Vladimir Zhitenski is Deputy Chairman of the Board of Directors and Executive Director of GP Group AD. He is also Deputy Chairman of the Management Board of the Bulgarian Construction Chamber (BCC).
Mr. Zhitenski, it is much easier to talk about the economy and the construction business in prosperous times. But what do you think is happening now?
The world, the economies and the reality are now different from everything we have seen. The useful lessons from this situation are that measured "fear" mobilizes and unites people. The general "fear" is used only as a means for demagoguery. History has naturally been created by some and documented by others. That is why there is no exact formula at moments like this. The present has many unknowns and this year is a turning point for all those who must lead countries to the future, to the processes at the state, interstate and global level. I do not support the thesis that the "good years" are the basis of success. Behind a successful year for business, regardless of the economic sector in which it operates, are, first and foremost, hard work and the innovation of the human resource. Because the information age is a fact, but without PEOPLE and their skills we will not see the global leap. The current 2020 and the firing crisis following the spread of COVID-19 undoubtedly pose enormous challenges, not only to individual sectors, markets or countries, but to the entire humanity.
What challenges lie ahead?
The pandemic has turned into a global crisis. Understandably, the initial efforts of the global community were directed towards ensuring public safety and support for the health systems.
Henry Kissinger wrote that the world would not be the same after the coronavirus. However, all the efforts for managing the crisis, no matter how big and necessary, should not distract from the urgent task of launching a parallel effort to transition to the post-coronavirus new world order. The economy is entering a new era, with new patterns. A "new time" is coming, and the pandemic has simply accelerated the process. And now it is time to make a personal choice - it is the only thing that virtually everyone has. The question is where does this choice leads us to. On the one hand, the pandemic situation allows businesses that are innovative to restructure capital, its movement and forms. The options available in this direction are on the rise. Based on online trade relationships - this is a single choice for economic recovery during and after the pandemic. The other option are constructions workers and sectors in which the main driving force is the human factor in the field.
But did we go in the right direction?
I believe we are going in the right direction. And I can thank the executive branch, which is adequately trying to create an environment for its core capital - PEOPLE! I will only say that the historical facts in this direction of construction and economic development are taken into account. None of the statesmen who have built something has taken it away with them. They have left it for the world, for their country, for the cities and for humanity. That is why we appreciate the contribution of the pyramids in Egypt, the Acropolis in Athens, the Colosseum in Rome, the Arch in Paris, the St. Isaac's Cathedral in St. Petersburg, the Kolyo Ficheto bridges in Bulgaria, the Great Wall of China and the San Francisco-Auckland Bridge in the USA. All the colossal constructions were supported by statesmen who have looked forward to the future generations, and have not put on the "glasses of the mandate". And in Bulgaria this has been actively happening for the last ten years.
Construction is a kind of barometer for economic crises and economic recovery. What phase is the construction business entering now?
Construction, not only in Bulgaria, in recent months has been one of the few sectors that continued to maintain levels of operational activity. Fitch Solutions confirms this observation, predicting that the global construction sector will report at least a minimal growth of 0.9% compared to last year. At the same time, the European Commission predicts that the European economy, and the eurozone economy in particular, will record a record 7% decline this year, while inflation will almost disappear, unemployment will rise and budget deficits will rise dramatically to levels of over 8% of the GDP with a sharp rise the levels of the government debt.
Against this background, what does the construction sector look like?
It is expected that a number of factors will have a negative mid-term impact on it. The main risks are:
§ Volatility and uncertainty in the supply of materials and services;
§ Delays in performance and payments;
§ Liquidity difficulties for smaller subcontractors;
§ Termination or postponement of investment intentions.
There has been a lot of talk lately from known and unknown "experts" – many, many, many words have been thrown in - most of them, probably, paid. They talk, talk, talk… But without specific suggestions. There is a principle in the army that I see some have forgotten. The commander says, "Do as I do!" Shows and leads the army by example. In our specific case, we are witnessing that our industry is led by the governing body of the BCC in accordance with this principle. If we follow the quote that "Good infrastructure makes the country rich", then we are grateful that the sector not only did not stop, but was encouraged to work at full speed, in accordance with the situation. Such actions guarantee economic recovery. If construction stops during a crisis, you cut off the heart of the economy. And there are no artificial heart prostheses.
What problems are starting to emerge for the construction industry?
The challenges are different and of different magnitude for the subsectors of the construction industry. Housing and infrastructure construction will be affected differently. Companies specializing in different types of construction will have to formulate specific reactions to the new market circumstances. I expect the negative effect of the crisis to affect companies to various degrees, depending on their capital structure. Market participants with high levels of borrowed resources (loans) and low levels of cash resources may experience liquidity difficulties given the possible delay in payments. It is the delay in payments in the industry that is a factor which would provoke a chain reaction that will affect the more vulnerable market participants - small and medium-sized subcontractors. In a number of EU economies, a significant decline in public construction projects is expected, caused by changed priorities and a deterioration of the debt-to-GDP ratio. In this respect, Bulgaria is entering the crisis with much more favourable indicators, which should lead to less stagnation in public investment projects. Private projects, respectively construction companies engaged mainly in such sites, are expected to be more severely affected due to the risk of freezing or termination of investment intentions.
What do you think is the solution?
In order to overcome all the consequences and minimize the damage, together with the Bulgarian Construction Chamber (BCC) we are developing a five-year program for the development of the industry.
You are vice-president of the Chamber. What will be the role of this branch organization in this time of new transformation?
