Construction costs hit investor confidence
The rapid rise in construction costs is adversely affecting investor
confidence and making Sri Lanka uncompetitive in the region, Director
General, Construction Industry Development Authority (CIDA), Architect
H.K. Balachandra told a seminar on the ‘Construction industry and the
way forward’ organised by the National Chamber of Commerce of Sri Lanka
He said the high material and labour charges have made the
construction industry uncompetitive as foreign investors prefer cheaper
locations in the region. The industry should address the problem
urgently to develop the construction industry which is a major
contributor to the economy.
“Costs of construction material have increased sharply over the years
with imports rising by around 11 percent. Prices of construction
material increased due to the boom in construction after the end of the
conflict. Prices of lime, glass, timber, cement, PVC and asbestos rose
sharply,” Balachandra said.
Similarly, labour wages too have increased with the demand to
construct mega development projects rising. The challenge for the
industry is to have adequate manpower to cater to the booming industry,
Construction sector experts said the number of construction craftsmen
going abroad has dropped remarkably in recent years with the growth of
the construction industry within the country.
The number of masons who went overseas dropped from around 3,000 in
2008 to around 500 in 2012. Statistics reveal that around 600,000
construction craftsmen are directly engaged in the industry while
backward links involve a much larger number of workers.
The contribution of the construction industry to the GDP has
increased since 2010. The share of the industry to the economy in 2014
was around Rs. 339,306 million, an increase of over 20 percent.
Balachandra said the involvement of the private sector in the
industry has increased and more foreign contractors have been offered
projects. “We need to ensure the involvement of local expertise and
transfer of technology for capacity building of local construction
Of around 2,500 contractors only five percent are in the high income
category. The shortage of skilled workers has been a recurring issue.
The shift from agriculture to industrial development has increased
the demand for construction workers. The vacancies for skilled craftsmen
in 2012 was around 5,976.
The absence of a national policy for the construction industry is a
huge impediment to boost growth of the industry. A national policy is
needed for an integrated vision. CIDA will take steps to formulate a
national policy in co-operation with other stakeholders, Balachandra
He said a fund will be set up to build capacity of small-scale
contractors and self-employed registered craftsmen. Research and
development will be given priority. Around 40 percent of the fund will
be used to provide pension benefits to craftsmen.
Steps will be taken to maintain a register of craftsmen and carry out
a technical audit service to maintain standards in the industry. Craft
identity cards will be issued to assess competency and capacity of
craftsmen for the public to obtain the services of recognised craftsmen.
“A data bank will be maintained regarding the number of craftsmen
needed to help investors. A dispute resolution mechanism will be
launched by CIDA which will help reduce construction costs,” Balachandra
President, Chamber of Construction Industry, Dr. Surath
Wickramasinghe said lack of consistency in policy is a major hindrance
in developing the construction industry. We cannot have policies that
stop projects for investigation which will adversely affect investor
confidence and the industry.
With regard to the Colombo Porty City project, he said investigations
on environmental and social repercussions should have been done while
work on the project went on rather than bringing it to a complete halt
which sends negative signals to investors.
“Procurement guidelines are not strictly followed today as was done
in the past. We need to obtain the support of experts to improve
procurement guidelines. The one-stop-shop concept of the BOI has not
taken off .
The concept has been superseded by the Strategic Development Act,”
Dr. Wickramasinghe said. He said new concepts of procurement must be
adopted by the government and the private sector and the construction
industry must keep abreast of the global pace to be competitive.