The Ukrainian Union of Lessors, with the support of the USAID Financial Sector Transformation Project grant program, is launching a study of the problems, opportunities, and prospects of leasing in the field of road construction.
The Association is the only professional association in the industry. Its member companies generate more than 80% of Ukrainian leasing new business. UUL is actively working to promote leasing, raise awareness of small and medium-sized businesses with the benefits of this type of financing, improve the regulatory framework, protect market participants and more.
The Association also organizes market research, potentially promising in terms of renewal and modernization of fixed assets in them with financial leasing instruments. A study of the potential of leasing in the field of road construction has recently begun.
Why this direction is important
Ukraine has about 420 thousand km. roads, and most of them are worn out and in need of renovation. In addition, the country has the second lowest road density in the region (lower only in Bulgaria). For comparison, Poland has about twice the density of roads compared to Ukraine. This indicates the need to significantly expand the road network. Also, according to some estimates, only 7% of roads in our country are in good condition. The cost of reconstruction of the remaining 93% of roads is estimated at about UAH 2 trillion. (or about $ 75 billion).
In 2016, the Ukrainian authorities began to take measures and allocate funding for the reconstruction of roads within the country.
The amount of funding for road works per year:
2016 – UAH 19.4 billion
2017 – UAH 20 billion
2018 – UAH 32.6 billion
2019 – UAH 56 billion
2020 – UAH 70 billion
As you can see, the amount of funding for road construction is constantly growing. Active players in this market are companies that specialize in road works and have experience in such works in Ukraine. In total, there are about 150 such companies. Among these companies are both Ukrainian players and companies with foreign capital.
An important condition for the implementation of state plans for the reconstruction of roads is the successful operation of the executors of this reconstruction under competitive conditions. To ensure such activities, given the sudden growth of the market, such companies will need significant resources to increase their capabilities. The main among such resources are the mechanisms of financing equipment and machinery, which ensures the implementation of contractors for the reconstruction of roads.
What leasing will be able to give the road industry
Road construction is one of the most promising and dynamically growing sectors of the economy, so it needs modern technologies and a modern fleet of specialized equipment. Leasing is a very effective financing mechanism for the purchase of equipment and machinery. Under today’s conditions, it can provide companies engaged in road reconstruction with the necessary resources to increase their production capacity.
Last year, Ukraine’s lessors financed transport and equipment for the real sector of the economy by UAH 26 billion. But the share of road machinery in this portfolio is negligible. This is explained, in particular, by the crises of previous years, where the solvency and payment discipline of road builders were extremely low.
Today, the industry is clearly on the rise, and this is a good opportunity to bridge the information and communication gaps between potential partners in this industry for its strong growth. In particular, the Global Study organized by the Association of Lessors of Ukraine and the USAID / FST Project will serve this purpose.
Analysis of the current situation, study of international experience and outline prospects for cooperation in the study will allow :
- Lessors – to deeply understand the specifics and needs of the road construction market. Restore confidence in him.
- Road builders – to see the opportunities and benefits of renewal and modernization of fixed assets through financial / operational leasing tools. Be able to finance your business with alternatives to a bank loan and much more affordable than it is.
- The state (line ministries and departments) – to understand the importance of innovative renewal and modernization of the DB sector and the introduction of mechanisms to stimulate such processes (through the introduction of compensation rates, fiscal incentives and outreach to market operators).
The study will be completed by the end of August and presented to all stakeholders.