Construction Services: Contribution to Sustainable Development and Issues on Trade in Services. Emily MBURU DITC-UNCTAD

Transcription

1 Construction Services: Contribution to Sustainable Development and Issues on Trade in Services Emily MBURU DITC-UNCTAD

2 Content of the Presentation Scope of construction services Market trends and characteristics of construction services Market Segments for Construction Services Construction services and the GATS Construction services in Africa Conclusion

3 The Construction Industry Engineering, and Architectural Services Consulting, Conceptual design Detailed design Supervision Highly knowledge intensive licensed professionals Construction Services Site preparation Civil work Building Procurement Professionals, skilled and semi-skilled Workers Construction management (Costs, schedule, specifications)

4 Construction Industry: Process Chain Engineering and architectural services are provided in an integrated manner with construction services through the development of a project. Integrated companies Pre-investment (feasibility studies, tendering) Project Execution Architectural and structural design Other services Financial Services Project implementation (Physical construction) materials equipment

5 Construction Industry: GATS W/120 Classification Engineering and Architectural Services Professional Services Architectural Services (CPC 8671) Engineering Services (CPC 8672) Integrated Engineering Services (CPC 8673) Urban Planning and landscape architectural services (CPC 8674) Construction Services General construction work for buildings (CPC 512) General construction work for civil engineering (CPC 513) Installation and assembly work (CPC ) Building completion and finishing work (CPC 517) Other (CPC 511, 515, 518)

6 Construction Services and Development Construction is one of the oldest of all industries, as it provides the infrastructure for all other industries One of the largest single sectors in the economy on its own Strategically important industry for creating employment and sustaining growth For DCs, the construction sector carries particular importance (incl. because of its link to the development of basic infrastructure, training of local personnel, transfers of technologies)

7 Economic Importance of the Construction Sector Global construction spending reached nearly 4.2 trillion USD in 2004 and was expected to grow by 5% annually in the following 4 years Largest national markets are US, Japan and China Public-sector financing and public procurement play an important role in the consumption of construction services, generating half of the total demand for the services In most industrialized economies, the share of construction to total GDP is around 5-7% The sector is a major employer

8 Trends in the Construction Sector and Development Gains Trends: Among the most cyclical sectors of the economy in many countries Small number of large firms compete internationally (in addition to many small firms present domestically) Highly fluid and competitive market Development Gains: Contributes to employment of both unskilled and semi-skilled labour Basic infrastructure for sanitation, water and electricity is crucial for ensuring universal access to basic services Can contribute to the transfer of technical knowledge

9 Market for design services 11% 8% 30% 32% 10% Africa Latin America Europe 9% Dev. Asia Middle East North America

10 Market for construction contracts 14% 10% 26% 29% 12% 9% Africa Latin America Europe Dev. Asia Middle East North America

11 Construction Services Market Segments Different structure and behavior of market segments Pubic Investment (Procurement) Corporate Investment households

12 Public Investment: Government Procurement In many developing countries accounts for nearly 50% of construction expenditures Large infrastructure projects roads, damps, bridges, ports, large housing complexes, electricity and water projects, ect. Regulated access to market: public procurement legislation. [issue of preference to domestic suppliers, in many cases most favorable treatment to foreign suppliers, through tendering specifications and temporary admission of equipment]

13 Public Investment: Government Procurement II Main market for large multinational constructors: Competitiveness factors: Specialized knowledge access to financing In many cases integrated projects package of goods and services Domestic companies participate in large projects in many cases as sub-contractors Demand: function of budget allocation for public investment, foreign loans and ODA. Issues: tied aid, home state support to foreign firms [subsidies], regulation of multilateral lending agencies

14 Corporate Segment of the Market Industrial and commercial real estate development. Market share varies among developing countries. Construction expenditures accounts for a significant share of investment (30-40% of total investment in a project) Demand: Sensitive to the business cycle and financing conditions (cost and availability of credit) Integrated projects in industrial sector (goods and services). Links between design, procurement of goods and building work

15 Household Segment Residential construction - high social impact Construction by corporations for sale or individual households Market further segmented in most developing countries between building by construction firms and self-construction by dwellers. Existence of an informal sector : estimated to account for 50% of sectoral employment Market catered mostly by domestic SMEs, foreign participation increasing in large housing complexes segment

16 Small and Vulnerable Players in the Construction Sector SMEs play an important role in construction services sector Most countries have competitive domestic environments where SMEs have limited margins for improving their earnings due to the downward competitive pressures on prices All countries have an informal sector in construction services, but its share in DCs remains more significant

