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 last week.

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, he said.

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 craftsmen.”

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 said.

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 said.

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.

 - LF