Postponement of local govt. polls identified as primary reason for construction sector slowdown
Leading cement manufacturer, Tokyo Cement PLC, has identified the long delay in holding local government polls as the primary reason for the major slowdown experienced by the country’s construction sector, in addition to the negative effects from bad weather and rupee depreciation.
Sri Lanka’s construction industry growth decelerated to 3.1 percent in 2017, from 8.3 percent in 2016. As a result, cement production nosedived to 4.6 percent and imports by 7.1 percent. In 2016, cement production grew 17.8 percent and imports by 29.5 percent.
“Several environmental factors played a role in this, from three consecutive failed harvests and the consequent inflation deflating rural retail expenditure, in addition to rapid currency depreciation that contributed to overall inflation.
However, the primary reason was due to the uncharacteristically long postponement of local government election, inevitably resulting in non-payment of the existing local government contracts and delays in initiation of previously tendered government contracts,” Tokyo Cement Managing Director S.R. Gnanam said in the company’s latest annual report.
According to Gnanam, the government and its agencies remain the single largest buyer of construction services, with annual budgets extending across the island, for numerous small-scale rehabilitation and building projects, in addition to national level mega development projects.
“The holdups and uncertainty surrounding local government elections resulted in non-extension and postponement of a myriad infrastructure contracts at local government level.
Therefore, the capital budgets of local government bodies going into limbo, over a period of approximately 15 months, had a ripple effect across the construction sector, as unpaid contractors extended credit or defaulted on payments from retailers, who in turn attempted to extend credit with material manufacturer.