Construction Sector in Sri Lanka

By R. Rameezdeen COWAM Seminar Wednesday, 19th April 2006 Koggala Beach Hotel, Sri Lanka

The construction sector produces a wide range of products, from individual houses to major infrastructure such as roads, power plants and petrochemical complexes.

Construction Output

Housing

Other Buildings

Civil Engineering Projects

CONSTRUCTION INDUSTRY
Definitions: The activity, which creates all types of new buildings & civil engineering projects, as well as the maintenance & repair of existing facilities (Wells, 1984). The construction industry, is a broad conglomeration of industries and sectors which add value in the creation & maintenance of fixed assets within the built environment

ILO (2003) defines the industry saying,

The construction sector produces a wide range of products, from individual houses to major infrastructure such as roads, power plants and petrochemical complexes. In most countries output is roughly equally divided between housing, other buildings and civil engineering projects. Although attention is mostly focused on new construction, the renovation and maintenance of existing structures accounts for almost 50% of total construction output in some of the more developed economies and an even greater share of employment.

CONSTRUCTION INDUSTRY
INPUTS PROCESS
Land Materials such as cement, sand, bricks, timber, steel etc,. Equipment Manpower Capital/Finance Organization

OUTPUTS

Buildings Roads & Highways Ports Airports Tunnels Bridges Dams Irrigation Networks Power Plants Oil Platforms Etc.

In the Sri Lankan context:

Construction
is the 4th largest sector, contributing 6-7% to GDP over past decade

Responsible for more than 50% of GDFCF Provides employment to 4-5% of labour force Contributes around 30% to trade balance

Selected Indicators of Construction Activity, Year 2004

16 00 0

14745

14 00 0

12 00 0

10 00 0

7377

8 00 0

6 00 0

3976 2756 1446

4 00 0

2 00 0

Salaries

Value Added

Value of Raw Materials Indicators

Value of Work Done

Value of Contract

(Annual Survey of Construction Industries-Department of Census & Statistics, Sri Lanka)

Unique characteristics of construction

The construction industry has characteristics that separately are shared by other industries but in combination appear in construction alone. (Hillebrandt, 1984)

Some Unique characteristics

The final product is large, heavy, expensive, and spread over a large geographical area. The product is made specially to the requirement of each individual customer. Design is separated from construction.

Some Unique characteristics (Cont.)

Production takes place on site itself. Affected by the external environment. Price of the product is determined in advance.

CONSTRUCTION PROCESS
Construction Designing Activities Construction Industry Buildings Products Reclamation, sewers dams, canals pipelines Roads, bridges, railways, tunnels, viaducts
(Ofori G, 1990)

Demolition

Planning

Repair, maintenance & alteration

Airports/harb ors

Electrical, Telecommunication and gas works

Construction industry is composed by an integration of various STAKEHOLDERS

Clients Consultants Plant Hirers Research & Development Organizations Regulatory Bodies Contractors Material Manufacturers & Suppliers Skill Development Institutions

Construction Industry
Insurance Organizations

Financing Institutions

Environmental Lobbies

PARTICIPANTS OF THE INDUSTRY

Direct Stakeholders

Indirect Stakeholders

DIRECT STAKEHOLDERS
Client
Consultant Contractor

CLIENT
1. Initiates the project 2. Finances the Project 3. Directly & indirectly monitors the progress, time, cost, and quality and command any variations to the design during design and construction phase

TYPES OF CLIENT
Private sector

Individuals (investors in housing, commercial and industrial) Organizations (Sole proprietors/partnerships/Ltd. liability companies)

Public sector
Central government Ministry (Highway, Health, Housing), Department, Authorities (UDA, NHDA, CEA) Provincial council Local government authorities (MC, UC, Pradeshiya Saba)

Non-Government Organizations (NGO)

UN/UNESCO/SARVODAYA/WHO

Value of Contract
Private sector, 13%

Public sector, 87%

(Annual Survey of Construction Industries-Department of Census & Statistics, Sri Lanka)