BCC is a professional organization with a huge human resource. Its vision, strategy and policy have always been focused on the prosperity of the MAN who BUILDS, the CONSTRUCTION MAN. And there are over 200 thousand of them in Bulgaria. The priority is to keep them healthy while at work. Together we create a product that will lead our country forward, and each builder is part of the big family of BCC. Similar to the fight against the pandemic in the field of medicine, a successful approach in the construction industry should be based on consolidated efforts. Our goal is to provide work, livelihood and physical survival for hundreds of thousands of PEOPLE. We can and must do this. We do not seek help, we want to help. And we can help. The Bulgarian Construction Chamber, in cooperation with the government, discussed on the preparation of a possible strategy for the coming years, which will determine the key projects and the necessary resources for their implementation on the basis of thorough analyses.
What kind of changes are necessary?
Every day we work and analyze, in order for our decisions to be adequate for at least a five-year period. One of the changes is the legislation - Spatial Development Act, Public Procurement Act, etc., where the rhythm and frequencies with which we work today do not meet the morally outdated norms. The second direction is related to innovations and new technologies in our industry and the development of our main resource - PEOPLE.
What approach does GP Group adhere to?
The company, though not common in the sector, has always maintained an extremely conservative approach to the attracted resources. This allows us to adequately meet market fluctuations.
12 years ago, there was a lot of talk that the crisis was an opportunity, and then new opportunities really emerged. Do you already see the outlines of some of the business opportunities?
The crisis not only creates new opportunities, but is also a catalyst for rethinking the strategy and priorities regarding internal organizational projects related to risk management. A catalyst, because the topics related to risk management have been on the agenda of the sector for quite some time. Some of the topics include:
§ Rethinking the supply chain and services;
§ Maintenance of crisis-resistant capital structure;
§ Adequate prioritization of the portfolio of future projects;
§ Digitalization in the construction sector.
I consider it important to improve the quality of contractual relations in the sector. One of the solutions that we at GP Group are developing is the so-called Contract Management. This allows us to react individually and proactively by adapting our contractual relations with our contractors. The aim is to report together with our clients changes in circumstances and at the same time to ensure the implementation of projects. The aim is for companies to build a kind of "immunity" to future crises, which will undoubtedly take place in one form or another. That is why scientists, experts and developers of new technologies must play a key role.
Until recently, the shortage of staff was putting a brake on growth, but during a crisis many people become redundant. How to approach a situation like the current one?
In process management, one is always looking for the optimum - the elimination of extreme values and the calm inertial navigation along the river are the optimal combination of all growth factors. That is why GP Group has always viewed human capital as the most valuable asset and resource in its business. Undoubtedly, in recent years the construction sector in Bulgaria has been placed in a highly competitive environment, not only against local participants, but also because of the opportunities that people saw outside Bulgaria. We have not seen this circumstance as unusual. Since we strive to be an internationally competitive company, we cannot be uncompetitive in the conditions we offer to our employees. At GP Group, the team has always been paramount, which is why investing in additional qualifications and upgrading skills is an everyday priority for us. We can proudly call our company Heart team oriented - about 50 percent of our staff are long-term employees, with whom we grew and improved together. We are convinced that this does not only apply to the construction sector in general. Companies that manage to retain their quality staff and continue to invest in them will be leaders in their field after COVID-19. We also recognize the need for more active and adaptable academic and professional training.
After the complete halt of certain businesses and the total slowdown of the economy, a restart will have to follow, which will lead to a new "normality". Who will be the engine of this process?
Don't you think that every Bulgarian is Robinson Crusoe? And every sector is a port, and every company is a hut on a lonely island? Bulgaria is not an isolated island. Our economy and industry are closely linked to other markets. This brings great potential, but also a serious risk of spillover negative effects and crises from other latitudes. Similarly, in a national economy, individual sectors - such as tourism, air transport, trade and others, which were particularly affected by the crisis - are also not isolated in their activities.
The difficulties they are experiencing will also have an indirect effect on the whole economy. I believe, without underestimating the great role of politics, which should create impulses and a predictable business environment, that the real engine will not be a separate industry or a separate sector of the economy, but entrepreneurship as such.
With this rapid change on the horizon, what are the important things for you now?
"If you don't hear the mosquito, you'll never hear the drum!" I repeat myself, but the most important thing for me is to preserve the main "capital" of the state - the PEOPLE. To keep them healthy and strong spirited. Without PEOPLE there are no "important things". Without PEOPLE, there is no rise. We need to adapt the business to the changed market circumstances, but not at any cost. I believe in the social responsibility of both economic entities and us as entrepreneurs. It is easy to be a socially responsible company in times of economic growth. It is even more important to continue to be so in times of crisis. Similar to the humanity and empathy we have seen happening across Europe, I believe that the corporate world should also contribute to overcoming the social and economic challenges posed by COVID-19.
What thoughts occurred to you during the time of mass social distancing that we have never experienced before?
I think we can describe life into one verb - "I see". At the very beginning of my entrepreneurial activity I started to follow the maxim "Let's focus on what we know best with our team", namely - to build. That is where we can create added value. We have not always been able to follow this principle, and although rarely, we have occasionally defocused from our resources and our specific know-how. My thoughts are with a great deal of optimism about the future, but also with a critical look back at ourselves. The expression of the British "back to the roots" is a direction in which I am thinking. I will say it more clearly - if you forget about your roots, your crown begins to dry. We cannot and should not allow it.