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  • Dec 18th, 2012
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There is a famous French saying: "If construction moves everything moves". Construction is a major industry throughout the world accounting for a sizeable proportion of most countries' Gross Domestic Product (GDP) and Gross National Product (GNP). The importance of the construction sector is not only related to its size but also to its role as a catalyst in economic growth.

The rise of Japan/Germany/Europe economies to the present state from the ashes of destruction of World War-II, behind the magnificent industrial, agro based and housing structures, is the construction industry. Behind the growth of infrastructural development that are improving the well-being of people through the provision of goods and services, silently hides the construction industry which can as well be termed as the backbone to national development. Infrastructure is indispensable to achieve the main development targets such as power generation, urbanisation, industrialisation, irrigation structures, export promotion, equitable income distribution, and sustainable economic development. The construction industry, the main player in the infrastructure & housing development, should as well be accredited with silently advancing national development agenda.

Most importantly, millions of jobs can be generated during the chain reaction process of construction activity in the economy and can President FPCCI have snowball effects in allied industries such as cement, iron, steel, timber and wood, marbles, tiles and stones, electrical and sanitary works, glass, paints and varnishes, electrical lightning, power and gas, horticulture, interior decoration, transport, light-heavy construction machinery, plastics, fibers, furniture, electrical appliances, and many more.

According to a World Bank study (2008a), a unit increase in expenditure in construction sector has a multiplier effect and the capacity to generate income as great as five times the cost of the unit. If the economy grows at the rate of 10 percent, the housing sector has the capacity to grow at 14 per cent and generates new jobs in millions, over the period of time.

As per Economic Survey of Pakistan 2010-2011 the construction industry posted lowest growth in decade a marginal 0.8 percent in FY 10, this number was particularly distressing in the backdrop of the 59 year high growth of (28.4 percent). In developing countries in fact Construction Industry is used for poverty alleviation by providing employments.

Turkey has a population of 75 million and they have around US $192 billions Overseas Construction Projects where as Pakistan's population is more than 180 million, the question is that, do we have any significant overseas construction project? The answer simply is "No" and the reason is that our policy makers did not realise the potential available with the construction industry/sector. Even we do not have construction companies in some areas resulting in the Foreign Construction Companies are working in Pakistan.

Unfortunately construction sector is one of the most neglected and un-organised sector, in Pakistan, heavily taxed as construction is still treated as a part of luxury. No financial facilities are available from the banks for the construction of infrastructure projects and no positive policy ever made from the State Bank of Pakistan as well. However, financing was made available for housing sector but on a very high rate of interest. The construction sector which has no significant default is still considered as the most risky business sector by the banks.


Construction industry in Pakistan consumes almost 80% of the National Development Budget, and pays highest tax per million Turn over. It provides jobs to millions of skilled and un-skilled workers and also supports more than 40 major allied industries of construction materials.


a) Employment Generation: Construction industry is also one of the prime source of employment generation in Pakistan and the second largest industry of Pakistan followed by Textile Sector, which is providing jobs to millions of unskilled, semi-skilled and skilled work force.

b) Training for Overseas Jobs: These labour force / manpower after getting experience and training during their jobs in construction field later obtain jobs mostly in Middle East/Far East and earn foreign exchange for the country. According to the article published on 24th May 2011, only from Saudi Arabia US $2.085 Billion amount remittances were made by Pakistani unskilled and skilled labour force in year 2010-2011. And according to State Bank of Pakistan annual report 2010- 2011, the total foreign remittances were US $11.2 Billion. Whereas Construction industry indirectly contributing in foreign exchange through the training of labour force attached with construction industry is roughly estimated around US $6.7 Billion. 60% of the total workers' / home remittance US $11.2 Billion)

-- Social Sector Improvement / Poverty Alleviation

-- Pakistan's total population is estimated around 180 million and a vast vacuum exists in Social Sector. Majority of the population do not have access to basic needs such as:

-- For Education we need Schools, Colleges and Vocational Training Centers buildings

-- For Health we need Hospitals and clinics

-- For Potable Water and to reduce risks related to public health we need Water and Sanitation system

-- For Transportation we need Roads, Bridges, Flyovers, Airports and Railways System etc.

-- For Industry we need Industrial Buildings and Industrial Estates along with Mechanical & Electrical works

-- For Irrigation/Power and to promote Agriculture we need Dams, Canals, Tube- Wells.

-- For Housing we need customised housing, office complex. Shopping complexes and real estate development

-- For Existing Infrastructures we need Construction activity for maintenance

-- Overall spending on the Construction Sector - Potential for Value Addition to Economy

PSDP funds of the Government of Pakistan is around Rs 350 Billion and Provincial Government ADP funds are almost around Rs 400 Billion. Out of Rs 750 Billion per year it is estimated that 75% funds are utilised by the Construction Sector. On the basis of survey related to Private Building Construction Survey (1993-96), in 2005 it was estimated that in private Sector Investment for construction and housing will be around Rs 529 Billion per year.

