IMPACT OF INVESTMENT ON CONSTRUCTION INDUSTRY

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IMPACT OF INVESTMENT ON CONSTRUCTION INDUSTRY

• A PRESENTATION ON
• 
  PRESENTED BY
• MR.
  SHAHID RAFIQ
• DIRECTOR HABIB RAFIQ
  (PVT) LTD
• 
  REPRESENTING
• ALL
  PAKISTAN CONTRACTORS ASSOCIATION
  

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(No Transcript)
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IMPACT OF INVESTMENT ON CONSTRUCTION INDUSTRY
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IMPACT OF INVESTMENT ON CONSTRUCTION INDUSTRY

• Sequence of Presentation
• INTRODUCTION
• PREVAILING CONSTRUCTION ENVIRONMENT
• ISSUES AND PROBLEMS
• RECOMMENDATIONS
• CONCLUDING REMARKS

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INTRODUCTION

• The construction industry plays a very important
  role in the economic development of any country.
• A close examination of the dynamics of this
  industry will clearly highlight its critical role
  in economic development.
• Construction activity represents a very long-term
  investment.
• Investment in construction creates permanent
  wealth than investment in stock market.

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INTRODUCTION

• Construction industry is a major end consumer for
  several capital intensive industries such as
  steel, cement and for smaller industries such as
  paints, pipes, wiring etc.
• Robust construction industry spurs economic
  activity.
• Construction activity by itself is highly labour
  intensive, requiring large amounts of skilled,
  semi-skilled and unskilled personnel.

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INTRODUCTION

• Construction industry is a key indicator and
  driver of economic activity and wealth creation

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PREVAILING CONSTRUCTION ENVIRONMENT

• Construction is 1.7 Trillion industry worldwide.
  It accounts for -
• 10 of the Worlds GDP.
• 50 of all resource usage.
• 40 of energy consumption.
• This sector involves multitude of players
• Client
  
• Consultant
• Engineers and architects
• Financers
• Insurers
• Main contractors
• Number of sub contractors.

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PREVAILING CONSTRUCTION ENVIRONMENT
Construction sector role in economic
development is undeniable.
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PREVAILING CONSTRUCTION ENVIRONMENT

• Construction boom is becoming visible.
• Registering growth rate of 7.9 against a target
  of 5.4 for the year 2006-2007.
• Triggered by a number of factors.
• Recent stabilization in the countrys macro
  economic situation.
• Higher development expenditures.
• Increased Foreign Direct Investment.
• Record overseas workers remittances
• Unprecedented liquidity levels in the economy

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PREVAILING CONSTRUCTION ENVIRONMENT
Unprecedented Construction Boom
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PREVAILING CONSTRUCTION ENVIRONMENT

• Housing Sector-
• Has the greatest employment generation potential.
• 35-40 industries move in tandem with this sector.
  
• Government has taken various budgetary and non
  budgetary measures to boost this sector.

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PREVAILING CONSTRUCTION ENVIRONMENT

• Identified as one of the major drivers of growth

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ISSUES AND PROBLEMS

• Some of the major issues and problems
  confronted by contractors in Pakistan are
• Incorrect Project Estimates
• Unrealistic estimates which do not conform to the
  prevailing
• market conditions.
• Some cases bids are not responsive and liable to
  rejection
• being on higher side.
• Unnecessary litigation.
• Incorrect Project estimates cause problem in
  release of funds.

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ISSUES AND PROBLEMS

• Financial Issues
• Lack of financial facilities restrict growth of
  industry.
• Disbursement procedures cause delays.
• Cost of doing business is high.
• Payment procedures for contractors hamper
  progress.
• Management Deficiencies and Capacity Building
  
• Some Contractors and Consultants lack
  professional management
• Inadequate Research and Development.

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ISSUES AND PROBLEMS

• Management Deficiencies and Capacity Building
  
• Inadequate capacity of contractors to ensure
  value addition in construction sector.
• Limited use of IT in Construction Industry
• Trade Policy and Regulatory Framework
• Import policy regarding construction equipment is
  not rationalized.
• Trade Policy does not facilitate contractors
• Regulatory Framework discourages international
  contractors / consultants.
• Strict procedures for registration of contractors
  by PEC.
• Audit should play a positive role.

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ISSUES AND PROBLEMS

• Unprecedented Increase in Construction Material
  Cost
• Price variation due to Govt. policies.
• Rapid escalation and instability of market prices
  is causing serious problems in managing cash
  flows.
• Lack of data on materials availability affects
  project planning and execution.
• Government controlling agencies are not in a
  position to control cartels and monopolies.
• Shortage of major construction materials---Bitumen
  , steel etc.

