construction sector in sri lanka - cowam project - · pdf fileconstruction sector in sri lanka...

Construction Sector in Sri Lanka

By R. Rameezdeen

COWAM SeminarWednesday, 19th April 2006Koggala Beach Hotel, Sri Lanka

Construction Output

Housing

Other Buildings

Civil Engineering Projects

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

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

Land

Materials such as cement, sand, bricks, timber, steel etc,.

Equipment

Manpower

Capital/Finance

Organization

INPUTS OUTPUTS

PROCESS BuildingsRoads & HighwaysPortsAirportsTunnelsBridgesDams Irrigation NetworksPower PlantsOil 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

14462756

3976

7377

14745

0

2 00 0

4 00 0

6 00 0

8 00 0

10 00 0

12 00 0

14 00 0

16 00 0

Salaries Value Added Value of RawMaterials

Value of WorkDone

Value ofContract

Indicators

Selected Indicators of Construction Activity, Year 2004

(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

(Ofori G, 1990)

Construction

Repair, maintenance & alteration

Demolition

Planning

Designing

Activities

Construction Industry

ProductsBuildings Reclamation,

sewers dams, canals pipelines

Airports/harbors

Roads, bridges, railways, tunnels,

viaductsElectrical, Telecommunication and

gas works

Construction industry is composed by an integration of various STAKEHOLDERS

Consultants

ClientsContractors

Plant Hirers

Research & Development Organizations

Financing Institutions

Environmental Lobbies

Regulatory Bodies

Material Manufacturers &

Suppliers

Insurance Organizations

Skill Development Institutions

ConstructionIndustry

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

Public sector, 87%

Private sector, 13%


Value of Work Done Private

sector, 15%

Public sector, 85%


CONSULTANTS• Architect:

Leader of the building team. Interpret the client’s 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 client’s 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 client’s 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

• ConsortiumsThe most popular in Sri LankaDCL, ECL, Design Group Five

• Specialized servicesPicking up slowly

Quantity surveying: - Cost Consultancy, Q-ServeStructural:-Stems consultantsArchitecture:- Jeffry BawaProject management: - LAN Management,

• Foreign consultantsEntering the market, but negligible

TYPES OF 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


2 . Location: Operating in a particular location• International

• National level

• Regional (Provinces)

• Local level (Village)


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)

Buildings, 3875

Highway, 1750

Other, 450

Bridge, 325

Water Supply and Drainage,

200

Irrigation and Land Drainage,

700

Dredging and Reclamation,

50


Value of Raw Materials Used by Type of Construction

Buildings56%

Highway19%

Bridge5%

Water Supply and Drainage

3%

Other6%Irrigation and Land

Drainage10%

Dredging and Reclamation

1%


Value of Work Done by Type of Building

School Building, 5%

Other Building, 36%

Repair and Maintenance, 23%

Factories, 7%

Off ice Building, 9%

Market Complex, 0%

Collective Living Quarters, 9%

Housing Units, 5%

Hospital Building, 6%


SPECULATIVE BUILDERS

Usually they don’t 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

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

PLANT HIRERS

FINANCIAL INSTITUTIONS

• Banks

• Construction Guarantee Fund

• Property Investment and Development companies

• Investment Promotion Agencies

BanksCommercial Banks:

• Bank of Ceylon,People’s 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

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

Property Investment & Development Companies

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

1. Contractors’ All Risks Insurance• Will be applied when 25% civil work of erection at the site

2. Erection All Risks Insurance• Provide coverage for unexpected accidents and damages

3. Workmen Compensation Insurance• Provide coverage for unexpected accidents which can cause

injuries and deaths

TYPES OF INSURANCES IN CONSTRUCTION INDUSTRY

Employees

Electricians Welders

Mesons Watchers Clerical workers

etc

• 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

RESEARCH & DEVELOPMENT ORGANIZATIONS

REGULATORY BODIES

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

Local Authorities (MC, UC, Pradeshiya Saba)