Value of Work Done

Private sector, 15%

Public sector, 85%

(Annual Survey of Construction Industries-Department of Census & Statistics, Sri Lanka)

CONSULTANTS
Architect: Leader of the building team. Interpret the clients project requirements into a specific design. Architect would obtain the planning permission for the project. Engineers: (Structural, Electrical, Mechanical, Geo-technical, Hydraulic) Services Eng: Analyze the clients requirements and advice the Architect on most suitable design solutions, prepare diagram on their services. They make sure that all the required comforts are achieved by the client. Structural Eng: Acts as an advisor on all structural problems, such as stability of the proposed structure, suitability of selected materials, sizes of structural members of the project.

CONSULTANTS (Cont.)
Quantity Surveyors:
Involved in dealing with matters related to construction cost and advice client and architect on cost of the proposed project. He makes sure that the project is kept within the clients cost limit.

Project Managers:
In large projects a project manager is employed for the overall control of the project from inception to completion to keep a better coordination of the parties involved.

Other specialist consultants:

Eg: Surveyors, Interior Designers, Landscape designers, Planners

TYPES OF CONSULTANTS
Consortiums
The most popular in Sri Lanka DCL, ECL, Design Group Five Picking up slowly Quantity surveying: - Cost Consultancy, Q-Serve Structural:-Stems consultants Architecture:- Jeffry Bawa Project management: - LAN Management, Entering the market, but negligible

Specialized services

Foreign consultants

CONTRACTORS
Contractor is a person or firm who undertakes to complete a construction project in accordance with the contract documents on behalf of the employer Sub contractors Domestic sub contractors Nominated/Specialist sub contractors

CLASSIFICATION OF CONTRACTORS
1. Size
Large - M1, M2, M3 (Above 50 Mn) Nearly 50 contractors are operating in the market Medium - M4, M5, M6 (5-50 Mn) About 200 contractors are operating Small - M7, M8, M9 (below 5 Mn) About 1500 contractors are operating

CLASSIFICATION OF CONTRACTORS
2 . Location: Operating in a particular location
International

National level Regional (Provinces) Local level (Village)

CLASSIFICATION OF CONTRACTORS
3. Nature of work Building
Civil Engineering Specialist services Electrical installation, telecommunication, fire protection, A/C systems, Lift installation, Security systems, Piling, finishes, aluminum work, pre-cast work etc.,

Value of Work Done by Type of Construction (Rs. Mn)

Dredging and Reclamation, Other, 450 Irrigation and 50 Land Drainage, 700 Water Supply and Drainage, 200 Bridge, 325 Buildings, 3875

Highway, 1750

(Annual Survey of Construction Industries-Department of Census & Statistics, Sri Lanka)

Value of Raw Materials Used by Type of Construction

Dredging and Reclamation Irrigation and Land 1% Drainage 10% Water Supply and Drainage 3% Bridge 5% Buildings 56% Highway 19% Other 6%

(Annual Survey of Construction Industries-Department of Census & Statistics, Sri Lanka)

Value of Work Done by Type of Building

Housing Units, 5% Repair and Maintenance, 23% Collective Living Quarters, 9% Off ice Building, 9% Market Complex, 0% Factories, 7% School Building, 5% Hospital Building, 6%

Other Building, 36%

(Annual Survey of Construction Industries-Department of Census & Statistics, Sri Lanka)

SPECULATIVE BUILDERS
Usually they dont undertake contracts but they are builders. 1. Land developers 2. Property Developers

MATERIAL MANUFACTURERS/SUPPLIERS

Raw material suppliers: Sand, aggregate/metal, lime

Unit element suppliers: Bricks, tiles, roofing sheets etc., Component suppliers: A/C units, electrical units, lifts Element: Doors,Windows Length: Steel, Aluminum, Plastic, Bituminous materials, cables Sheets: Plywood, Asbestos, Glasses Liquids: Paints, Varnishes, Thinner, Adhesives