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ISSUES AND PROBLEMS

• Size of Projects and Quantum of work
• Current practice in some sectors of splitting
  major projects into a number of smaller projects
  discourages foreign investors / contractors.
• Human Resource and Management
• Shortage of qualified and skilled manpower at all
  levels.
• Lack of vocational training facilities for the
  development
• of required human resources.
• Quality of human resources available with
  clients, contractors
• and consultants needs improvement.

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ISSUES AND PROBLEMS

• Escalation of Material Costs
• Prevailing bidding documents do not cater for due
  escalation.
• Statistical bulletin---Not reflective of real
  market rates.
• All major material inputs should be covered in
  permissible escalation.
• Integrated Construction Contract and Project
  Design
• Deficient and non-comprehensive
• Liable to abrupt changes which adversely affect
  cash flow, budget and time frame.

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ISSUES AND PROBLEMS

• Bids Evaluation Criteria
• Bids evaluation criteria discourage foreign
  contractors / consultants from bidding in
  Pakistan
• This practice leads to deterioration in quality
  and cash flow of the contractor which
  consequently results in disputes, delays and
  litigations.
• The evaluated lowest bidder should not be awarded
  the contract if it is less than Engineers /
  Clients estimate.

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RECOMMENDATIONS

• Selection of Projects / Areas Requiring Foreign
  Investment / Contractors
• For GOP funded projects the local construction
  companies should only be allowed to compete.
• If for those projects the technical know-how and
  relevant experience is not available locally,
  foreign companies may be considered as per PEC
  by-laws.
• Adoption of PEC Standard Bidding Documents
• Approved by ECNEC in September 4, 2002.
• Few departments implementing with reservations.
• Planning Commission has emphasized its
  implementation and has notified not to allocate
  funds in PSDP for non implementation by Govt.
  departments / agencies.
• Govt. to ensure strict implementation of PEC
  standard bidding documents in true spirit.
• Adopting PEC standard bidding document would have
  positive effect on capacity building of
  construction sector.

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RECOMMENDATIONS

• Financial Relief
• PEC documents allow insurance guarantee against
  performance bond, mobilization and bid security
  bond.
• Insurance guarantees should be accepted instead
  of bank guarantees.
• Import of Construction Equipment
• Import of construction equipment should be at
  zero rated duty.
• GOP should allow import of 15 years old
  construction machinery instead of 10 years old
  model.
• Tax Structure to be Rationalized
• 6 Income tax is being deducted from construction
  companies.
• Construction companies deduct 5 on services and
  3 on supplies from sub-contractors.
• Should be rationalized.

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RECOMMENDATIONS

• Human Resource Development
• Skill development should be given priority by the
  Govt.
• Training facilities should be established on a
  fast track.
• Engineers should go through on the job training
  for at least six months before award of degree.
  PEC to study and formulate policy.
• Export of Construction Services
• To avail the opportunity of global construction
  boom the domestic construction sector should be
  facilitated by Government.
• On pursuance of APCA the government decided in
  the trade policy of 2003-04 that fund would be
  created which could be used as collateral for
  commercial banks to issue the bids and
  performance bonds to construction companies.
• Trade policies should be implemented.

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RECOMMENDATIONS

• Prequalification and Development of Domestic
  Construction
• Streamline system of prequalification.
• Current ratio of 7030 in favour of international
  contractors should be made 6040 for future
  projects in favour of local contractors.
• Mechanism and framework should be available for
  transfer of technology from foreign contractors.
• Representation of APCA in Statistical Bulletin.
• APCA should be represented while compiling
  construction items input in monthly statistical
  bulletin
• Availability of Land---Right of Way
• Government / clients should ensure that land is
  available free of encumbrances before
  mobilization of the contractor at site.

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RECOMMENDATIONS

• Development and Availability of Indigenous
  Construction Material
• Efforts should be made to improve the supply of
  quality products from within the country.
• Good quality construction material of
  international standards should be developed for
  export purposes.
• Duties and Taxes on major Construction Materials,
  like cement, steel etc. should be reduced to make
  construction more affordable.
• Formation of Construction Development Board
• Construction Development Board on the lines of
  Engineering Development Board may be established
  under the chairmanship of Deputy Chairman
  Planning Commission.

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CONCLUDING REMARKS