UDA

CEA

CCD

ICTAD

• 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

Some Special Features of the Sri Lankan Construction Industry

0 10 20 30 40 50 60 70 80 90 100

Types of Employees

Skilled Labour

Unskilled Labour

Technical

Professional

Other

%Percentage Distribution of Persons Engaged by Type

of Employees and Gender

Male Female


0%10%20%30%40%50%60%70%

80%90%

100%

Val

ue

Wes

tern

Cen

tral

Sou

ther

n

Nor

ther

n

Eas

tern

Nor

th- W

est

Nor

th- C

entra

l

Uwa

Sab

arag

amuw

a

Province

Some Selected Indicators of Construction Activities Classified by Province

(Rs.) Salaries

(Rs.) Value Added

(Rs.) Other Expenditure

(Rs.) Services

(Rs.) Raw MaterialsConsumed(Rs.) Value of Work Done

(Rs.) Value of Contract


0.000

0.500

1.000

1.500

2.000

2.500

Rubber processingT

ea processingPost and com

munication

Rice Milling

Hotels and restaurants

ConstructionT

ourist shops and travel agentsPublic adm

inistration andT

ransportPlantation developm

entFisheriesCoconut processingN

onmertralic and other m

ineralT

extiles, Footwear and leater

Plastic and Rubber productsBanking, insurance and realO

ther personal servicesFood, Beverages and otherPetroleum

industryLivestockPotatosVegetablesW

holesale and retail tradeRubber growingGarm

ent IndustryT

ea growing - Low elevationCoconut and toddyFabricated m

etal productsFruitsM

iscellaneous agricultralFlour M

illingBasic m

etal productsO

wnership of dwellings

Chemicals and Fertilizer

Electricity , Gas and water

Wood and w

ood productsPaddyO

ther manufacuring

Mining and Q

uarryingPaper and paper productsM

inor export Crops

Tobacco

Tea growing -H

igh elevationH

ighland CropsFirewoodBetel and A

recanutsForestryT

ea growing -Medium

elevation

Average =1.339

POSITION OF CONSTRUCTION BACKWARD LINKAGE IN THE 2000 ECONOMY

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

0.000

0.500

1.000

1.500

2.000

1970 1976 1981 1986 1995 2000

Backward linkage indicators Output multipliers

TREND OF CONSTRUCTION BACKWARD LINKAGES WITH OTHER SECTORS

0.000

0.100

0.200

0.300

0.400

1970 1976 1981 1986 1995 2000Dir

ect B

ackw

ard

Link

ages

Agriculture Mining & Quarrying Services Manufacturing

POSITION OF CONSTRUCTION FORWARD LINKAGE IN 2000 ECONOMY

0.000

0.500

1.000

1.500

2.000

2.500

3.000

3.500

Rubber growing

Basic metal products

ForestryTea grow

ing -Low elevation

Tea growing -H

igh elevationW

ood and wood products

Tea growing -M

edium elevation

Rubber processingElectricity , G

as and waterPaddyM

ining and Quarrying

Nonm

ertralicand other mineral products

Tobacco

Petroleum industry

Miscellaneous agricultralproducts

ConstructionPlastic and Rubber productsTransportBanking, insurance and real estateChem

icals and FertilizerLivestockFlour M

illingO

ther personal servicesFirewoodFabricated m

etal productsW

holesale and retail tradeFruitsPotatosO

ther manufacuring

Coconut processingPaper and paper productsPublic adm

inistration and defenceCoconut and toddyPlantation developm

entPost and com

munication

Textiles, Footwear and leaterproducts

Hotels and restaurants

Vegetables

Highland Crops

Food, Beverages and otherRice M

illingM

inor export CropsFisheriesG

arment Industry

Betel and ArecanutsTea processingTourist shops and travel agentsO

wnership of dw

ellings

Average =1.498

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

0.000

0.500

1.000

1.500

2.000

1970 1976 1981 1986 1995 2000

Forward linkage indicators Input multipliers

TREND OF CONSTRUCTION FORWARD LINKAGES WITH OTHER SECTORS

0.000

0.050

0.100

0.150

1970 1976 1981 1986 1995 2000

Agriculture Mining & Quarrying Manufacturing Services

Thank You

construction sector in sri lanka - cowam project - · pdf fileconstruction sector in sri lanka...

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