PLANT HIRERS

Hiring plant for construction is very popular in Sri Lanka Only the M1 grade contractors have their own plant Plants as Lorry, Truck, Tractor, Excavator, Crane, Air Compressor, Concrete Vibrator, Concrete Mixer, Bowser, Electric Welding Plant, Roller etc. are hired by medium and small time contractors

FINANCIAL INSTITUTIONS

Banks Construction Guarantee Fund Property Investment and Development companies Investment Promotion Agencies

Banks
Commercial Banks:
Bank of Ceylon,Peoples Bank, NSB HNB, Commercial Bank, Nations Trust Bank, DFCC, Seylan Bank

Merchant Banks:
Ceylon Merchant Bank Merchant Bank of Sri Lanka Peoples Merchant Bank

Development Banks:

National Development Bank Sanasa Development Bank Development Financial Company of Ceylon

Specialist Banks:
State Mortgage Bank N.H.D.A. H.D.F.C. NDB Housing Bank

Construction Guarantee Fund

Provide contractors bonds and guarantees at a reduced fee without collateral Government funded service under the ICTAD Fore-runner to a proposed Construction Bank of Sri Lanka

Property Investment & Development Companies

Land developers, Land sellers,Finance companies: The Finance Company Ceylinco Developers Central Finance Functions: Financial assistance to construct or purchase a house or purchase a land provide construction assistance loan facilities up to 20 million Loans for purchase materials and finishing materials Provide designing and planning for construction

Investment Promotion Agencies

These organizations encourage and promote investors. 1. Board of Investment (B.O.I.) 2. Bureau of Infrastructure Investment (B.I.I.)

Insurance Organizations:
Legal and Monetary protection to construction industry Government and Private - Insurance corporation of Sri Lanka - Eagle Insurance - HNB assurance - Union assurance - Ceylinco Insurance

TYPES OF INSURANCES IN CONSTRUCTION INDUSTRY

1. Contractors All Risks Insurance
Will be applied when 25% civil work of erection at the site Provide coverage for unexpected accidents and damages Provide coverage for unexpected accidents which can cause injuries and deaths

2. Erection All Risks Insurance 3. Workmen Compensation Insurance

Employees
Electricians Mesons Welders Watchers Clerical workers

etc

RESEARCH & DEVELOPMENT ORGANIZATIONS

Research and innovation are inseparable R & D is necessary to maintain international competitiveness Developing countries on average contributes around 1% of GDP to R&D while Developed countries around 2-3%. Sri Lanka contributes only 0.15%. Organizations involved in R&D are mainly government organizations such as NBRO (National Building Research Organization), CHPB, NERD, and Universities Construction companies should contribute certain % of their income on R & D expenditure

REGULATORY BODIES

Entities which impose control on design, construction and operation of a project.

Local Authorities (MC, UC, Pradeshiya Saba) UDA CEA CCD ICTAD

Some Special Features of the Sri Lankan Construction Industry

Male dominated Most of the activity happens in the Western Province Has very high backward linkages Buy mainly from Manufacturing followed by Services sector Sell mainly to the Services sector

Percentage Distribution of Persons Engaged by Type of Employees and Gender

Other Professional

Technical Unskilled Labour Skilled Labour 0 10 20 30 40 50 60 70 80 90 100 Type s of Employee s

Male Female

(Annual Survey of Construction Industries-Department of Census & Statistics, Sri Lanka)

Some Selected Indicators of Construction Activities Classified by Province

100% 90% 80% 70% Value 60% 50% 40% 30% 20% 10% Western Eastern Southern Northern Uwa Sabaragamuwa Central North- Central North- West 0% (Rs.) Salaries (Rs.) Value Added (Rs.) Ot her Expenditure (Rs.) Services (Rs.) Raw Mat erials Consumed (Rs.) Value of Work Done (Rs.) Value of Contract

Province

(Annual Survey of Construction Industries-Department of Census & Statistics, Sri Lanka)

