Despite the significance of the construction industry in social and economic development, it ironically receives little or no attention in the development plans of most developing countries (UNIDO, 1969; Cockburn, 1970; Edmonds, 1979). However, because an efficient construction industry is significant to the realisation of national development plans, it is often necessary for government to intervene to promote the development of the industry. Economic, political and sociological reasons could be expounded to justify government active involvement in contractor development in developing countries.
E conom ic
A developed construction industry is described as a powerful engine of growth (Kirmani, 1988). This is obvious. Investment in capital formation is essential to create and increase productive capacity of other sectors of the economy. Construction constitutes a major investment component accounting for between 50 and 70 per cent of capital formation in most countries. Deficiencies in domestic construction capacity do constrain construction output limiting efficiency, cost effectiveness and timeliness in capital investment for economic growth. Because capital formation in construction is required for
economic growth is in the early stages of development in most developing countries, new construction predominates over maintenance and repairs, amounting to about 85 per cent of annual total construction output in these countries (UNIDO, 1969; Edmonds and Miles, 1984). These and other studies have shown that in general, demand for new construction products, hence construction activities, tend to be highest at the early stages of economic development and level off after a high level of economic development has been attained.
Wells (1986) has shown also that
" during periods of accelerating economic growth, construction output grows at a faster rate than the economy as a whole. Inadequate construction capacity could act as a constraint on capital investment programmes. Investment and the rate of growth will be slowed down - and may eventually grind to a halt." p. 33.
Table 4.3
Average Annual Growth Rates of GDP and Construction in Nigeria, 1960 - 89
Period GDP Construction 1960 - 65 5.2 7.5 1965 - 70 4.8 4.5 1970 - 75 4.0 9.0 1975 - 80 2.8 7.4 1980 - 85 - 3.6 -15.9 1985 - 89 1.3 6.3
Source: UN National Accounts Statistics (Various issues)
Table 4.3 shows the average rates of growth of GDP and Construction between 1960 and 1985 in Nigeria. Average annual growth rates of construction more than doubled that of the GDP between 1970 and 1980 when the country experienced dramatic increases in oil revenue which stimulated massive construction for economic growth. But as a result of decline in oil revenue between 1980 and 85 which precipitated economic recession, construction output declined at a much faster rate than the economy in general.
It follows therefore that there is a greater need to develop adequate domestic construction capacity to match demand for expansion in basic infrastructure such as roads, ports, water and energy supply, communications as well as social facilities such as houses, schools, hospitals and so on, that will facilitate economic growth and enhance living conditions in these countries.
The ability of a nation to meet in timely, efficient and economical manner, the demand for more construction products as a result of rapid economic and social
development, depends on availability of adequate domestic resources and/or of foreign exchange to import to meet shortages. Most developing countries have been mainly import dependent to meet their construction needs. Many could hardly afford this in view of competing demands on their scarce foreign exchange earnings. Their growth is largely determined by availability of foreign exchange earnings or foreign loans and grants. With the further decline of their foreign exchange earnings as a result of economic recession, coupled with the increasing burden of their foreign debts, most developing countries can no longer afford dependence on imported capacity and resources to execute their new construction works or to maintain existing ones. Furthermore, structural adjustment programmes have shifted emphasis in many developing countries in recent years to development of local resources and particularly, basic infrastructure for rural development. It is considerably cost ineffective to use foreign contractors for such works which are usually small and geographically dispersed. In fact, the foreign contractors do not find these works financially attractive (Kirmani, 1988). It is therefore imperative that if developing countries are to continue to increase their construction output, which is essential to enhance the pace of their economic and social development, they need to develop adequate domestic construction capacity to undertake their construction activities. This will also reduce their dependence on expensive imported capacity and minimise their balance of payment deficit.
Domestic construction capacity must also be developed in order to maximise the contribution of the construction industry to the economy with respect to labour employment and value-added in construction. Because construction is usually labour intensive, it is often used by governments to regulate the economy. In addition, construction contributes to human capital formation by its ability to absorb and upgrade the skills of the semi-skilled and unskilled labour. However, the use of labour-intensive construction methods have not been maximised in most developing countries. This is primarily because foreign contractors that dominate construction in these countries have usually preferred to use equipment intensive construction methods as used in their home countries. This has subsequently curtailed effective utilisation and employment of cheaper unskilled and semi-skilled labour, abundant in most developing countries..
