Construction Industry employment and Covid-19

Overview of the Construction Industry

Sri  Lankan  construction  industry development  has  closely followed  the  economic  developments of the  past  decade.  The  economic conditions  of the day determined the developmental trend in the construction  industry.  The  construction sector has benefited from the recent growth in   infrastructure projects  resulting from the rapid  urban  development policies.  

Within the last eleven year, the country saw an unprecedented development of high-end residential apartments, commercial space, hotels and resorts, and infrastructure; a record growth in the construction sector. Just as the construction industry has benefited the most from the developmental policies, the economy has in turn benefited from the construction industry n terms of employment and finances. With the growth in the construction industry in recent years, its financial and employment contribution to the economy has been large. The contribution by the construction industry to the GDP and employment generation is about 8%. Gross Domestic Capital Formation has contributed about 42%.

The effect of COVID-19 on the Financial and Employment Gains

At present millions of domestic and foreign construction sector workers are severely affected by Covid-19. Their future careers are in question. Here we are going to explore what changes will occur in the future and how to rebuild the sector. Based on the ADB’s outlook as at 03 April 2020, the Sri Lankan economy is expected to grow at 2.2% in 2020. If the pandemic is contained by mid-2020, the economic recovery could begin towards the latter part of the year.

GDP  From Construction in Sri Lanka averaged 133,568.86 LKR Million from 2010 until 2017, reaching an all-time  high  of  200,970 LKR  Million  in  the fourth  quarter of  2016  and  a record low  of  77,176 LKR  Million  in the  second  quarter of  2010 (Trading Economics, 2017). Figure 1 shows the growing percentage of GDP from construction in Sri Lanka.

Future forecasting demand and supply of labour

The figure 02 shows that, if the pandemic is contained by mid-2020, the economic recovery could begin towards the latter part of the year. We expect real GDP growth to be less than 2% this year. One of the main reason is the loss of main industries or zero products.

Before the pandemic impact, regardless of the growth in the sector, our construction industry was plagued by low construction volume, skilled worker shortage, high construction costs, and unequal competition from foreign contractors.

But, while COVID019 will not have an impact on  skilled supply side, it will take a toll on  the number of employees hiredin the short and midterm of the project period. The spread of the virus and getting it under control is only part of the issue: the aftermath of the epidemic is highly unpredictable and the current forecast of a world-wide recession will certainly impact the construction industry adversely, especially in Sri Lanka, where the industry has not recovered from the Easter Sunday tragedy of 2019. When other sectors such as foreign employment, apparel industry and tourism will take precedence, construction contractors and consultants will be adversely affected.

Construction Opportunities

As recent past there are number of new projects started and the employment opportunity has been rise up and new investors arrived after war ended in Sri Lanka. Some of the leading projects have discussed below.

The Colombo Port City and the Lotus Tower, these were expected to add a considerable number of apartments and condominiums as well as commercial properties to the Sri Lanka’s property market. In addition to that, the country’s construction industry has also seen acceleration since 2011 due to the addition of new airports, harbours, expressways and numerous real estate development projects.

New trends in Sri Lankan real estate sector are the major factor that affects the  development  of  construction  industry in  Sri Lanka.  Luxury  residential trends,  office  market  trends,  affordable  housing  trends,  hospitality  trends and  government’s  mega  infrastructure  development  projects  are  directly affect to the construction industry in Sri Lanka now a day.

The latter especially will continue boosting the industry through such upcoming projects such as the Shangri La mixed-use development, the Phase 2 of the Havelock City, the ITC Colombo One Hotel & Residences, Keells Waterfront Project. Few others to mention, would be the Capitol TwinPeaks, scheduled to be ready for occupation by end-2020, as well as Capital Heights by Access Engineering PLC commencing its construction on the 18th September 2017.

Furthermore, the industry will be further stimulated by infrastructure projects such as Construction of Central Expressway – Section II –Package A or the Rehabilitation Improvements to Peradeniya – Badulla-Chenkaladi Road.

Employment trend

New trends in Sri Lankan real estate sector are the major factor that affects the development of construction industry in Sri Lanka.  Luxury  residential  trends,  office  market  trends,  affordable  housing  trends,  hospitality  trends and  government’s  mega  infrastructure  development  projects  are  directly affect to the construction industry in Sri Lanka now a day.

The construction industry employs over 1 million employed  person  by  construction,  electricity,  gas,  steam  and  air conditioning  supply,  water  supply,  sewerage,  waste  management  and remediation activities where a majority are labourers and semi-skilled workers. Mostly, they belong to the lower echelon in society and are the sole wage earners of the family.

According  to  the  Department  of  Census  &  Statistics  (2017),  currently employed  person  by  Construction,  Electricity,  gas,  steam  and  air conditioning  supply,  Water  supply,  sewerage,  waste  management  and remediation activities are 684,970 in 1st Quarter of 2017.

Challenges faced by the construction industry today

Several high rise building projects had showed slowdown owing to the delay in procurement of materials from China and the complete stoppage of work due to the curfew. Based on the Construction industry experts, although the Chinese government has allowed factories in many industrial centres to open, the recovery is expected to take more time. In addition, the lockdown of construction workers after the Chinese New Year also adversely affected the industry, as many construction projects are undertaken by Chinese contractors. The slight recovery of demand for middle income apartments seen earlier this year is likely to be offset by the current and expected economic downturn; as well as the delays caused by work stoppage. Investor sentiment is likely to be depressed throughout the remainder of the year.(pwc views, April 2020)

Other than COVID-19,  there are many other problems faced by the construction industry in Sri Lanka by recent past.

