As pandemic slows down economic activities, construction sector hits a brick wallWorker shortage, low factory output and an uncertain future put brakes on the booming construction industry.
Buddha Awale, a construction material supplier in Dhobighat, Lalitpur, has been spending his days at home even after the lockdown was lifted in the third week of July. There have only been few orders for the sand and bricks that he supplies. His depot has remained closed since March.
Since the last week of July, every morning, he opened his depot at 11 and waited for buyers. There were none. Before the lockdown, his pick-up truck was busy, doing at least six trips supplying construction materials to private homemakers.
“Now, there are orders only sporadically,” said Awale.
Nepal’s construction sector witnessed a double digit growth for two consecutive years following the reconstruction drive after the 2015 earthquake. In the previous fiscal year 2018-19 too, the sector saw a robust 8 percent growth, taking the annual output of the construction sector to over Rs 232 billion, according to the Central Bureau of Statistics.
The coronavirus outbreak, however, has put the brakes on the growth momentum.
According to the Bureau, the construction sector will be one of the worst hit by the Covid-19 pandemic and its growth is expected to plunge into negative territory, at -0.31 percent in the fiscal year 2019-20 that ended in mid-July.
The financial stress upon the construction sector is expected to worsen over the current fiscal year, according to economists and industry executives.
Jagadish Chandra Pokharel, an economist and former vice-chairman of the National Planning Commission, said that the Covid-19 impact on the country was worse-than-expected and has hit the construction industry very hard.
“It is too early to estimate the full financial impact of the crisis. But less capital expenditure by the government and investment in projects by the private sector will have its first impact on employment and will eventually hit consumption,” Pokharel told the Post.
For the construction sector, January to May are considered good business months—just after the winter season and before monsoon. The first Covid-19 case was detected in Nepal in January. On March 24, the country went into lockdown, which lasted until July 21.
Tens of thousands of workers were rendered jobless, according to industry executives.
Material supplies stopped, worker’s movement came to a virtual standstill and key contractors were unable to arrange resources for construction activities. Most of the mobilised resources and machinery remained idle at the construction sites.
Few national pride projects like international airports in Pokhara and Bhairahawa and Upper Tamakoshi hydropower project partially opened. But they also suffered as technicians, who are normally foreigners, have been stuck in their countries.
Even though the government has decided to resume international passenger flights from September 1, with only Nepalis and those associated with diplomatic missions allowed to enter, technicians are unlikely to return anytime soon.
Uncertainties, therefore, remain.
Except for a few road and bridge projects, almost all projects have come to a standstill.
“Even after the government announced the opening of the industrial sector and projects were allowed to resume works, the demand for construction material declined 80 percent because there were no workers available,”said Rabi Singh, president at the Federation of Contractors Association of Nepal.
The construction business started getting affected in mid-February before the lockdown started on March 24.
“The mass migration started in mid-February. Construction workers mostly from India went home and most of them did not return,” Singh said. “And Nepali workers were told to stay home.”
From mid-February to the end of last fiscal year, only 15 to 20 percent of construction work was taking place.
“We have estimated that the sector alone lost around Rs65 billion,” Singh told the Post.
Consumption is considered the key driver of the economy. Without consumption, the thinking of economists goes, there is no economic growth.
“As thousands of workers remain out of jobs, it eventually will lead people to have less income or no income. Less income means a slowdown in consumption,” said Pokhrel, the former vice-chair of the planning commission.
The shortage of raw materials to make construction materials prompted many factories in the Birgunj, Biratnagar-Itahari and other industrial corridors to close, according to Singh.
Factories remained closed and the supply chain was disrupted.
Satya Narayan Keyal, director at Narayani Strips, said that the price of steel strips has also increased due to the hike in MS billet price in India, the raw material to make steel.
“The steel industry’s daily production capacity has dropped 75 percent,” said Keyal. “There are only 30 percent steel factories operating due to the lack of Indian workers and technicians.”
The story is similar in the case of cement factories which are operating at 20 percent of capacity, according to Dhurba Raj Thapa, president of the Cement Manufacturers Association of Nepal.
“The demand for cements has fallen 80 percent,” he said. “We are now waiting for big government projects to begin after the monsoon.”
Cement factories are being operated at 20 percent capacity, according to him.
“The turnover of the cement industry is around Rs600 million every day,” he said. “The industry has already incurred losses of Rs 30 billion during the lockdown period. We are on the brink of collapse. ”
The four-month-long lockdown forced 61 percent of businesses to close down completely, causing a dire effect on the economy by rendering tens of thousands of people jobless and disrupting the production and supply chain, according to a survey of Nepal’s central bank.
Mahendra Bahadur Chitrakar, president of the Federation of Nepal Brick Industries, said that the demand for bricks has declined by more than 50 percent after the lockdown. “We have 40 percent of production in stock,” he said.
According to a study report of the federation, annually six billion bricks are produced in Nepal from more than 1,000 brick kilns.
“My factory used to supply 20,000 pieces of bricks daily, which now has fallen to 2,000 pieces in a week,” said Chitrakar, who owns Uma Maheshwar Brick factory in Chandragiri in Kathmandu district.
“People are not building houses this year as their income has fallen,” said Chitrakar.
Bricks manufacturers, however, have increased the prices to Rs12 per piece from Rs10 to offset their losses incurred during the lockdown, he said. “But people are not buying.”
An estimate suggests there are a total 1.5 million workers in the construction sector. Besides, there are around 500,000 Indian skilled labourers.
The construction sector is worried that if the situation does not improve before Dashain, it will not only impact the government’s revenue, but reduce consumption sharply as major consumption and economic activities happen at this time.
According to economist Pokharel, the government should encourage the projects that can be operated by maintaining health and safety protocols.
“As the construction work normally begins from mid-September, when monsoon will end,” said Pokhrel, “the early preparation can help save jobs of thousands of workers—and the economy as well.”