A Perspective on the Construction Industry

Construction is a global industry, with a total estimated annual output of US$11 trillion in 2020, and is projected to hit US$15 trillion by 2030. The role of the construction industry in the national economy is quite clear and plays a dual role of providing the basic needs of shelter and it also satisfies other socio-economic needs by providing infrastructure for development.

Since the construction industry is typically responsible for 7-10% of GDP, and as much as 50% of fixed assets, its performance has a significant effect on the efficiency of capital investment. In the Bhutanese context, construction sector accounts for an estimated 11.48% of the GDP in 2019 based on NSB Year Book 2020, which is falling closely after the Agriculture and Power sectors that account for 15.82% and 12.71% of the GDP, respectively. It is therefore not surprising that “given the highest potential to generate wealth, employment and sustainable growth within the framework of GNH, the construction industry has been identified as one of the priority sectors in the revised Economic Development Policy 2016” according to National Construction Industry Policy – 2018. Given this potential, the construction sector continues to receive the focus and attention of every successive government including the current government.

In the wake of recent news of senior civil servants having been at the receiving end of royal displeasure, there is another rumour doing the rounds that the government is looking to support construction companies in any way possible as long as it leads to job creation.

In the context of the construction sector and its potential as highlighted above, and if the rumour is to be believed, the intent seems good and logical. However, on closer scrutiny, this is probably the wrong step to take for reasons highlighted below.

One of the key challenges facing the construction industry globally is workflow stability as the construction industry is unique in that it works itself out of a job every time it completes a contract. This has affected the long-term growth of construction companies as immediate survival takes greater priority over continuous development of the company. Continuous improvement can take root only in an environment where there is a steady workflow.

Bhutanese construction sector is no exception to this. It is for this reason that erstwhile support in the form of Guaranteed Employment Scheme did not succeed as the government was unable to enforce it when their contracts came to an end and they could not secure the next contract to retain the employees. It is for the same reason that the current interventions in the form of ‘Build Bhutan Project’ and the ‘Specialist Contractors’ approach will most likely meet the same fate. Both the BBP and Specialist Contractor approach has created dependency on the government to continue giving work to these companies in order to retain the employees. This is an unsustainable approach, and the moment the government support is withdrawn, it will collapse.

There are however many good examples of sustainable government support provided in other sectors. One good example is the tax subsidies provided to the hospitality sector where the government does not guarantee room occupancy but provides support towards establishing the business. And yet, the sector has thrived and grown at a rapid pace creating the much-needed infrastructure on the one hand and the employment generation on the other. Another example is that of farm road constructions, which have been built by the government but maintained by the communities. At least, this was the initial concept!

If the Bhutanese construction sector has to fulfil the expectations placed on it, it is critical to understand that any government support given to the industry is not sustainable unless efforts are made to stabilize the workflow.

Basant Raj Chhetri

Bhutan Professional Services