Construction Industry and Economic Development - Essay Example

Macro and Micro Economics Essay: Industry-Economy Inter-linkages Introduction Any country that hopes to have acompetitive business, which increases profits, and expands the export quantity and creating jobs must first embrace the effective economy growth factors. It is common knowledge that only through economic growth and sustainable business confidence can a country boosts the standards of living and create high paying jobs to her citizens. There are many ingredients to having a successful business. From the numerous ingredients, there are six key ones that must be used to ensure success and growth. These ingredients include infrastructure, innovation, natural resources, safe and skilled workplaces, export and capital markets (Aid 2011, p.56). Infrastructures are the long lived, fixed structures that are used to facilitate the effective production of goods and service delivery. They include water, transport, energy, social assets and communication. As can be seen, these infrastructures can transform an economy and improve the quality of life to people. Nonetheless, these infrastructures are not cheap investments. These assets are costly and take years in planning, building commissioning and servicing. It is crucial for any economy to project its future infrastructural needs before embarking on its development. This will ensure that the right investment level is met within the right time at the best cost (Anon 2009, p.34). Construction industry can be defined as a sector of a country’s economy, which transforms and uses various resources into social infrastructure and physical economy necessary for economic and social development and growth. It involves the planning, designing, procuring, constructing, altering, repairing, maintaining and demolishing the said physical infrastructure. Construction sector has been viewed to be a significant drive in economic development and growth. It is a sector also viewed to add quality and productivity to life. Given that the construction sector is labour intensive, there are large populations that are supported in the employment opportunities it creates. Econometric analysis shows that the construction industry can not only be used in building a country’s way out of recession but also activate various economic bases for a vertical economic growth (Dlamini 2011, p.45-49). The physical infrastructures There are many types of physical infrastructures that can be constructed. Some of which are; 1) Transportation facilities and systems that include highways, bridges, subways, airports, transit systems, railroads, transmission lines, harbours and power lines. 2) Buildings 3) Structures for control, containment and distribution such as sewage collection, distribution and treatment systems, water distribution and treatment systems, dams, canals, irrigation systems and sedimentation lagoons. 4) Underground structures such as mines, tunnels and communication systems. This industry comprises of persons and organizations who take part in its development. Some of the key players are consultants, firms, companies, sub-contractors and main contractors, equipment and plant suppliers, component and material producers, merchants and builders. This industry also works closely with potential and committed financiers and clients. However, the government is usually involved in such industry as a regulator, operator, financier and a purchaser (Tanzania 2005, p.54-58). The construction and building industry are deliberately managed for improving the effectiveness and capacity of the nation to meet its economic demands. With this in mind, most countries will hope to sustain social development, as well as the physical infrastructural facilities’ condition. This will ensure that the environmental responsibility in service delivery is assured. Furthermore, the clients will enjoy an increased value of their investments. Also, the competitiveness and viability of the domestic construction enterprises will be ensured. With increased market competitiveness, the role of all stakeholders and participants will be optimized through technological, process and institutional enhancement coupled with human resources development (Tanzania 2005, p.54-58). Infrastructure is a growth underpin that provides the supportive networks demanded by a developing economy. It also increases growth by giving room for more economic opportunities to sprout. Most economists also agree that building infrastructure can deliver Characteristics of the construction industry The construction industry is diversified in terms of drivers of the economy in the current world. In the developed countries, the local construction companies have the largest shares, both in service provision and market opportunities. However, in the developing countries, the construction market is dominated by the foreign investors. This dominance can be as high as 65% of the market share. Majorly, in the developing countries, the construction industry is carried out as a medium investment. Worldwide, small and medium enterprises comprise of 90% of income and development. In fact, given that SMEs are vital to economic development of a country, they are responsible for the growth and employment creation. Also, they are the ones that can be willing to undertake scattered small projects in most local areas. Such projects are roads used for geographical mobility, sanitation and health facilities, and housing. The growth and development of such facilities creates an avenue for expansion of the construction firms (Anon 2009, p.34). The