Follow procurement guidelines, increase investor confidence
Sri Lanka’s construction industry has been a key contributor to the national GDP contributing approximately 6.2% to GDP in 2020 from 7.4% in 2019. As one of the major development indicators and a driver of the island’s economic growth, the domestic construction industry was on a growth momentum until the onset of the COVID-19 pandemic and its subsequent lockdowns followed by the economic slowdown. Although multiple condominium and commercial projects within Colombo city as well as infrastructure and development projects across the island had sparked a construction boom during the pre-COVID years, industry representatives urge that without strict discipline in procurement processes and an investor-friendly bureaucracy, the industry’s future is uncertain.
Daily News Business spoke with Ranjith Gunatilleke, President of the Chamber of Construction Industry of Sri Lanka, (CCISL) the apex representative body representing the industry and fostering its growth, who is also the CEO of the Sanken Group, Deputy Chairman of Sanken Holdings and was the Ex-Chairman of the Major and Specialists Contractors Association of Sri Lanka. He serves on the Board of the ‘’Construction Industry Development Authority’’ (CIDA) as representing the Chamber of Construction Industry of Sri Lanka. He also represents the private sector as a Corporate Member on the Institute of Engineers Sri Lanka( IESL):4 Board of Registration and serves in many other Associations in an advisory capacity. Gunatilleke shares the challenges facing the industry and the Chamber’s suggestions for the industry’s growth.
How is the construction industry performing at the moment?
There was a time when the construction industry was doing well and it was peaking at about 11 per cent of GDP soon after the war ended. This trend continued for some time but currently, it is performing at around 7 per cent of GDP, and the future of the industry could be better if properly addressed.
When considering the construction industry, the main thing is sourcing the work itself. It is generally either national development projects using public funds or private sector development projects. Private sector projects generally come from either local or investor based private projects. The latter is mostly dependent on the country’s economy, efficiency and discipline.
The local construction industry relies 60 per cent on domestic state sector projects such as infrastructure and building constructions, whilst investor related and local private sector projects only account for 40% per cent of the industry’s total project volume. These ratios vary from time to time.
What factors have contributed to the slower performance rate?
While the COVID pandemic has been the most immediate factor affecting almost all industries across the board; I feel the situation of the construction industry is directly linked and must be viewed in the context of the economy of the country and the region as well. In a regional context, our construction industry faces an unfortunate situation. We don’t even have one law and one practice for the whole industry.
If you take procurement, for example, the procurement of the state organizations for instance although they have procedures, either they don’t know or they don’t follow the laws of procurement. This lack of acceptance and implementation of existing procurement laws and guidelines is a concern for the construction industry as it directly affects everybody in the industry and the public as well.
The Public Procurement Laws cover the construction sector as well. This includes the 2006 Public Procurement Guidelines called the ‘Blue Book’. Today the industry practices it, but some Ministries follow it some don’t either knowingly, unknowingly or intentionally.
In 2018, new Procurement Guidelines were developed based on the feedback of professionals to improve the existing ones. It was a well-developed ‘’Procurement Guidelines’’ where many professionals and Practices contributed. Unfortunately, I regret that this is not implemented. This guideline is available but it is not implemented.
This is just one example of the lack of following systems and processes that impact industries and the overall economy.
Where do you think Sri Lanka stands against regional hubs?
The economy collapses because of indiscipline, as said by the President, “it is corruption”. This got to be addressed for the country’s economy to improve. Once this is addressed and improved, we will get the dividends as the stakeholders of the construction industry. This is a very simple theory, I can’t see why anyone can’t understand it.
If one looks at the regional economy, whether it is Singapore, Malaysia, even India and now Bangladesh, these countries have all corrected one thing: to the best of their ability they have overcome corruption to a great extent. One of the main tools of overcoming corruption is following procurement Guidelines and also the efficiency of Public Sector affairs.
So if we are to follow in the footsteps of developed countries in the region, If you say we want to develop like Malaysia, like Singapore, it is important to first know what tools to use and the first requirement to address is the discipline of the economy.
What are the key resource concerns for the construction industry?
One of our key drawbacks of the economy is the wastage of resources. We don’t use existing resources efficiently. We need to address the wastage of public funds and the wastage of our human resource strength.
For example, capital expenditure that doesn’t bring in return on investment needs to be put on hold to ease the economic pressures for the time being. There are many public Investments but I don’t want to name them.
