Types of Finance for Construction Companies in EU. Access, Risks and Return on Investment

Abstract

Here I made some explanations regarding the research questions and their importance for potential users. Nowadays, the construction industry combines the economy and society. According to the data mentioned by European Commission and stipulated in the European Construction Sector Observatory Report, the sector generates nearly 9 percent of the European Union Gross Domestic Product (GDP) and creates around 18 million job opportunities. In 2012 the European Commission established a European Union (EU) long-term sustainable growth and development strategy, and the development of the construction sector was an essential element of it. The Strategy included an Action Plan, which contained the following steps to help to withstand the existing challenges, improve investment conditions and maintain the healthy competitiveness of the sector: - To enhance favorable investment conditions and to increase public and private capital injections into the construction sector; - To improve credit resource efficiency and create new business opportunities; - To promote EU construction companies to become leading players in global markets. The Strategy supports various construction projects: from small-scale domestic building renovations to large-scale infrastructural projects (energy, public utilities, and transportation). How did I go about answering the research questions? In the frames of the research project, I set up the scope of precise research questions and research objectives, which I described in the next section. I used both primary and secondary data to carry out the analysis and provide certain conclusions. However, upon giving key findings, I understood that there is still room for further research and investigation. The research project aimed to identify and investigate financial tools, which construction and real estate investors and managers could implement to achieve higher returns on invested capital, taking into consideration a project’s type and size company. As a rule, the larger scale the company has, the more financially stable it is, and, therefore, quick and lower the price for the employed capital it has to pay. Nevertheless, small and medium-sized companies can demonstrate sound operating performance and execute value-creating projects by working closely with financial institutions and participating in target governmental programs. The research also aimed to analyze what barriers, obstacles, and risks small construction companies meet when seeking capital. Even though recent reporting materials have shown the growing access to finance for construction and real estate investment companies, especially for small and medium-sized, there are still difficulties remaining. The research project aimed to elaborate measures tailored for the target market participants. European and international significant project finance cases were investigated in the frames of the research. Such projects have demonstrated the growing importance of public sector investments. The increasing demand for public capital creates mutual and beneficial opportunities for key project stakeholders. What did I find out in response to my research questions? What conclusions do I draw regarding my research questions? In frames of the research, it was revealed that large Public-Private Partnerships infrastructural projects demonstrate (or at least can demonstrate) relatively higher return rates, both for public investors / public debt holders and equity holders. However, project finance theory and practice require a deep knowledge of innovative financial instruments and advanced financial modeling experience, excellent collaborative skills, and sound technical background. Such projects, as a rule, involve numerous stakeholders, and the most important thing is to arrange smooth communication and implement principles of alliancing, such as growing involvement from senior management, different styles of management, and outstanding leadership skills. Furthermore, the leveraged capital structure requires a qualified project management team. The research aimed to reveal the most crucial project conditions and parameters to be considered that managers have to review before undertaking good management decisions. Good in the particular context means securing the optimal use of funds to meet key stakeholders’ interests, allocate the most pressing investment gaps, and ensure a project’s value growth. Cases studied in the research frames also show how complicated and unpredictable external investment conditions might be and how difficult, or sometimes impossible, to achieve the project’s required profitability. A big emphasis was made on government support and guarantees to provide favorable investment conditions, insurance, securities, and tax incentives, and, thus, to secure long-term infrastructural growth. The research is also aimed to present how private-public collaboration helps to bring improvements to people’s wellbeing and quality of life, particularly concerning the public utilities and transport infrastructure. Besides the particular project’s parameters, managers have to be aware of governmental financial policies and incentives aimed to foster the construction and redevelopment of social and retail properties of various scales and types, which, in turn, would play an essential role in the domestic inclusive economic growth.