Production of building materials booms in Azerbaijan
Economy23 October 2019, 16:50 94
Significant growth is observed in Azerbaijan’s construction sector, in particular, in the production of building materials, Azerbaijan’s Deputy Economy Minister Niyazi Safarov said, at the opening of the Baku Build 2019, the 25th Anniversary Azerbaijan International Construction Exhibition, held at the Baku Expo Center. The deputy minister noted that over the past five years, the production of building materials in Azerbaijan has increased by more than 70%. "This is a good indicator proving the high growth dynamics in this priority area of the economy,” Safarov added. "During the same period, 17 Azerbaijani construction companies received investment documents, and this is also a positive result. Much attention is paid in Azerbaijan to the development of the non-oil sector of the economy, and serious efforts are being made at the state level to develop the construction sector and implement major infrastructure projects.”
The head of state also pays special attention to this issue. Azerbaijan has turned from a cement importing country into a cement exporter over the past eight years, President Ilham Aliyev said a while ago at a meeting with a delegation led by Chairman of Germany's Committee on Eastern European Economic Relations Wolfgang Büchele. Speaking about the construction materials sector, the Azerbaijani president stressed that a big cement plant was built in the country. Big investments are made in this sphere, President Aliyev added. He noted that the demand for cement will be high given Azerbaijan’s growing economic potential, implementation of the approved regional development programs, important infrastructure and construction projects to be reflected in the next five-year program and financed by the state, expansion of housing construction, construction of new plants, and increase of the population. From this point of view, foreign companies can only win from investing in the construction sector, the president said, stressing that one of the upcoming tasks is to fully meet the country’s need in construction materials. It should be taken into account that Azerbaijan has enough resources and local production of construction materials has grown significantly over the past 10 years, he added.
What is the significance of this increase in Azerbaijan’s economy? How does the increase in the production of building materials affect prices in the property market?
According to economist Rashad Hasanov, the main issue is to reduce the inflow of foreign currency related to the industry. "With regard to the production of building materials, we are talking about a narrow range of primitive materials. Specifically, the range of manufactured products is very narrow. However, if we were to assess the situation, it is important to take into account that reducing dependence on imports is one of the main objectives in the Strategic Roadmap. At the same time, the devaluation of the manat has significantly increased the ability of domestic products to compete on the market, and imported goods are more expensive. This increases the demand for local products. This, of course, encourages manufacturers to improve product range and service levels. The main issue in the current situation is to reduce the inflow of foreign currency associated with the sector. This may lead to a relative stabilization of prices in the property market. Increasing production in this area is also important in terms of employment,” he noted.
Expert Elnur Farzaliyev said the real estate market and the construction industry are developing interactively. "The construction industry is the most profitable in the non-oil sector, benefiting the country's economy. Most of the materials used in construction are produced in our country. The increase in construction will have a positive impact on the expansion of the manufacturing sector as well. In other words, these two areas are developing interactively. These materials are used in apartment construction and later in the renovation process. Just think about how many high-rise buildings are in the country. Each building has more than 100 apartments. All of this has an impact on the expansion of the construction sector. The increase in the number of buildings stimulates the development of the building materials industry. We are already starting to build these buildings with local production,” he said.
Farzaliyev also commented on the real estate market prices. "If we look at the prices of building materials on the market, we can see that there is no significant price difference between local and imported materials. Therefore, the new situation does not affect prices in the real estate market. If there is a significant price difference between imported materials and domestic production, there may be a reduction in house prices,” he added.
Ramil Osmanli, a real estate expert, said the figures are not so convincing. "It's true that there has been an increase in local production in recent years. But it is impossible to say that it is specifically 70%. If that were the case, then the volume of imports would have dropped by 20%, meaning that the market would have to be 80/20 in favor of local production. But this is not the case. Once again, there is an increase. But not 70%. Studies show that the ratio of imported products to the local market is about 60/40. This number changes every year. Although domestic production has increased in recent years, it has not led to a restriction on imports. In addition, there are many building materials that, although manufactured, are not very competitive. But there are enough raw materials in our country for the production of some building materials. Yes, we must admit that in the last 5 years, domestic production has surpassed imports in Azerbaijan. Unfortunately, the increase in the production of local products does not necessarily lead to a fall in prices in the building materials market. Local manufacturers apply pricing policies adequate to those imported. I think that even if the field of building materials is supplied 100%, it will not have a significant impact on the real estate market in the current circumstances,” he said.