Tea grow ing -M edium e le va tion

POSITION OF CONSTRUCTION BACKWARD LINKAGE IN THE 2000 ECONOMY

Forestry B etel andA recanuts Firew ood H ighland C rops Tea grow ing -H igh eleva tion Tob acco M inor export Crops Pape ra nd paper produc ts M ining and Q uarrying O the rm anufacu ring Paddy W ood and w ood products E le ctricity , G a sa nd w ate r C hem ic als and F ertilizer O w nership of d w e llings B asic meta l produ cts Flour M illing M isce llaneous agric ultral Fru its Fa bricate d metal produ cts C oconu t and toddy Tea grow ing - L owelevation G arment Ind ustry R ubbe rg row ing W hole sale and retail trade V egeta bles Potatos L ivestock Petroleu m indu stry Food ,B everag es and other O the r persona l ser vices B anking, insu ranc e and real Pla stic a nd R ub ber produ cts Textiles, F ootw e ar and le ater N onmertralic a nd othe rm inera l C oconu t processing Fisheries Pla ntation de velopm ent Transport Public adm inistration and Tou rist shops andtrave l ag ents C onstruction H ote ls and resta urants R ic eM illing Post and communication Tea proc essing R ubbe r processing

2.500

2.000

1.500

Average =1.339
1.000

0.500

0.000

CONSTRUCTION BACKWARD LINKAGES IN THE 2000 ECONOMY

Construction occupies the sixth place having an output
multiplier of 1.641 within the 48-sector economy

Indicates the nature of construction operations involving

the assembly of many different products purchased from a large number of industries

High output multiplier denotes the potential of

construction to trigger off production in many sectors linked to it

TREND OF CONSTRUCTION BACKWARD LINKAGES

2.000 1.500 1.000 0.500 0.000 1970 1976 1981 1986 1995 2000

Backward linkage indicators

Output multipliers

TREND OF CONSTRUCTION BACKWARD LINKAGES WITH OTHER SECTORS

Direct Backward Linkages

0.400 0.300 0.200 0.100 0.000 1970 1976 1981 1986 1995 2000

Agriculture

Mining & Quarrying

Services

Manufacturing

POSITION OF CONSTRUCTION FORWARD LINKAGE IN 2000 ECONOMY

Average =1.498

Ownership of dwellings Tourist shops and travel agents Tea processing Betel and Arecanuts Garment Industry Fisheries Minor export Crops Rice Milling Food, Beverages and other Highland Crops Vegetables Hotels and restaurants Textiles, Footwear and leater products Post and communication Plantation development Coconut and toddy Public administration and defence Paper and paper products Coconut processing Other manufacuring Potatos Fruits Wholesale and retail trade Fabricated metal products Firewood Other personal services Flour Milling Livestock Chemicals and Fertilizer Banking, insurance and real estate Transport Plastic and Rubber products Construction Miscellaneous agricultral products Petroleum industry Tobacco Nonmertralic and other mineral products Mining and Quarry ing Paddy Electricity , Gas and water Rubber processing Tea growing -Medium elevation Wood and wood products Tea growing -High elevation Tea growing - Low elevation Forestry Basic metal products Rubber growing

3.500

3.000

2.500

2.000

1.500

1.000

0.500

0.000

CONSTRUCTION FORWARD LINKAGE IN THE 2000 ECONOMY Construction occupies the sixteenth position with an
input multiplier of 1.595

This high input multiplier implies that significant portion

of construction output (about 40%) cater to the repair and maintenance sub-sector of construction

TREND OF CONSTRUCTION FORWARD LINKAGES

2.000 1.500 1.000 0.500 0.000 1970 1976 1981 1986 1995 2000

Forward linkage indicators

Input multipliers

TREND OF CONSTRUCTION FORWARD LINKAGES WITH OTHER SECTORS

0.150 0.100 0.050 0.000 1970 Agriculture 1976 1981 1986 1995 2000 Services Mining & Quarrying Manufacturing

Thank You