FACED with heated competition and dwindling order books at home, local construction companies have been urged to equip themselves to seek business opportunities abroad, just as foreign contractors are doing in Malaysia. Otherwise, they may be swept into oblivion.
The warning came from Deputy Works Minister Datuk Mohamed Khaled Nordin as an industry group revealed yesterday that the 1.9% growth target set for the construction sector this year would not be met because the industry chases fewer projects of lesser value. Meanwhile, foreign contractors, particularly from Japan and Singapore, are taking an increasingly larger slice of the local market.
Stressing that only the best will survive, Khaled dismissed any suggestion that the government would be extending handouts or forcing mergers among the some 54,500 local firms in the sector in the face of touch competition.
We believe market forces will dictate, he said.
The Construction Industry Development Board Malaysia (CIDB) said the RM12.9bil worth of projects awarded to its members in the first half 2003 were 41% lower in value than the RM22.1bil worth of contracts signed over the equivalent period last year. Consequently, growth for the full year would be between 1.1% and 1.3% short of the 1.9% expansion originally forecast by Bank Negara, the CIDB said.
The outlook, released at the Construction Industry Economics Review 2001/2002 seminar in Kuala Lumpur, makes sombre reading for an industry that has not fully recovered from the Asian financial crisis of 1997/98 and which is still significantly dependent on government projects.
Although some world-class Malaysian construction firms had done well both locally and abroad, CIDB general manager Sariah Abdul Karib said the outlook was not too optimistic this year for many other companies, over 80% of which were small, grade G1 to G3 contractors.
She said the dampening effects of the Iraq war and the SARS outbreak in the first half 2003, and the absence of large government project awards in the second half, would affect the sectors full-year performance.
The construction sector had grown 1.2% in the first quarter 2003 and 1.4% in the second compared with 2.9% and 3.4% respectively a year ago. It charted a 2.3% growth for the whole of last year.
However, Sariah said that growth should accelerate from next year when some large government contracts like the RM16.3bil double-tracking project, further packages of about RM3.6bil under the Bakun hydro-electric project, the RM4.2bil inter-state water transfer project and the RM2.5bil second Penang bridge project were awarded.
Government projects accounted for 51.9% of the sectors income in 2001 and 56.5% in 2002. However, the percentage fell to 44.5% in the first half this year, with the largest project awarded being the RM1.27bil Customs, Immigration and Quarantine Complex in Johor Baru.
Khaled, in his opening address at the seminar, said the playing field had changed for the construction sector and warned local contractors that they would lose out very quickly if they did not further enhance their capacity and capabilities.
He said the large number of small local contractors also did not augur well for the industry. Comparing the number of contractors to the number of contracts awarded clearly shows that not all contractors will be able to win projects, he said.
In addition, he noted, foreign contractors were making inroads into the market and in the first half 2003 won 5.7% in value of local projects, up from 5.3% last year and 4.2% in 2001.
CIDB records show that Singapore contractors secured 38.5% more Malaysian projects in 2002 than in the previous year, while Japanese firms gained an extra 17.1% over the same period.
Khaled said global competition would be inevitable under the World Trade Organisation. Local players have to be prepared ... the good old days are over, he told a press conference later, adding that Malaysian firms that had upgraded their skills to world standards had been successful in winning projects overseas.
He said local contractors had so far completed some RM2.13bil worth of projects abroad while some RM13.18bil were currently under construction. CIDB would soon be setting up branches in India and Bahrain, he added.