In 2015, the construction activity in Romania accelerated markedly, and was estimated to have expanded by 10.4% year on year, after a probable 1.0% recovery recorded in 2014. Last year, the increase in total construction output was caused overwhelmingly by the solid performance of the civil engineering subgroup, which, according to preliminary estimates, surged year on year by 20%.
The boost in civil engineering activity was inhibited, in part, by a 5.8% fall in residential construction output. In an analysis of growth in 2015 in terms of the manner of implementation, it is estimated that all kinds of work lifted up construction output last year. According to preliminary estimates, new construction output expanded by 5.2% last year, particularly because of the massive contribution from the public sector. Furthermore, spending on extensive repair construction projects surged 31.8% last year, whereas maintenance and current repair output increased by 13.3%.
The political factor is thought to have been the key impetus behind the negative rate of growth in construction activity in Romania in 2012-2013 and only a marginal rebound in 2014. It is thought that the government has deliberately reduced capital investments during the period in question, in order to have more financial resources to increase benefits to the population, which were ultimately to help to improve the ruling coalition’s standing prior to the crucial presidential election held in November 2014.
However, the presidential election held at the end of 2014 was won by the opposition candidate. The ruling coalition and the Social Democrat Prime Minister, who lost the 2014 presidential campaign, were poised to boost capital investments in 2015, particularly in transport infrastructure projects, in order to absorb as much EU funding as possible allocated to Romania for the 2007-2013 programming period and to start to improve the coalition’s standing prior to the parliamentary election scheduled for late 2016. That left-wing government was, therefore, constrained to implement more “liberal” incentives, particularly boosting investments in infrastructure projects, and legal changes in order to increase its approval among centre-right electors. Moreover, Romania’s anti-corruption drive has deepened strikingly in the last few years, and the positive trend is poised to continue, thus making politicians at all levels more responsible for spending public funds. It is worth noting that the Social Democrat Prime Minister, who had steered the government since May 2012, resigned in November 2015, and, implicitly, the whole government.
In 2015, an upward trend returned in the civil engineering subgroup, with a preliminary year-on-year increase of 20%. This performance principally reflected the low base for comparison. Between 2009 and 2014, the Romanian civil engineering subgroup expanded year on year in real terms only once, in 2011, when it boasted only a 0.1% increase. From a year-on-year perspective, the flat dynamics in civil engineering activity in 2011 partly reflected the low base established between 2009 and 2010.
As noted previously, in 2015 the construction industry in Romania was buoyed mostly by civil engineering projects, which was, along with the very low base for comparison, increasingly supported by the fact that the absorption rate for EU funds has been improving, as well as by the striking increase in allocations of public resources. At the same time, the residential subgroup, almost exclusively capped by the very high base effect, was not able to keep up with the pace seen in civil engineering activity. Nevertheless, it should be noted that the negative figure for residential construction activity in 2015 is a preliminary estimate revealed by the INS, and that there will probably be an upward revision once the final data has been published.
In 2015, revenue from the sale of engineering construction services is estimated to have accounted for 45% of total construction output. The performance of civil engineering construction in Romania relies largely on public funding in areas which make up this market subgroup, particularly road, railway and environmental infrastructure. Within civil engineering work, transport infrastructure has accounted for 58-63% of the total work in each year since 2008.
One of the main reasons behind the falling civil engineering activity between 2009 and 2014 was the low degree of EU funds absorption. Within the Structural and Cohesion funds for the programming period 2007-2013, for Romania was allocated €4.3bn to be spent on transport infrastructure. However, Romania was able to absorb only 63% of the €4.3bn allotment. Among the main reasons behind this low degree of EU funds absorption were complex and time-consuming procedures related to administrative authorizations as well as many litigations submitted by contestants, which have generated significant delays. The Romanian government is determined to tackle the barriers to the implementation of trans-European transport infrastructure projects in the 2014-2020 programming period. An important step towards this goal is the Governmental Emergency Ordinance No. 7/2016 approved in March 2016. Romania is poised to continue to improve its absorption capacity for developing funding, given that in the 2014-2020 programming period it is due to have access to €5.1bn of EU funds for the development of its transport infrastructure, which is 19% more than in the previous period.