We requested in the last budget that the capital expenditure be held for at least 3-4 years. The budget held capital expenditure for 2 years. Capital expenditure includes infrastructure expenditure. In infrastructure expenditure, there are expenses we can go ahead with provided we get a return on investment. But not infrastructure expenditure there is no return.
How efficiently the government resources are used and how public funds are spent is crucial at this time. If there are excess funds, that can be put into development. Naturally in any investment in development, the construction industry is the main beneficiary.
At the same time, our strength of human resources, we don’t use human resources effectively. We don’t have sufficient human resources for the construction industry. The construction industry suffers without human resources despite on average workers getting nearly 100,000 or more in monthly wages. This is because the actual human resources are wasted.
To encourage more workers to enter the sector and remain in it, the Chamber focused on improving the social standing of blue-collar job categories, increased their pay grades, improved their working attire and designations. We gave them social standing to be able to call themselves paid workers. Some of them earn higher than graduates or some other industry CEOs. Still, I can’t put my finger on the reason but they prefer to stay at home or join the armed forces. So how to get these people to come and work is one of our major concerns.
For instance, we see young people in jobs that don’t add value to the economy such as in security jobs whether private or public sector. It is a waste of human resources. Not maximizing the existing human resource especially the youth needs to be addressed so the country’s economy can utilize this wasted resource more efficiently.
Not just the construction sector, other industries such as plantations, garments, services sector, tourism, all have a serious human resource insufficiency that can be met by better use of existing resources.
However, white-collar job categories on the other hand show greater promise. With qualified professionals passing out from institutions joining the industry more frequently and opting to remain within the sector. However, compared to other countries, hiring Sri Lanka’s professionals costs less than their actual worth which is good from a business perspective but not the ideal situation from a future growth outlook.
How has the USD crisis and the economic slowdown impacted the construction industry?
In all these areas there are common resources that are used and resource concerns. One resource concern is material. Approximately 62-65 per cent of a building value is made up of material, which is either directly or indirectly imported. These include sand, tiles, metal, machinery such as elevators and excavators, cement and so on.
In this country, we don’t produce any machines for the construction industry. In addition, none of the spare parts is manufactured here. Everything is imported. So we have a big concern in sourcing material. At the same time, we are mindful of the increase in the cost of construction work which is another challenge we have had to deal with in the last few months.
How friendly is the investor environment in Sri Lanka?
We must welcome investors into this country. Simultaneously we need to improve the ease of doing business in Sri Lanka. Today the situation is not welcoming. There is a lot of lethargy in the bureaucracy and corruption. In today’s situation, investors will try to leave as early as possible.
We need a culture that is inviting and encouraging investors instead of a culture where they have to go through many officials who say ‘no’ to everything unless they are looked after. If we can bring down the corruption and reverse the lethargy in the bureaucracy I am confident this country can develop within 5 years.
What is the Chamber’s contribution towards improving the climate for the industry’s growth?
The construction industry now is highly regulated by two bodies: one is as per the Act of Incorporation, Act No 33 of 2014 that is CIDA (Construction Industry Development Authority) and the Chamber of Construction Industry of Sri Lanka, which acts as the representative body of the construction industry incorporated also by Act No 23 of 2019. Both organizations have a clear vision and a mission. Irrespective of the personalities, these organizations must see that the construction industry tasks are achieved.
The Chamber is a representative body that represents multiple professional institutions, suppliers, manufactures, and other affiliated industry professionals as institutional members, corporate members and private members. It embodies the total construction industry and is well represented in our main Council. It is a non-profit organization incorporated by an Act.
The Chamber continuously works with regulatory bodies and development authorities and respective ministers in ensuring that the construction industry interests are looked after as well as the industry’s contribution towards the economy is maintained.
I am pleased to say that the Chamber will be opening our permanent Secretariat at Colombage Mawatha Colombo 5 this year, which is a much-awaited step in our Chamber’s anticipated milestones.
However, we have made several representations to parliamentarians on issues concerning the industry, but so far have not elicited a positive response.
As an industry representative body, we have requested the authorities to appoint one Chamber member recommended and nominated by the Chamber to the Cabinet appointed ProcurementCommittees. This would increase the transparency of procurements and empower the members by their valuable contribution and advice. I trust that this will provide a positive contribution by the Private sector towards progress in National Development. (WW)