The Size of the spending is in substantial amount but it requires value addition for the industry in shape of Capacity Building.

To accomplish the task, it is required to support the Local Construction Industry and keep the national resources within the country otherwise the vacuum will be filled by Overseas Contractors who will export the profit of the construction sector including intangible assets abroad in shape of foreign exchange.


At the time of Construction of Motorway from Lahore to Islamabad M-2 and M-1 it was found that no local construction company in Pakistan is available for the required job. Therefore, at Government of Pakistan Level two activities were carried out first in 1992 and taken certain measures for the revival of the local Construction Industry. In 2001 a National Housing Policy was made and notified for implementation. Unfortunately for all practical purposes neither the housing policy was implemented nor any reforms were made to organise the sector for the purpose of Capacity Building of local construction industry, rather at the level of bureaucracies in Federal and Provincial levels opposed the implementation of such measures and policies.

Without making reforms it is not possible to turn around the construction sector/economy of Pakistan and in this regard following steps are suggested:

1. To establish Construction Development Authority of Pakistan (CDAP) under the aegis of Planning Commission of Pakistan with the involvement of all stake holders including GoP and Provincial Chief Secretaries and ACS of the Developments, State Bank of Pakistan etc. The authority shall be made responsible to identify issues, subsequent measures to address the issue, and to make reforms so that the capacity building of the local construction industry is made in order to work and perform locally as well as on international level.

2 In the entire region the Cost of Doing Business for construction work in Pakistan is very high and without reducing such cost construction industry cannot survive. CDAP may indentify such unreasonable cost and to ensure availability of level playing field an overdue relief to the industry.

3 The present era is related to construction of projects on Public Private Partnership basis, BOT or BOOT basis. For the construction of Projects on PPP, BOT and Boot basis no organised financial facilities are available. State Bank of Pakistan is working on infrastructure financing model since last many years and at federal level (IPDF) Infrastructure Project Development Facility Agency is also established but the results are still awaited.

-- It is suggested that "Construction Development Certificates" deposit certificates may be introduced at National Saving Centers similar to Defence Saving Certificates and the raised local funds may be used for the construction of Power Houses, Dams and infrastructure. Such kind of local funds may provide the cheap power electricity, water for irrigation and other pressing infrastructure facilities at one end and on the other end provide employments and jobs to local construction industry. Since local industry is not too financially strong, therefore, "Equity Participant Fund" agencies/companies may also be established to support the required equity for the Project to qualify for financing.

4 Our planners appear to club the economically essential construction activity with the real estate speculation, resulting in increased taxation on already heavily taxed sector of economy ie Construction Sector. It requires rational approach to save from heavy taxation which is a main obstacle in the investment particularly in the PPP, BOT and BOOT Projects.

5 For the removal of corrupt practices, Pakistan Engineering Council has developed Standard Form of Bidding Documents. The documents are approved by ECNEC for implementation with the approval of all Stake Holders ie Federal Government and Provincial Governments and notified from time to time for the implementation as a uniform Standard Conditions of Contract throughout Pakistan.

President of Pakistan, Prime Minister of Pakistan, Chief Ministers of all Provinces, Chief Secretaries of all Provinces approved such documents in various meetings for implementation, but the practical position is that a very few departments have adopted for the implementation like NHA but most of the departments did not implement and in some cases like WAPDA and Port Qasim Authority, they have changed the conditions which is not allowed, Sindh Government has totally refused to implement the said documents. The sad situation related to policy making and decisions taken to implement the policy questions the authority of the writ of the State.

6 For the Overseas Construction Business for meeting the requirement relating to Bank guarantees it is proposed that an Export Credit Agency for the Construction Works may be established with the financial support of the Government of Pakistan. The Export Credit Agency may underwrite the risks of the Banks enabling them to issue overseas Construction Bank Guarantees on soft terms to the Construction Companies.

-- In trade policy 2003~2004 and thereafter, it was announced from time to time that a fund would be created which could be used as collateral for commercial banks to issue the Bid and Performance Bonds to construction companies. This is still not materialised and requires implementation; this is a step in right direction and should be implemented.

7 The construction sector is being treated as most risky by the Banks and financial institutions on the grounds that funds are not made available for the ongoing construction projects. Since last five years billions of rupees are unpaid for the Works executed/completed but payments are still not released. No financial discipline exists at the end of Project initiating agencies and it requires framing of strict financial rules for in time release of payments for ongoing Projects. Lowari Tunnel is a classic example of the Ongoing Project.

8 Poor law and order situation has also a major hurdle in the investments in Pakistan and the Construction & Housing Sector is directly affected and requires serious actions from the State to provide the protection of Life and Property.

It is hoped that Federal/Provincial Governments and all stake holders of the Construction Industry will come forward and work together as a team to turn around the economy of Pakistan by making reforms as suggested.

Copyright Business Recorder, 2012

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