The Phoenix and the Building Sector in Euskadi

Just like the mythological phoenix bird, the Basque construction sector intends to rise up from the ashes and renew itself. For months now, the sector has been facing a critical situation with a general drop in activity as a result of both, the recession, and, an increase in foreign competition. Company shutdowns, employee lay-offs, receivership proceedings, and a mad and reckless scramble for new markets; so bleak is the panorama, that sector survivors are being forced to reinvent themselves.

Taking a look back over recent history, we see that the weight of construction in the Basque economy has traditionally been limited (in the 2005-2007 period, during the heyday of the building boom it never exceeded 10% of GDP). Nonetheless, following this period, it dropped to a mere 7% of GDP in recent years, a figure which oddly enough, concurs with that of the year 2000.

Looking to the future, however, expectations could hardly be described as promising either, although they do vary slightly according to the niche specialisation. Furthermore, the new climate of political accord might help to reactivate a number of big infrastructure projects deemed to be decisive to the survival of the sector.

Could this amount to a lifesaver? Perhaps for a while, but they will never be enough to guarantee future competitiveness. This is because, above all, the drop in activity has made manifest the change in the paradigm in the Basque construction sector. Traditionally, the focus of medium-sized companies has been local in nature, with an undifferentiated service and a reactive approach to the market/client, solely focused on project execution, and sadly, with an attitude tainted with clientelism. Today, this model is now no longer valid, and a series of political, economic and social changes confirm this.

On a political level, these changes are connected with new priorities in public investment. They are also linked to the progressive commitment to renovation and energy efficiency, the development of “green” infrastructures, and the growing need to commit to new formulae of lasting collaboration, rather than simple Temporary Joint Ventures.

In terms of the economy, opportunities do not abound. Increasingly, opportunities are linked to the specialisation of activity, the internationalisation of differential parts of the value chain, the business diversification in search of new related activities, or the innovative use of new materials and technologies.

Then there is the social arena. Socio-demographic changes (aging population, levels of dependence, family typology, income, etc.) are demanding new business models, and are accelerating the technological development of cities and infrastructures, making them more accessible, green and smart.

In conclusion, there are two certainties to consider. Firstly, and historically speaking, not only has the importance of public spending in construction caused a delay in the onset of the crisis in the sector, but it has also meant its recovery vis-à-vis other sectors of the economy has been slower. Secondly, the sector requires that profound changes be made to its models of value creation and approximation to the markets, if there is to be a rebirth (without having to wait 500 years, like the phoenix).

* Originally Published in Estrategia Empresarial. 1 – 15 October, 2013 Issue.

Oscar Valdivielso

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