construction sector is also faced by the emergence of the informal sector of the industry. The informal sector of this industry involves the unprotected and unregulated individuals who engage in economic activities. These economic activities are such as the supply of materials, labour, and building components that resonate with the client’s demand. In the rural areas of any economy, the construction works there are undertaken by the informal sector of that industry. This informal sector may also include the construction projects undertaken by groups or individuals on a basis of self-help without contracting. Since infrastructure and the construction industry are fundamental economic drivers, they play a vital role in permeating the economic sectors. Also, they become a benchmark of any country’s economic development. It is crucial for local professionals and firms to fully induct into this industry so that they can take up more of the local demands. The construction sector can create either economic growth or stagnation. Moreover, this industry needs support from macro-economic policies that will stimulate its growth and overall contribution towards economic development (Anon 2009, p.34). Construction Industry and Economic Development Sustainable economic growth and development is a key strategy in ensuring poverty levels reduction. Infrastructural development ensures this by stimulating enterprise opportunities, spurring economic growth, providing access to markets and generating employment opportunities (Government 2012, p.86-89). There are four main pillars that infrastructure development can be cantered. These pillars are as listed below. 1) Creation of reliable energy services and supportive communication and information technologies. 2) Sustained transport system 3) Increased access to sanitation and water infrastructure services 4) Supported urban planning and development. A direct initiative into the construction industry and infrastructure are a sure way of supporting the building industry, stimulating economic growth, reducing trade and transaction costs, improving industrial and economic competitiveness and generating employment. Furthermore, infrastructure contributes to growth and investment through increased efficiency and productivity. It links people to jobs, products to markets and resources to industries (Government 2012, p.86-89). Sustained transport system Sustainable transport system can reduce the cost doing business. It increases access to social services and markets. People interested in improving their lives must be allowed to access opportunities and refrain from isolation. In business, interactions are most salient. Without sustained, reliable and safe transport network, most people will have difficulty in accessing the markets available for trade. Most families also will not access health facilities and most urban centres will not be effectively operational. There will also be a limitation in participation, in social, cultural and political activities; all this points to opportunities lost (Ruban & Dimitris 2011, p. 99-107). Millennium development Goals (MDGs) were structured with certain goals. Improved community empowerment and transport infrastructure are key drivers towards MDGs realization. In addition, ports, roads and airports are high value assets that transcend boundaries and can activate regional and international markets. It improves the economy by supporting regional trade and international relationships (Aid 2011, p.56). Increased access to sanitation and water facilities In developing economies, sustained access to sanitation and water services is necessary. Water and sanitation are essential for economic development and growth. Though appropriate regulatory policies are needed for keeping water and sanitation investments operational, developing a stronger economic base can only be ensured when these structures are supported for long- term operation. This long- term operation can be ensured by strengthening operating policies in building and development. This way, there will be ease in dealing with consumers as well as enhanced community participation. Also, charges will be sustainable and appropriate so that consumers are not subjected to various rates (Ruban & Dimitris 2011, p. 99-107). Adequate infrastructure is essential in better water management. Water is a link between energy, food and environment. Dams are cruel in necessitating industrial growth and development, agricultural productivity and power generation. When the power is generated, companies run, employment is created and poverty levels reduced. Reliable energy and supportive communication and information systems In facilitating economic development, energy and ICT are crucial. They form the basic building blocks of a running economy. Commercial and industrial enterprises need affordable and reliable energy supply to deliver services and products upon which an economy depends. Energy is the link between markets and people through communication and transport. Energy increases the market access and can easily be used to modernize agriculture. Also, energy reduces the time spent on doing some basic domestic chores like collecting firewood. By providing cleaner energy, electricity helps in environmental sustainability and management (Government 2012, p.86-89). Through partnerships, these energy and ICT can be exported to increase regional and international trade. These kinds of transactions can be maintained and sustained with the involvement of private sector and multilateral development banks. The support for ICT development