construction industry have finally taken a positive turn after five years of contraction. According to 9M14 construction indicators from the Statistical Office of the Republic of Slovenia, the construction sector grew 40% year-on-year. We're forecasting the Slovenian economy will have moved out of recession in 2014 to post 2.0% growth. We've accordingly adjusted our 2014 and 2015 industry figures upwards; however, we remain relatively cautious as growth - economic and industrial - in 2014 can be largely attributed to the very low base of 2013. Nonetheless, we're more optimistic than we have been for the last few years and believe infrastructure will settle into a modest, if restrained, growth pattern from 2015, thanks largely to EU energy and transport funding.
As for the infrastructure subsector mix, there will be very little change in dominance over our forecast period to 2024. Residential and non-residential building will continue to hold the bulk of total construction over the infrastructure industry, averaging 57% to 43% respectively. Transport will contribute around 73% to total infrastructure value, with roads and bridges dominating transport spending. Energy and utilities will contribute 27% to infrastructure value over this period. The industry is forecast to grow in value by 48% from EUR1.8bn (USD2.3bn) in 2015 to EUR2.8bn (USD3.4bn) in 2024.
Following are the key areas of growth in the infrastructure sector:
Principal Airport To Finally Expand: In September 2014, German airport company Fraport acquired a 75.5% stake of Slovenia's principal airport Ljubljana International's operator Aerodrom Ljubljana. Fraport signed an agreement with a consortium led by SDH to buy the stake for EUR177.1mn (USD224mn). SDH received about EUR16mn (USD20.24mn) for its 6.82% stake in Aerodrom Ljubljana, while the Slovenian government received EUR118.8mn (USD150.26mn) for a further 50.67% in equity. Fraport made the partial acquisition with the intention of purchasing the remaining 24.5% stake in the future, as it views the airport as a long-term investment. It's hoped Fraport will re-energise what's been a faltering process of modernisation at the airport, which has struggled to push through on promises laid out in its Master Plan. These include a new passenger terminal and logistics centre, originally scheduled for 2013, and a cargo terminal in 2015.
European Funding To Energise Energy And Transport Sectors: The EU'S projects of common interest (PCI) and TEN-E (trans-European energy networks) initiatives provide access to funding to enhance the effective operation of the internal energy market, ensure security and diversification of supply, strengthen territorial cohesion and promote sustainable development. The European Commission has outlined 248 priority energy PCIs, which will not automatically receive EU funding, but are eligible for financial support from the EUR5.85bn CEF budget for TEN-E between 2014 and 2020. In terms of the power sector in Europe, BMI believes that infrastructure requires significant investment and as such the PCI initiative stands on solid ground. In addition, these projects should help Europe reduce the potential for a power-capacity crunch as utility companies have stalled on building new capacity in the current chaotic policy environment.
Slovenia has two Core Network Corridors crossing it, which will see improvements according to the Ten-T investment plan: the Baltic-Adriatic Corridor, which extends from Polish Baltic ports to Koper in Slovenia on the northern Adriatic coast; and the Mediterranean Corridor, which connects, across all transport modes, Iberian ports with the Ukraine border. Other projects up for investment consideration include core and comprehensive works at Koper port, and Ljubljana, Marobor and Potoroz airports.
Residential And Non-Residential Building Still Lagging: Prospects look less bright for the residential and non-residential sub-sectors. Growth in the residential sector is being dampened by the massive stock of unsold and empty dwellings in the market, which is discouraging new investments in the sub-segment. Meanwhile, Slovenia's banks and corporations are carrying large debts, which will dampen project financing activity until the situation has been addressed, possibly during a forecast period of economic stability and further government bailouts.
Slovenia will remain third in BMI's Risk/Reward Index for Central and Eastern Europe, having fallen from third in 2013.