Construction industry’s dilemma - Covid-19


  • Construction
  • Monday, 13 Apr 2020

Although the construction sector contracted a lot more during the 1985 and 1998 recessions, this time, however, we are seeing no work at all. It is a different dynamic and we are in uncharted territory, says Param Sivalingam, former project director for the Klang Valley MRT Serdang-Sungai Buloh line.Construction project

AFTER the Pakatan Harapan government was installed in 2018, many contractors and their supply chain suffered severe cashflow disruption and had to incur bank borrowings in order to keep the projects afloat due to the restructuring exercise.

New projects were also deferred. The annual turnover for the industry has been declining from a peak of RM273bil in 2016 to RM106bil in 2018, representing a 60% decline.

This time, the construction industry is experiencing another blow with the onset of the coronavirus movement control order (MCO), which was announced recently. Although the construction sector contracted a lot more during the 1985 and 1998 recessions, this time, however, we are seeing no work at all. It is a different dynamic and we are in uncharted territory.

The stimulus package announced recently by the Perikatan Nasional government has only considered the G1 to G4 contractors. Recently, a second stabilisation package has been announced to cover the SMEs. However there has been no consideration for the contractors from the G5 to G7.

There are a total of 17,000 companies who are affected and these companies are the key drivers of the construction industry. They represent a majority of the personnel and labour workforce amounting to a total of 850,000 workers working in the construction industry, based on 2018 statistics from the Construction Industry Development Board (CIDB).

Neither the Works Ministry nor the CIDB have come out with any mitigation or recovery plans. Only the International Trade and Industry Ministry (Miti) has reached out to the private sector prior to the implementation of the Economic Stimulus Package 2.0.

The impact of the MCO is already immense to the contractors. Then there is the issue of the situation post-MCO.

Post-MCO some of the foreign workers may decide to return home out of fear and uncertainties with the situation. Furthermore, there is a risk that the supply chain disruption may not be re-established in the short term i.e. suppliers of key building materials, equipment rentals and imported items.

Further movement restrictions are an additional risk to productivity that could arise post-MCO, particularly when it has been reported that the virus could remain in the population and could recur as a second wave.

Finally the financial health of the subcontractors is unknown and will only manifest itself after the lifting of the MCO.

Learning from other countries, the Australian and the UK government have declared engineering and construction as essential services and has allowed 24 hours work in shifts to ensure continuous progress while minimising Covid-19 infection risk. This is possible through strict enforcement of social distancing, shift working and surveillance of the workforce.

Next, CIDB has to do much more in terms of getting the industry on an even footing. Based on the last annual report, the CIDB has a total cash balances amounting to RM700mil. Of this amount, RM411mil is deposited into short-term deposits and the balance into asset management and cash.

CIDB should release these sums back to the industry in order to tide them through these difficult times. A moratorium for tax payments until the end of the year for all contractors for the year 2020 should also be considered by the government.

Then the labour levy should be reimbursed to contractors who have paid the government upfront for the employment of foreign labour. Finally the government should immediately announce the intention to proceed with new projects like the MRT3, affordable housing and an expansion of public hospitals in the country.

This pandemic has also highlighted the need to build a disease control centre similar to what has been established in the United States and Singapore.

This is a forced lockdown and not a typical recession. However, similar to the decisions by the UK and Australian government, our government could consider resumption of work during the MCO for strategic projects.

The industry can bounce back in a V-shaped recovery and contribute to economic growth only if employees and workers remain employed with their companies and liquidity is maintained to the industry to stay alive.

Param Sivalingam is former project director for the Klang Valley MRT Serdang-Sungai Buloh line. The views expressed are the writer’s own.

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