is crucial in enhancing communication, international transactions and global connectivity. Also, ICT reduces the cost of doing business by making the world one large business community. It is crucial for any successful economic program to support information and communication technologies through multilateral and bilateral partnerships initiated by governments. Supportive urban planning and development There is rapid population growth that couples urbanization. In many developed and developing countries, these are the core issues that should be addressed by sound planning and development policies. Most governments do support structural developments in the urban areas to take care of the urban diversity. With encouraged infrastructural developments, firms, institutions and industries are capping the urban centres. This is the way to go for any structural economic development (Ruban & Dimitris 2011, p. 99-107). The economic reason for supporting infrastructural development in urban areas is that urban areas drive the economy. However, that drive is always facing limitations such as limited housing, land and transport. Limited urban infrastructure is a hindrance to economic growth, rapid urbanization and decentralization. Infrastructure in urban centres such as housing, transport networks and communication facilities can sustain economic growth and attract new investors. It is essential to establish a good infrastructural development to upsurge the economic drivers (Ustinovichius et al. 2010, p. 375-384). Construction as a major contributor to the total GDP in UK The total output from construction in UK includes the c. £80 billion direct value-add and about c. £44 billion intermediate consumption. The intermediate consumption entails the total materials and services that are used in construction, inclusive of the sub-contracting services. The government in UK has its economy historically driven the construction output to 30-40%. The construction industry has contributed to a net trade surplus of approximately £223m in UK. This is because only small construction output is imported and the increase in construction demand has a high likelihood of directly benefiting the domestic firms in UK. In addition, the construction industry supports the net-export service sector that is high-valued as an engineering design and consultancy, property management and architectural activities (Guthrie 2006, p. 925-972). Problems facing the infrastructure industry The global economic crisis contributes significantly to the effects in the infrastructural industry. As a result, construction industry as a whole is experiencing delays and most projects have been halted. The social infrastructure in most areas is less developed as a result of the political turmoil. This makes many skilful experts shifting to other regions. The increased migration from rural to urban areas is increasing congestion, in the urban areas and rates of unemployment are high despite the infrastructure playing a critical role in creating employment opportunity (Guthrie 2006, p. 925-972). The regulation codes will enhance the viability of implementation of any construction project. Understanding the codes of conduct in a certain area is critical in designing constructions that are sustainable and which contributes to money saving. The mega projects should be financed to enhance the expansion in this sector (Khadaroo & Seetanah 2009, p.34-39). Problems facing the construction industry The construction industry is faced with challenges and problems that are caused mostly by the socio-economic stress, institutional weaknesses and the chronic shortages in resources. The construction industry forms one of the major contributors of the GDP in UK. The industry has been a significant historical contributor to the output growth in UK. It acts as an economic growth driver in other sectors because of the heavy reliance on varied and extended supply chain. A £1 spent on a construction output will generate £2.84 of total economic activity. Each £1 invested provides the financial returns in benefits and tax savings to the treasury (Ofori 2000, p.257-262). Construction industry is among the most effective sectors used by the government invested by the government to stimulate the economic activities. In comparison to other sectors, the construction industry rarely depends on the imports. The investment in construction has the highest probability of generating additional economic activity in UK. The output from private construction is prone to effects of the changes in GDP; where they sharply contract during economic downturns leading to reductions in employment and GDP. The spending among the private sectors is decreasing than in the previous recessions, leading to increased receiverships, bankruptcies and CVAs in the construction sector because of the onset of the current recession. Despite maintaining the current government records, the output in the construction industry has a high probability of falling in the next 2-3years, and reduction, in the public expenditure, can exacerbate this problem (Khadaroo & Seetanah 2009, p.34-39). The development of the construction industry entails the deliberate improvement in the effectiveness and capacity of the industry in meeting the demands of building and civil engineering, as well as to support sustainable social and economic development objectives. This is meant to increase the industry money for clients and the responsibility towards the environment. It also enhances the competitiveness and the viability of the domestic construction enterprises.The environmental