The crumbling construction industry

Local companies complain foreign firms being given mega projects.

LAHORE:

It was 1996, when a consortium of six leading construction companies, under the banner of All Pakistan Contractors Association, was established to bid and vie for a mega project, the Faisalabad-Pindi Bhattian Motorway (M3), with a South Korean company.

This was the time when the Lahore-Islamabad Motorway (M2) was about to complete and it was hard for local contractors to think of getting a contract for any mega project, especially in the presence of strong Turkish, Korean and Malaysian companies.

However, the project was awarded to the consortium, named the Pakistan Motorway International Consortium. It completed the M3 as a world-class project, much earlier and with less spending.

Encouraged by its success, the consortium bid for other mega projects as well offered on the basis of build, operate and transfer (BOT), but it claims the change of government apparently disrupted the plans.

Since then, the participation of local contractors in infrastructure projects has been on the wane as major projects were either awarded to international firms or military contractors – National Logistics Cell (NLC) and Frontier Works Organisation (FWO).

The contractors insist they still have the latest technology and machinery to compete well with international firms in building mega structures, but they get only 15% to 20% of big projects and that too as subcontractors for international and military construction companies.

“Pakistani contractors have always been underestimated, not by any other, but by their own governments,” said Muhammad Ramazan Sheikh, a major stakeholder in M3 and Chairman of Mainland Group of Companies, while talking to The Express Tribune.

Sheikh, who is also the contractor and owner of Royal Palm Golf and Country Club, said despite the lack of uniform policies, the construction industry was making efforts to overcome its negative perception about compatibility with foreign companies.

“The lack of uniform policies is the main reason why the private sector is not investing in the construction of infrastructure, especially non-residential constructions,” he said.

The construction industry insists that it is one of the key industries that generates economic activities and provides employment. It is also linked with about 40 building material industries and supports investment and economic growth.

It says the award of big construction projects to foreign companies enhances the cost and creates trouble for local companies. As a result, many construction firms have started focusing on the housing sector.

But in this area too, the contractors say they face lack of support and incentives from the government. Still, they are working in this segment as housing alone offers a huge potential.

“This segment alone can contribute around 1.5% to the country’s gross domestic product (GDP) and increase employment by 12% of the total labour force, as is the case in the modern world,” Sheikh said.

In the last decade, the construction industry says it contributed around 2.5% to the GDP along with 6.6% employment generation. But the growth of the industry has become stagnant due to lack of foreign investment.

Foreign direct investment in the industry stood at $71.8 million in 2011-12. Though the figure was somewhat better than $61.1 million in 2010-11, it was much lower when compared with $101.6 million in 2009-10.

“This industry does not need any favour from the government, but only a fair ground, enabling it to bid for mega projects through public-private partnership,” Sheikh stressed.

Published in The Express Tribune, October 21^st, 2012.