17 Modes of Delivery of Services in GATS: Construction services Mode 1 Cross Border Trade Pre-investment and Project execution phases Increasing internationalization Mode 2 Movement of Consumers Not particularly relevant (soil testing) Mode 3 Commercial Presence Needed for Project implementation Construction Services provided in site Mode 4 Temporary Movement of natural persons Professional, Skilled and semi-skilled personnel

18 Construction Services and the GATS Negotiations Roughly half of the schedules contain commitments on CS Sectors most commonly covered are general construction work for building and for civil engineering Most commitments focus on mode 3 (need for firms to establish near the site of construction projects) Mode 1, discarded as technically unfeasible for physical construction, has few commitments Mode 4 has the lowest number of commitments Few MFN exemptions on construction services

19 Eastern and Southern African Countries Commitments on Construction Services A. Buildings 5 Lesotho Malawi South Africa Zaire Zambia B. Civil engineering 5 Lesotho Malawi South Africa Zaire Zambia C. Installation and assembly 4 Lesotho Malawi South Africa Zambia D. Completion and finishing 4 Lesotho Malawi South Africa Zambia E. Other 2 Malawi Zambia

20 Construction Services, Buildings Country Mode of supply Mode 1 Mode 2 Mode 3 Mode 4 MA NT MA NT MA NT MA NT Lesotho L N L N N N U* U* RSA L N L N N N U* U* D. R. of Congo N N N N N N U* U* Malawi N N N N N N U* U* Zambia N N N N N N U* U* *With some exceptions Angola, Botswana, Kenya, Mauritius, Mozambique, Namibia, Tanzania, Uganda, Swaziland and Zimbabwe have not made commitments

21 Plurilateral Request: Construction Co-sponsors: Australia, Canada, Chinese Taipei, EC, Japan, Korea, Malaysia, Mexico, N. Zealand, Norway, Singapore, Turkey, US; Introduction: strategically important (employment & growth), special importance for DCs, linkages construction & other sectors; Sectoral coverage: substantial coverage CPC (focus: 512 & 513); Specific commitments: M2: full; M 3 commitments or at least phase-out: elimination of some forms of limitations; Note: also plurilateral request in architect, engineering & integrated engineering.

22 Trade in Construction Services takes place through Mode 3 Project-based commercial presence: Limited investment in domestic economy of developing countries. [representation offices] Firms operate between markets and global networks. [pooling of different services and goods providers] Association with domestic construction firms: knowledge of the market and procedures. Reduces transaction costs. Need to mobilize personnel and equipment to provide the service. Link with trade in goods and between Mode 3 and Mode 4.

23 Construction Services in Africa European, North American and some Australian contractors dominate the African construction sector South African firms are particularly dominant in the SADC region South Africa s comparative advantage lies in three main areas: relevant expertise, cost, and proximity Decline in South Africa s interest in Africa due to better prospects internally, legal uncertainty, nonpayment and currency fluctuations Regional construction boom in South Africa, Botswana, Angola, Mozambique and Zambia

24 Capacity Building and Human Resource Development Constraints Lack of technical and managerial skills Poor contract management skills Inadequate marketing Pricing Access to appropriate training and facilities Weak organizational capacity

25 Barriers to Trade in Construction Services Domestic regulations (incl. at different levels) Lack of transparency in business practices and lack of fair competition Government procurement (80% of business opportunities) and tied aid Limitations pertaining to Mode 4 supply of services Absence of trade facilitation and streamlining customs procedures, border controls

26 Enhancing Competitiveness of African Construction Firms Importance of joint ventures and sub-contracting - Human resources development - Transfer of technology - Access to financing - Access to domestic and international markets Coherent export promotion policy Regional integration and other initiatives

27 Domestic Level Support Policies, Some Examples Promote use of local labor & productive capacities: building supply capacity (e.g. local content, reserving small scale market or market for residential building); Improve technological capacity: boost technology cooperation agreements; Upgrading skills (management & financial); Overcome institutional & regulatory weaknesses: e.g. ensure adequacy of technology; Broader reforms affecting construction sector: customs & duties & tax burden; environmental & social impact assessments; zoning management; PPPs; Enhance role of national associations: to allow for multi-stakeholder approach.

28 Conclusions Construction services can be a tool for achieving development objectives and upgrading welfare Construction of physical infrastructure, including roads, water systems, energy and telecommunications and their maintenance, is needed as a priority to support economic growth ESA countries need to evaluate which cooperative or trade arrangements would allow them to achieve the optimal level of infrastructure development and economic gains

29 Thank you for your attention