Market trends
Competition
Specificity of the market
The future of the sector
Useful contacts in the sector

Portugal is a high priority market for the building materials sector. This is because the country continues to invest heavily in infrastructures and housing. It also continues to benefit from substantial EU funding and plans significant investment in major projects related to construction of the new airport in Ota and the high-speed rail links.
Traditionally this sector is considered as one of the engines of the Portuguese economy and one of the sectors that generates employment. This sector is responsible for circa 12% of employment rate, 6.5% of the GDP. Its activities also generate multiple effects in other economic activity sectors.
However since 2003 the sector has registered a decrease in investment and the sector only recovered a little in the beginning of 2004 due to the hosting of the EURO 2004 football championship. 
As a result of the recession cycle that has lasted since 2004, the construction sector suffered a production break of almost 20% and lost around 74,000 jobs. At the moment some companies are experiencing difficulties in selling houses and in the civil engineering activity.
In 2005 the situation suffered an aggravation with further job cuts (more than 10,300 jobs were lost), in the consumption of cement (-3.8%), the number of licences issued (-5.5%) and in decrease of public tenders (- 11%). In 2005 the sector will have a production break of 4%.
The National Budget Plan for 2006 predicts a negative analysis considering the reduction of the expected investment for the sector, including public works.

Characteristics of Market
Construction

The Portuguese construction market is worth about £30bn. It sustains 92, 927 (2002) companies, holds an average of 4.7 employees per company (2002). In 2005 this sector employs around 544,800 people. 

The number of companies in this sector varies depending on the sources of information. According to the data provided by INE, in 2002 the construction sector had around 93 thousand companies, which represented circa 15% of the companies in the production sector in Portugal.
According to the IMOPPI - Instituto dos Mercados de Obras Públicas in 2003 there were 43 thousand legal companies and around 16 thousand illegal. The business volume is around €285,9m per company (2002).

In September 2005 the employment and the volume of work in the construction sector registered a low performance and a decrease of 3.4% e 2.8%. Meanwhile salaries increased 0.6%. In comparison with August 2005 the level of employment decreased 0.5% (-0.6 % in August). The variation tax of the last twelve months was of - 3.9% (-3.8% in August).
(INE September 2005)
Very few foreign contractors operate directly in the market, but several French and Spanish companies have significant stakes in local companies.

Building materials

The companies involved in this sub-sector are mainly producers of five products - ceramics, cork, wood, metal products and ornamental stones. This sub-sector includes more than 5000 companies, 15% of which are exporters.
The market for building materials is estimated to be worth £16bn per annum. About £750m worth of materials are imported, primarily from EU countries. Distribution in the market is fragmented - there are close to 1,100 wholesalers and over 6,000 retailers. The majority are small companies employing 6 to 10 people that operate exclusively on a regional basis. Only 20 companies have annual turnovers of £10m or more.
The latest export value of Portuguese building materials has reached around €1.2bn, and the main markets are E.U. member states, USA, Japan and it encompasses users in housing, commercial as well as hotel construction.
Apart from being highly fragmented, the builders' merchants tend not to specialise in particular ranges of products. Most companies sell heavy (cement, sand, bricks, etc) and light (sanitary ware, plumbing accessories, floor and wall coverings, etc) products. Only a few specialise in pre-stressed concrete products, HVAC equipment, paint, timber floors or wallpapers, etc.
This sector includes mostly small and medium sized companies: in the sub sector of the non metallic minerals 74% of the companies have less than 9 employees and a sales volume of € 0, 1m per company. On the sub sector of other materials there is around 2 900 companies.
The builders' merchants' main customers are mainly large contractors and public entities (25%); small and medium sized contractors (35%); construction industry professionals (15%); private individuals (15%) and other retailers (10%).
Some large national and foreign groups have recently entered the market and set up branches in the country’s largest cities. These groups include MaxMat, Aki, Mestre Maco and Bricomarché. These groups have rapidly established themselves as the largest merchants operating in the market and also the ones with the widest geographical coverage.
An increasing number of small independent builders’ merchants are joining APCMC's (Builders Merchants' Association) CentralMat central buying office operation, probably in response to the large group's entry into the market. CentralMat buys in bulk at discounted prices for quantity purchases and sells at market prices - thus affording larger profit margins to its shareholders, who buy only small quantities as independents.

