Construction industry cries for survival

The Ceylon Institute of Builders (CIOB) yesterday said in a statement that the construction industry is unable to sustain itself due to the dollar shortage, rupee depreciation, and rising raw material prices.

CIOB Chai-rman Dr. Rohan Karunaratne said the construction industry has struggled in the past due to the COVID-19 epidemic and rising raw material prices. 

In its statement, CIOB also listed some of the pressing issues.

Fuel prices have risen sharply recently amid a dollar shortage and rupee depreciation. As a result, iron, aluminum, PVC pipes, wiring, roofing materials, tiles, bathroom accessories, door locks, sand, stone, and other materials in the construction industry have doubled. 

For example, steel prices have reached 340,000/ton (with VAT). The price of a cube of sand has increased by Rs. 5,000. To make matters worse, material suppliers quote as they wish, with prices increasing day by day.

The CIOB with other organisations and institutions involved in this field are expected to conduct a formal study on the current crisis and how to resolve it and submit a report to the Government. Before the rupee depreciation and fuel price hike, construction costs had risen by 27%. 

However, current studies suggest that we can expect an additional increase of 30% by the end of March.

CIDA pricing formula is currently in operation in connection with the increase in the price of raw materials in the construction industry. 

Accordingly, the Government has agreed to pay an additional 20% to the contractors for the Road Development Authority and Maga Neguma construction projects. That is in relation to the recent price increases. 

In many situations, Government controlled prices are not used in practice and our best advice at this point in time is for the CIDA price escalation clause to projects of any nature, unconditionally.

Another key issue that is often ignored is that contractors cannot claim their dues from the fuel price.

Some material suppliers use this time as an opportunity to sell raw materials at exorbitant prices. For example, a bag of cement sells for around Rs. 2,000 in the market. This situation should be controlled by the Government.

Under the current circumstances, the cost of building a square foot in Sri Lanka is increasing exponentially compared to other countries in Asia. As a result, foreign investors will tend to invest in countries such as Bangladesh, Nepal, India, and Malaysia instead of investing in Sri Lanka.

The golden age of the Sri Lankan construction industry was from the year 2012 to 2015.  During that era, the construction industry contributed about 9% to the country’s GDP. The fall of the construction industry means Sri Lanka may lose one of its largest GDP contributors and the jobs of over 1 million Sri Lankans will be affected.