KARACHI – Indusmen Corporation Chief Exective Officer (CEO) Syed Afzal-ur-Rahman, who is also a former vice chairman of the All Pakistan Contractors Association (APCA), highlights the neglect of the Rs 500 billion construction industry despite its vital contribution to economic growth.
In an interview with Pakistan Today, he asserted that the sector was perennially overlooked and desperately seeks to build capacity to allow it to compete at international level. Key to this, it was noted, is the need for the government should immediately form an independent construction development board in the same line as it has formed Engineering Development Board.
He stressed that the sector as a whole generates the highest amount of income tax for the government. With regards to the burgeoning potential of the construction industry, he claimed that the sector had an economic potential of around Rs 500 billion especially in the context of the Public Sector Development Programme (PSDP) which amounts to up to Rs 400 billion and Annual Development Programs of the provinces worth an equivalent amount.
About 75 percent of the total cost associated with the programs related to various aspects of the construction industry. It was pointed out that Pakistani contractors do not operate in the Middle East despite a huge Pakistani workforce which works under international contractors and the fact that labour contribute about 70 percent share in the remittances Pakistan receive, which account for Rs 8.0 billion every year.
He was keen to highlight that in the field of private sector, it also contributes between 300 to 400 billion rupees in terms of construction every year. He stated that this was indicative of the potential of the sector it being the third biggest sector of the country coming just behind Defence and agriculture. It was also noted that if the construction of dams is included in any analysis, construction would likely emerge the biggest economic sector of the country.
He placed this in context of the issues faced by the sector. One of the primary concerns voiced was the cost of doing business which must be reduced for the sector to be revitalised. In comparison to the region, Pakistani contractors bear the highest fixed costs, he claimed. He added that the Pakistan Engineering Council (PEC) has made it mandatory for any contractor to hire four engineers, a condition which is only applied in Pakistan in against the world practices.
It was also emphasised that the construction industry is the only one that banks do not give guarantee, thus proving the construction industry does not default, he said, adding that in fact it pays the highest income tax: six percent direct tax and 12 percent in the form of turnover. A total of 44 industries are related to this sector. To a query, he stated that no policy has been yet announced for the rehabilitation of those displaced by the massive summer floods.
He stressed the need for urgency pointing out that it would be disastrous for those affected by the floods if they were not provided alternatives. He also pointed out that the sowing season is fast approaching and the lack of dams would be conducive for the shortfall of the water for the crops, resulting is a fresh crisis. “The lack of government resources is the main hurdle in the commencement of construction activities in the post flood phase, though the government has floated tenders in this regard,” he mentioned.
He praised the Zulfiqarabad which he dubbed a great project of the Sindh government and asserted the need for new cities in order to reduce the pressure on existing cities. The global economic downturn did not affect the construction industry, yet in Pakistan the industry has been hurt recession, he said, adding that one major issue the sector is facing is the government’s scheduled rates for their development works, as they are not being revised and contractors find it very difficult not to compromise on the quality of work.
The rates be revised every year, but the government always strives for low-cost solutions which should in fact be balanced with the needs of the government with scheduled rates linked to fuel prices, so that the contractor abides by the quality standards in his work. Payment stuck with the government leads the contractor to corruption, so a smooth flow of payments to the contractor was essential to curbing corruption. Another issue this industry is facing is the escalation and the PEC law devised for providing adjustment in payments to the contractor is not observed in government departments.
Similarly, the violation of PPRA rules is also perceived as a major burden in addition to the escalating cost of doing business, he claimed. One strange rule is the ‘post qualification’ that should be abolished as it creates quite many issues for the contractor and two percent in earnest money is also demanded in this post qualification scenario.
And if a contract is rejected on the technical grounds in the post qualification period of 90 days, it is a setback for the contractor, therefore, this practice done in the name of transparency should be ended, he added. With regards to prospects of reconstruction in Afghanistan, he cast a dim outlook with little hope for Pakistani contractors to gain a strong footing because this industry lacks capacity building and international contractors flying into the region have instead garnered the lion’s shares of contracts.
He also added that foreign investment does not play any role in the sector in the case of projects funded by the World Bank and other agencies with Pakistani contractors not able to contest as they are unable to fulfill earnest money, performance bond and mobilisation guarantee for their contracts.