" Whereas traditional labour-intensive civil works construction has frequently been inefficient, the introduction of managerial and technical
improvements can lead to considerable increases in the productivity of labour, to the point that labour-intensive methods can be fully competitive with equipment-intensive technology for many types of works in labour- abundant areas." (World Bank, 1984, p. 42)
Experiences on some World Bank sponsored projects in various developing countries where serious efforts were made to utilise an abundant supply of well-managed labour have validated this. However, appropriate programmes need to be established to develop indigenous contractors to manage labour-intensive methods. It will also be necessary to reorientate foreign contractors towards adopting this approach.
It has also been opined that where the development of an efficient indigenous construction capacity is identified as a policy objective, the technology variable can be used to redefine many projects in order to facilitate the maximum use of local human and physical resources (Drewer, 1980). Unfortunately, lack of a definite government policy or guidelines on construction development in Nigeria has further encouraged flagrant use of more expensive imported technologies even at critical periods in the economy when there is high labour unemployment. For example, between 1984 and 1988, the Lagos State government awarded major housing (over 10,000 medium cost housing units) and school classroom projects (over 7(X) blocks of 15 classroom units/blocks) respectively to two foreign contractors who adopted highly equipment-intensive construction methods. This is despite the fact the country was then experiencing massive labour unemployment as a result of the economic recession that has brought work in the industry almost to a standstill. Indigenous contractors would have used traditional labour-intensive methods thereby increasing labour employment. But deficiencies in their capacity, particularly with respect to their ability to ensure good quality and timeliness in project delivery, have usually been used as excuses against award of contracts to them. Since their activities have more propensity to increase labour employment in the economy, improving their performance must therefore receive urgent attention. This will increase their contributions to the economy as well as make them capable of competing more favourably with foreign contractors.
Underdevelopment of domestic construction capacity has also marginalised value- added in construction. This is because
" for a given work, the value-added in construction depends on many factors, such as design, construction technology, use of equipment and
labour, equipment performance, price and wage levels, temporary works and processing of materials during construction. A contractor who carries out a highly mechanised construction operation using expatriate personnel and imported equipment and materials may be able to achieve high quality and complete the job on time, but the value-added in construction as well as the value-added by local industries supplying construction inputs, will be low." (Kirmani, 1988, p.29)
Because of the limited capacity of indigenous contractors, foreign construction firms are usually engaged to undertake most large construction projects in developing countries. They however, prefer employing expatriates at the expense of even qualified indigenous professional manpower, and to import most other resources required. Many oil- rich countries like Nigeria, could easily afford importation of construction resources at the time when they experienced a boom in their oil revenue. But with the precarious state of oil exports due to the world-wide economic recession, many oil rich-countries (how much more the other poorer developing countries) have further increased attention on the development of their domestic capacity in order to reduce their dependence on imported construction resources. This will improve their balance of payment and value-added in construction to the economy. Unfortunately, in most developing countries, the construction industry has not been given as much attention as the other sectors of the economy in recent efforts toward self-reliance. But in order to further enhance efficiency in implementation of the construction required to stimulate economic growth, development of indigenous contractors must be given priority attention that it deserves. This will also increase competition among them as their capacity improves. They will in turn make increased use of local materials and other resources. This will consequently optimise value-added in construction as well as the value-added by the industries supplying various inputs for construction.
P olitical
Shortages of investment capital cause many developing countries to depend primarily on foreign capital - aids and/or loans from rich industrialised countries as well as loans from international lending institutions to finance their development programmes. Some of these aids/loans are for construction of under-supplied basic infrastructure executed by foreign contractors. Financing and contract arrangements often involve foreign
contractors being protected from what has been described as inefficient practices of the employers (recipient countries); and the adverse conditions of the business environment in these countries (Kirmani, 1988). Thus dependence on foreign capital and construction expertise make recipient countries highly susceptible to political manipulations. They are consequently not solely in control of the planning and execution of their economic and social development programmes. This therefore undermine their sovereignty and the effective realisation of those projects that are essential to their economic growth.