• High cost of construction material,
• Lack of availability of funds,
• Low supply of high grade steel,
• Lack of skilled workers,
• Pollution,
• Delays in land acquisition,
• Frequent changes in regulations are the key issues of Sri Lankan construction industry  (ICRA Lanka, 2011)
• The industry’s lack of skilled labour, which is causing massive delays for various projects. One of the reasons for this are the increasing employment rates and that aspirational workers are seeking higher salaries. In addition to that, construction workers are also faced with many health hazards at work.
• The inability to carry out operations effectively and the extended process of obtaining approvals are some of the main challenges that hinder the current construction segment.
• Some administrative delays due to being the first mixed development.
• Obtaining adequate main construction elements like sand, metal and cement. As a result continuously providing high quality results is being questioned.
• The need to use alternate substitutes with the support of technology is essential in order to cater the prevailing construction boom. The growing demand for sustainability is also one of the main impediments the industry is facing right now.

Direction for Local Construction Industry

Owing to nonpayment to contractors and consultants for ongoing projects, they are already facing financial difficulties. As a result of the coronavirus, all construction sites had to be closed. To ensure wages to employees for the months of April/May/June the companies require a stimulus package as a short, medium and long term measure. Therefore, the suggestions are as follows:

1) Items such as computer servers, electronic items, manufacturing tools, testing equipment, documents idle in offices, sites and workshops and would be damaged or destroyed due to non-maintenance. Also, there can be damages to important data due to overheating, rats and termite attacks preventing resumption of businesses.

2) Working from home is not possible unless computer facilities, software, essential hard copies, soft files etc. are provided to the employees. Arrangements have to be made by the authorities in this regard. However, physical working at sites is still not possible at this point in time.

3) Provide financial assistance to sustain employees without terminating them.

4)  Restarting projects which were in the pipeline including those supposed to be stopped or postponed. Also offer some benefits to investors to invest in the industry to uplift the industry. (Issues affecting the construction industry due to Covid-19, April 2020)

Long term measures to recover from COVID-19

1.      Boosting Infrastructure development

After the crisis Public Infrastructure development will be a key component of economic growth. One of the quickest initiatives in the recovery phase would be to kick start the ongoing infrastructure projects which have been planned and approved, such as the Central Expressway, elevated highways, vital power projects and port projects using BOT arrangements. Faster approvals and innovative financing schemes including private sources of capital would help to expedite execution. These projects provide employment, and have spill over effects to SMEs including transporters, food / service providers and temporary workers. (pwc view, April 2020)

2.      Carry out comprehensive research studies on the construction industry to take rational decisions based on accurate information.

3.      Conversion of the industry to a more factory / off site based assembling industry.

4.      Digitalization of the processes including adopting Building Information Modeling (BIM).

5.      The epidemic and the predictions of environmental changes are bound to reset the status quo. Therefore, the industry may need to be more flexible and ready to effect structural changes: in effect, shed the shackles of a system that is destined to change may be even beyond recognition. We need to commence a dialogue and identify weaknesses and recommend adjustments and/or re-orientation.

6.      Even without the coronavirus epidemic having to force us to re-think, there were construction specialists who were critical of our industry in the last few decades of not specifying local building materials but opting for imported varieties. Consultants, have not been contributing to the development of local industries and creation of local employments and thereby have been playing a marginal role in that arena. In the long term, consultants need to play a more significant role in the development and refining of local building materials.

Possible actions to be implemented 

It is the view that the construction industry will be facing harder times throughout the world. These countries will individually concentrate more on nationalism to protect their own interests. They will seek self-sufficiency in selected sectors through slowing down non-essential segments. As per their opinion, most will look for environment friendly indigenous based construction industry.

The following possible action will be a viable solution at this present to short out the recession in Sri Lanka.

1) Prepare guidelines for working at sites, offices and workshops during post COVID 19 period. Some countries have already prepared this.

2) Draft a master plan, new economic strategy and design facilities for industries that are to be prioritized such as agriculture, education, IT and telecommunication infrastructure in managing the time.

3) Call a report from professional institutions on sustainable construction to make meaningful development considering future possibilities and economic strategies.

(The President Elect of the Chamber of Construction Industry (CCI) Architect Jayantha Perera)

Footages

• (pwc, April 2020), COVID-19 Outbreak Impact on Sri Lanka and Recommendations https://www.pwc.com/lk/en/assets/COVID-19-Impact-on-Sri-Lanka-PwC.pdf
• https://lmd.lk/the-current-construction-industry-in-sri-lanka/
• http://www.statistics.gov.lk/industry/SCI_Final_Report_2015.pdf
• Conference paper (2017), Towards Sustainable Constructions: Trends in Sri Lankan Construction Industry-A Review. https://www.researchgate.net/publication/320907730_Towards_Sustainable_Constructions_Trends_in_Sri_Lankan_Construction_Industry-A_Review
• http://www.sundayobserver.lk/2020/04/12/news-features/issues-affecting-construction-industry-due-covid-19