Levan Vepkhvadze, executive director of the Business Association of Georgia (BAG) declares that ongoing infrastructure projects might halt without increasing funding.
Vepkhvadze says that prices hit a record high and companies do not have enough resources to deal with the problems independently.
"The problem started during the pandemic, there were problems in the supply chain from the second half of 2020, which made the materials more expensive. The second effect was in 2021, when inflation was added to all this. The labor force has become more expensive. And now, in 2022, the war has taken the supply chain out of context altogether. Major supplier markets Russia and Ukraine are closed. You know, factories are being bombed in Ukraine, while there is a problem with money transfers to Russia. Accordingly, we have such a situation: either we have to stop these projects and tell these people not to go bankrupt, as we will return them their bank guarantees. The second option is to review these projects increase prices to the appropriate level.
I think there is a common-sense in the government to find a solution ... Now the question arises to think of a fair scheme so that the projects are completed and there are no question marks in the direction of managing public finances.
Construction materials have increased in price by 25 to 70% from 2020, labor force - by 50-60%, this can be counted and reflected in the costs that companies have, "- said Levan Vepkhvadze, CEO of the Business Association.
A bit earlier, Infrastructure Construction Companies Association (ICCA) organized a meeting between Economy Minister Levan Davitashvili and construction business. At the meeting, the representatives of the sector talked about the challenges in the field, the most important of which was the recently increased prices for construction materials.
Building companies declared that cost of materials increased by 50-70% due to the ongoing war.
The sides agreed to set up a working group with the involvement of public agencies and the private sector, which would study the situation in the field and overcome the challenges, which should present the solutions to the problem to the sector in the near future.
"The problem concerns all companies that implement infrastructure projects. Everyone is at risk of not being able to fulfill the obligation they have made or if they fulfill, then they might face insolvency. This problem has pushed back all the other global issues, so we expect a quick response to the issue”, - Executive Director Ana Sabakhtarashvili said.
Zviad Toidze, CEO of the construction company Insi, says that companies will not be able to cope with the crisis without price adjustments by the state, as their profit margin averages 8%. Toidze thinks the project budget should increase by an average of 10-15%.
"The meeting was attended by representatives of the Ministry of Economy and Infrastructure, various customers, the Minister listened to everyone's position and promised to set up a working group in the coming days, which should solve these problems very soon, otherwise it is impossible to continue working.
The increase in materials is on average 30%, in some cases the price has increased by 50% and in some cases even 70%. According to the contracts, it is difficult to say how much the funding should be increased, but in our opinion the price increase should be at least 10-15%, if the prices do not go up further”, - Zviad Toidze said.
