Construction Industry in Srilanka

The construction investment in Sri- Lanka has followed the economic changes that took place during the last decade. This resulted in a significant change particularly in the supply side of the construction industry. Projections towards the new millennium reveal that government policies will be the key deterministic factor with its traditional role changing from that of an investor and a regulator to that of a facilitator in construction.

While these policies lead to a larger private sector participation in infrastructure and industrial development with increased foreign participation, it has also put the domestic industry under pressure to change due to such developments. As such, the role of the contracting firms together with the project delivery process and project procurement will be subject to change to meet new demand conditions. This new project culture will face many constraints that originate locally from financial, technological and management deficiencies and construction industry development will be necessitated to accommodate new trends in order to be beneficial.

Both corporate development and wider industry development will be necessary. This paper reports these new developments against the background of the past performance of the industry and the necessary measures to be taken by the Sri Lankan construction sector to meet those changes. Although the study is primarily confined to Sri Lanka, these findings are also relevant to the construction sectors of other developing countries where similar movements are taking place.

Keywords: Demand and supply trends, Government policies, Facilitator, Economic changes, Construction industry development, Sri Lanka. INTRODUCTION This paper attempts to forecast the future outlook of the Sri-Lankan construction industry based on an analysis of factors underlying the changes in the industry. While these factors are brought to establish an insight into the demand trends and production characteristics, further observations are made to identify the factors that are apparent so as to forecast the future operating environment of the construction industry in Sri Lanka.

The analytical framework (Fig. 1) focuses on demand and supply side factors of the construction industry as discussed by writers such as Stone (1983), Raftery (1996) and Hillebrandt (1985) since they best characterise the operating environment of the industry. The analysis is supported by a literature review, interviews and statistical data. Past performance of the construction industry The historical development of the Sri-Lankan construction industry is closely linked with the political changes that took place during the last three decades.

In this respect, the significant economic changes can be categorized into pre- and post-economic liberalization periods. In the pre-liberalization period of 196374, the government channelled most investment into the building sector (Table-1) although it implemented several irrigation projects under the patronage of foreign aid in order to create the necessary infrastructure for the agro- based economy in Sri-Lanka. During the period from 1970 to 1977, the economic environment was shaped by the socialist influence.

This resulted in restricted private-sector participation in economic development. The adoption of fixed exchange rates made it difficult for the many industrial activities, which faced problems including difficulties in the importation of materials. This badly affected foreign investments in the country. Historical performance of the industry Trends of sectoral construction demand Supply side characteristics. Factors determining demand Future operating environment of the industry Factors attributable to future production process Figure 1: Analytical Framework

Table 1. GDP and Construction output in Sri Lanka, 1963- 74 Construction output in 1963 prices Rs. Million Year GDP Dwellings Other All Construction and Buildings Construction Rs US$ 1963 6,886 420 196 616 8. 21 1964 7,186 365 203 568 7. 57 1965 7,394 512 202 714 9. 52 1966 7,568 512 217 730 9. 73 1967 7,948 547 222 769 10. 25 1968 8,505 615 232 846 11. 28 1969 8,956 739 232 971 12. 95 1970 9,718 842 244 1,087 14. 49 1971 9,744 950 142 1,092 14. 56 1972 10,229 997 87 1,084 14. 45 1973 10,752 1,143 124 1,266 16. 35 1974 11,179 886 143 1,029 13.

72 1 US $ = Rs. 75. 00 (Source: Ganesan S. , 1978) With the liberalisation of the economy in 1977, the Sri Lankan construction industry once again underwent a significant change. During this period, public investments were channeled into major infrastructure projects such as the accelerated Mahaweli programme, Greater Colombo Economic Commission and Urban Development Programme with a view to creating a capital base in the country. Private and foreign capital was boosted through the provision of incentives and infrastructure support.

During 1978-1981, this change led the construction sector to grow at a much faster rate of 14. 3% at peak of the public sector investment, which coincided with private sector investment in commercial and industrial buildings (Fig. -2). A moderate growth period from 1983 to 1988, was followed by an economic boom in the first half of 1990s during which the construction output grew again. This was due to the strong demand for commercial outlets and private investment in high-rise office and apartment complexes. At its peak in 1992, the construction output growth reached 8. 1 %