implications of the construction industry include the effects to the water, air and the general health of the people. Land is lost in places where construction takes place taking away land from other economic uses like agriculture. This leads to loss of livelihood for some people (Ofori 2000, p.257-262). Remedies to the Challenges The industry is specifically faced with challenges and requirements. This creates the need to take the appropriate measures in improving performance of the industry. Some agencies have dedicated themselves to administer continuous improvement of the construction industry. Despite the difference in objectives, levels of authority and responsibility, the agencies are crucial in improving the construction industry. The agencies have the regional initiative of coordinating the efforts and resources, and most of them are industry inspired and involve the active participation of the industry. These initiatives have high potential of achieving high sustainability since the main beneficiary has a direct connection with the implementation and planning processes (Ofori & Chan 2000, p.56). The constraints in resources are not handled much by forming agencies; their inclusion is not guaranteed. Since the construction industry is continuous in nature, several countries formulate different development levels toward improvement of the construction industry. The reviews are given the impetus by internal and external trends that indicate the future challenges for each of the industry. Globalization enhances the involvement of the international financial markets towards implementing several projects like infrastructure. It allows for the investment of the direct foreign currencies that increase the construction demand as well as creating employment for the local firms. The competition among the foreign firms leads to decreased project costs for the local firms. The large number of the international firms offers the scope for transfer of technology and development of the local firms, as well as upgrading the industry. The increased number of the foreign firms means that the transfer of technology can be used as a tool for competition (Rovolis & Nigel 2002, p. 393-419). Conclusion The economic benefits from the various infrastructural investments vary considerably. The expectation of the same rate of return on the subsequent infrastructural investments is not clearly defined. However, the country should continue taking advantage of the investment opportunities availed through the technological progress, and that further investments may have diminishing returns. The positive impact of the construction industry on the economic growth and productivity are as a result of the investments in this sector. Investment in infrastructure can increase the value of property, and this is reflected in the increased living standards. The industrial inter-linkage can be demonstrated where the proximity to the public transit increases the value for both commercial and real estate. The value for the property experience premium effect when it is located near the public transit systems. The housing affordability is inclusive of the transport costs. The investment in infrastructure lowers the transport cost, and consequently increases the accessibility to the home ownership. The benefits of infrastructural and building investments extend beyond the effects of housing affordability and the property values. References List Aid, A. (2011). Sustainable Economic Development. Australia: Australian Government. Aid, A. (2011). Sustainable Economic Development. Australia: Australian Government. Anon. (2009). Construction Industry and National Development. Patrick Achitabwino Articles 8 (9). Dlamini, S. (2011). Relationship of Construction sector to Economic growth. Reading, School of Construction Management and Engineering. UK: University of Reading, UK. Government, N. (2012). Business Growth Agenda Progress Report: Building Infrastructure, s.l. . UK: the Government Press. Brox, J. (2008). Infrastructure Investment: The Foundation of Canadian Competitiveness. Montreal: Institute for Research on Public Policy. Paris: Institut De Recherche En Politiques Publiques. Crafts, N. (2009). Transport Infrastructure Investment: Implications for Growth and Productivity. Oxford Review of Economic Policy 25(3), p.327-43. Guthrie, G. (2006). Regulating Infrastructure: The Impact on Risk and Investment. Journal of Economic Literature 44(4), p. 925-72. Investment, I. (2004). Infrastructure Investment New Facilities. Materials Today 7 (1), 18. Khadaroo, A. J., & Seetanah, B. (2009). Transport Infrastructure and Foreign Direct Investment. Journal of International Development 4(3). Ofori, G. (2000). Globalization and construction industry development: research opportunities. . Construction Management and Economics (18), p. 257-262. Ofori, G., & Chan, S. L. (2000). Factors influencing growth of construction enterprises in Singapore. Singapore: Construction Management and Economics (in press). Rovolis, A., & Nigel, S. (2002). Promoting Regional Economic Growth in Greece by Investing in Public Infrastructure. Environment and Planning C: Government and Policy 20(3), p.393-419. Ruban, O., & Dimitris, M. (2011). Constructing Risk Parity Portfolios. The Journal of Investing 20(1), p. 99-107. Tanzania, N. C. (2005). Construction Industry Policy. Dar-es-Salaam. Ustinovichius, L., Galina, S., Arunas, B., Ilya, V., & Dmitry, K. (2010). Feasibility of Verbal Analysis Application to Solving the Problems of Investment in Construction. Automation in Construction 19 (3), p.375-384. Read More