“Invisible” Construction

Abolishing the State Architectural and Construction Inspectorate was a relief for businesses. However the new Register of Construction Activities that replaced the SACI register does not contain the data used by the State Statistics Service (Derzhstat) to calculate the volumes of the beginning and end of construction. This makes impossible the calculation of such indicators as capital investments and GDP. 

In March 2020, one of the most ambitious government projects started – The Big Construction. The Government had plans to build or reconstruct more than 1,000 schools, clinics, hospital admission units, sporting complexes, etc. 

While the government keeps showing photo reports of newly constructed schools and kindergartens, according to Derzhstat’s official data, no residential or non-residential building construction started or was completed in the country in the third quarter (1, 2, 3, 4, 5). In the reports on the total construction area, the data about the area of residential and non-residential buildings is the same as those for January-June. 

Most likely, the data is not real. However, it is important to understand what caused such a situation, how Derzhstat and the Government are going to rectify it, and whether there is hope that the country will find out about what was actually built in 2020. 

Where does the data come from?  

Derzhstat publishes the number and area of the buildings whose construction has begun or been completed, breaking it down into residential and non-residential real estate. The total area of buildings at the start of construction (1, 2) makes it possible to estimate what will be built in the coming years in each oblast. The data on completed construction projects (3, 4, 5) makes it possible to understand the total area of buildings where it is already possible to live or where it is possible to locate hospitals, warehouses, supermarkets, movie theaters, farms, industrial shops, offices etc. The methodology used by Derzhstat to calculate this data is consistent with the EU Regulation concerning short-term statistics.  

In the reports on the start and completion of construction for the 9 months of 2020 (1, 2, 3, 4, 5), Derzhstat named the Register of Construction Activities as the source of calculations. The agency also said that statistical information could be updated, promising to publish the updated data on its website. The year is coming to an end, but no updated data ever appeared. 

The problem most likely arose due to the fact that in the process of implementing reform on administrative services in the field of construction, the collection of the needed data was not provided for or properly implemented. In accordance with Derzhstat’s methodology, the permits register of the State Architectural and Construction Inspectorate was a source of information about the start and completion of construction until August 2020. However, after August 2020, no data is available in the SACI register. Though the new register of construction activities does contains information about various construction projects, far from all of them have the necessary data, such as the buildings’ area or number of apartments. 

Hence no statistical data about the start and completion of construction of residential and non-residential buildings in Ukraine, available after September 2020.  

Why is that important?

The data about the beginning and completion of construction is a source of information used to calculate other important indicators. Specifically, according to the methodology, information about the finished private housing projects is used to calculate capital investment volumes. This data, in turn, is one of the sources of information to calculate GDP. Private housing construction volumes affect the indicator “output of the household sector for own final use”. 

The question therefore arises as to how accurate the calculations of investments and GDP are that we will get at the end of this year, in the absence of data about the beginning and completion of construction. In its report on capital investment for 9 months, Derzhstat said that the data could be reviewed, promising to additionally inform about it. In the statistics on GDP, we found no mention of possible updates of the indicators. 

Why did it happen?  

The main cause underlying these problems is that today, Derzhstat is not the leader in shaping public policy in the field of statistics. According to the law, the agency is responsible for implementing this policy. Although at the end of 2019, the Cabinet of Ministers made changes to the Regulations on the Service and added that it was responsible for shaping the policy, today, the Service has neither sufficient powers nor tools. Because of this, the agency often cannot obtain administrative data from various state bodies and has no access to the registers. It is reflected in the quality of the indicators and their details. To prevent similar situations recurring in the future, the law on Statistics needs to be changed. 

What is to be done?  

However, the situation with the wrong data about the start and completion of construction should be resolved already today. It is important that Derzhstat update the data on construction and capital investments for the 9 months, provide comment on how the zero values affect the GDP figures for the third quarter of 2020, and make sure to publish the data for the fourth quarter of 2020 in full. 

Other government agencies should keep in mind that when developing policies, the interests of various stakeholders should be taken into account. The steps aiming to simplify regulatory procedures can be worthy of praise. They must not, however, bring down the system of national accounts.