Market trends

By its characteristics the construction sector is orientated for the internal market, the commercial relations  with the exterior not being very relevant. The civil construction sector needs to invest in markets where it can have economic benefits, for example Africa, Brazil, Spain, etc.
To overcome the constraints which create some difficulties in the access to the big international and European markets, the companies need to become efficient and competitive. According to the INE conjuncture analysis for the first 2004 quarter, and after the strong contraction in 2002 and 2003, the sector seems to resurge slowly.
The expectations are less negative in all the activity segments, namely in the public works construction. The investment in the housing segment does not give recovery signs due to decrease of the number of licences issued; however the recovery of the sector might be in the implementation of recovery works in order to implement the new renting law disposals.
POLIS, an €800m central government-funded programme for the restoration and improvement of city centres has just started and should lead to numerous opportunities for restoration and other building materials and services.

Competition

Competition in the sector is intense, from both domestic and foreign suppliers. There are nearly 100 well-established local manufacturers of building materials. They manufacture products ranging from clay bricks and other ceramic products to PVC window frames and top quality bathroom fittings.
There are also several well-known foreign suppliers, such as Gröhe, Henkel, Sika and Weber & Broutin, who have established their own local manufacturing facilities. Others, such as Roca, have taken over local distributors.
Spain, Italy, Germany and France are Britain’s main competitors. Spain supplies almost a third (£250m) of all building materials imports. Britain exports an average of £30m.

Specificity of the market

The quality of personnel in the Portuguese construction sector varies widely. There are a number of well-qualified and internationally respected architects and engineers who bring quality and innovative technology to the market. Much of the labour force is, however poorly trained. Pay levels are about 60% of those in Britain.  This factor also influences the low productivity in the sector. To improve this indicator several training programmes have been implemented, namely the management advanced programme for construction and public works executives, conceived in collaboration with some companies in the sector. These programmes aim to rethink the companies’ strategies and organisation in order to prepare them for a context of international competition and the entrance in the Portuguese market of foreign companies
These factors often hinder the introduction of new construction technology and can force contractors to downgrade architectural and engineering specifications.
Also, both engineers and architects have the right to "design" buildings, which can have a negative effect on developments in the range and quality of building materials used in the market.
Planning and project management in Portugal tends to be poor and can result in over optimistic deadlines. This can lead to reductions in the quality of the materials used and delivery dates.
The quality and innovation in this sector are very incipient.  The innovation programmes cover traditionally advanced technology sectors, but the trend is applying it to other sectors, including the construction.
The execution of policies that mitigate these conditions might re-launch the sector, such as the new licence legal regime, reduction of the late payments from State to companies, etc. The development of training, information and regulation activities are a priority and might contribute to an improvement of the sector productivity levels.

The main restrictions on the sector are the following:

Oversize
Strong competition
Bureaucracy and fiscal measures
Labour force poorly qualified

The internationalisation of the sector appears to be the solution to the excess of capacity of the domestic market. The quality and innovation are determinant for the success of the construction companies, namely in the quality of the projects, construction materials ecology and environment concerns.

The future of the sector

The construction sector has progressed during 2005 in a very unfavourable manner. After some recovery signs in the period between May and August 2005, the production rhythm of the engineering segment registered a very negative result. The entrepreneurs of the sector are very concerned with the future of their companies.

Despite the negative evolution of the sector, globally the percentage of use of the companies’ production capacity was superior to the registered one year ago. (73, 3 in October 2004 and 76, 3 % in October 2005).

The entrepreneurs have also identified main obstacles to the development of the companies' activities, the low level of the demand for the sector products, the high fiscal obligations and the late payments from the State.

The entrepreneurs involved in the public works identify other obstacles namely the reduced number of public tenders, excess of competition and the delay in the administrative processes.

Concerning the future evolution of the sector, the entrepreneurs still have a pessimistic view relating to the production perspectives, employment evolution or either the applicable prices. 

Concerning the private works, the investment contraction results from the weak economic growth and the uncertainty generated from the recent alterations to the patrimony taxation. Therefore ANEOP projects a break of 8% in the housing construction production. The recovery might begin with several new public projects in 2005 and 2006 namely the Douro Litoral concession and the  high-speed rail network.

According to the specialists in the sector a way to recover construction activity in Portugal would be to utilise properly the potential of the rehabilitation market in Portugal. For that purpose it would be urgent to eliminate the financial and legal constraints that make this market unattractive. In Portugal rehabilitation represents 5% of the total of the civil construction sector, against 24% in Spain and 33% of the European average.

The internationalisation appears as another alternative to some companies, with good examples of some Portuguese companies that are working in the already existing external market, namely in Latin America and Eastern Europe.

For the period 2004/2006 a a moderate increase of the construction sector in Europe is expected .