Dependence on foreign construction expertise influences efficiency in capital investment, in particular, quality, timeliness and cost- effectiveness of major infrastructure. This is because foreign contractors that would show interest in an overseas project are usually those whose home country government have good diplomatic relations with the host government of the proposed construction project. Seymour (1988) has observed that relations between home and host country as well as political risk (for example, possibility of a revolution) are stressed by multinational contractors as major factors that determine locational choice. These factors often also determine the level of success or restrictions the contractor will face. As a result, though a project is openly tendered in the international market, it does not necessarily guarantee that optimum tendering competition will result. Political factors will inhibit some very efficient multinational contractors that have the potential of putting forward more competitive tenders, that will provide better value for money for the client. Thus developing countries may not necessarily be getting the best value for their money on major construction projects as a result of political factors that limit maximum tender competition. Hence the need to develop domestic capacity to cope with construction needs.
Some construction products are important to national security and defence, for example, airports, military and sensitive industrial installations. It is unfortunate that construction of many of these facilities are undertaken in most developing countries by foreign contractors. In case of any hostilities, the security and defense systems of these countries will be more vulnerable to attack or sabotage from sources that have access to confidential information available to the foreign contractors. A good example is the case of Israeli raid of the Entebbe International Airport, Uganda in July 1976. This exercise was facilitated by construction drawings obtained from the Israeli contractor that built the
airport. Using foreign contractors therefore may jeopardise national security. Hence the sovereignty of developing countries will continue to be at risk unless their domestic contractors are developed to be able to undertake those projects that are sensitive to their national security and economic growth.
S o c io lo g ic a l
Availability of construction products largely determine the effectiveness of the efforts made by a country to provide essential social facilities in especially the health and education sectors. Therefore, in order to alleviate poverty in developing countries, access to social facilities such as schools, hospitals, potable water, as well as agricultural production facilities such as irrigation systems, rural roads and so on need to be considerably enhanced. The significant role the construction industry plays in this respect need no further emphasis. Improvements in construction performance, especially, that of the indigenous contractors, will facilitate cheaper and more timely provision of the construction facilities required to induce improvements in the social indicator ratings.
But the fact remains that the largest proportion of the population of most developing countries live in the rural area. Improving living conditions in these countries will, in essence, entail intensive rural development. Construction activities in this respect will involve works which are too small and too dispersed to be of interest to foreign contractors (Kirmani, 1988). The World Bank has noted that because these smaller works are unattractive to international contractors; their effective and economic implementation, will therefore depend on the existence or development of a domestic construction industry (World Bank, 1984). This is a major premise for the World Bank involvement in construction industry development in developing countries, in view of its huge financial involvement in economic and social development in these countries. Domestic contractors, being small-sized firms, if properly developed will be capable of implementing the rural development programmes more efficiently.
Unemployment is a major cause of poverty in developing countries especially in the rural areas. Construction as earlier discussed is labour intensive and has good potential to absorb unemployed unskilled and semi-skilled labour. It is believed that the development of
local construction resources to serve local needs could provide a much-needed boost to employment and a means for redistributing income, especially to the rural areas (Wells,
1986). Construction also helps to upgrade the skills of the unskilled labour absorbed. This facilitates their transition especially from traditional agricultural works to industrial employment. Thus construction serves as a means for training and adapting underpaid agricultural workers for relatively higher income in industrial employment.
Indigenous professional manpower has also been under-employed and deprived of opportunities to acquire relevant work experience that will make them more effective in their contributions to the social and economic growth of their country. This is as a result of the damaging discriminatory attitude of foreign contractors. Newly trained as well as experienced indigenous professionals are often denied employment on the excuse that they are incompetent. Yet these foreign firms bring in young, inexperienced and underqualified workers from their home countries and offer them excessively favourable remuneration and conditions. Similar discrimination against local skills was also observed in Trinidad and Tobago (Lewis, 1984; Osborne, 1984). It seems this is a common strategy among foreign contractors in order to avoid transfer of expertise to developing countries; since doing so might reduce the need to employ their services on future contracts and subsequently terminate their perpetual dominance of major construction works in these countries. Domestic contractor development programmes will, however, seek to enhance indigenous participation in construction activities. Thereby creating more opportunities for on-the-job training and experience to develop their capacity as well as the technical and managerial expertise of indigenous professional manpower in construction. This will provide a good opportunity for further development of entrepreneurial skills in construction and invariably lead to self-sufficiency in construction capacity. Consequently, this will reduce dependence on imported capacity, thereby increasing indigenous professionals' contributions to national growth as well as to further project their dignity and pride.