Chinese companies taking over local construction industry

Sri Lankan companies express concern and warn that they may be wiped out within five years

The dominance of foreign construction companies in Sri Lanka's construction industry is posing a serious threat and may bring about the collapse of local construction companies within years, industry sources said.

They said Chinese and Indian construction companies were taking over mega projects while the Sri Lankan companies watched helplessly.

They said that already Chinese companies were handling about 40 percent of construction projects.

The China Inter nat i o n a l Construction (CHINCA), representing the Chinese construction industrialists in Sri Lanka, at a recent meeting with Sri Lanka's Chamber of Commerce is reported to have said that Chinese companies planned to take over 70 percent of the market in the next three years.

Alar med, the Construction Industry Development Authority ( CIDA) is seeking Government approval for legislation to protect local companies. Under its Act No. 33 of 2014, CIDA is developing a Building Code for the Sri Lankan construction sector. This insists on the adoption of a unified coding in all construction work to enable CIDA to monitor all identified ongoing construction work.

C I DA Dire c t o r Suvinda Amarasekera said a Cabinet paper had been prepared and would be presented soon. He said the proposed legislation would minimise the undue advantages enjoyed by foreign construction companies over local companies. It would prevent the use of mediocre standards and substandard products in identified construction work as laid down in the CIDA Act.

The Director said a Building Code Steering Committee (BCSC) would be formed under the CIDA Act and it would include representatives from the Urban Development Authority ( UDA), the Local Government Ministry and the National Building and Research Organisation (NBRO). There would also be representatives from professional organisations such as the Institution of Engineers Sri Lanka (IESL), the Sri Lanka Institutes of Architects and associations representing building contractors will participate.

Chief Executive Officer (CEO) of the Association of Major Contractors of Sri Lanka Brigadier Madura Wijewickrema, said the foreign companies undertaking construction contracts had a big advantage over local companies. He said the foreign companies were being supported by their gov- ernments and had a competitive edge in a fierce bidding market. They also had the advantage of not paying taxes in Sri Lanka. Their workers' salaries were paid in their own countries. As a result, the foreign workers did not spend much here, except on their food.

Brig. Wijewickrema warned that in the near future the foreign companies would move into smaller construction projects, even residential projects. This would lead to a crisis, where local companies would be wiped out within five years, he said.

He said they had warned government leaders -- President Maithripala Sirisena, Prime Minister Ranil Wickremesinghe and the Minister of Housing and Construction -- of the impending crisis, but little or no action had been taken.

He said, that in the past , Chinese construction companies only went in for international bidding through agencies like the World Bank and the Asian Development Bank which undertook massive development projects in Sri Lanka. However when they saw the opportunities available here, they started negotiating unsolicited proposals by influencing governments. This started during the last regime.

They said the governments here had also been unfair when awarding tenders. When awarding contracts a new practice of combining several minor projects into a major one was being adopted. When it became a mega project, local companies did not qualify to bid on the basis of available expertise and human resources, the brigadier said.

The Chinese companies on the other hand with their expanded work force and expertise from their country bid 30 perecent lower than the local companies and snatched up mega construction projects. In recent times they had stealthily crept into the private sector and taken up major projects including the redevelopment of the clothing mall ‘Odel’ in Colombo 7 and the building of the Pearl Hotel at Bambalapitiya, he said.

Brig. Wijewickrema said the Sri Lankan construction industry was also capable of undertaking such mega projects, pointing out that "our archeological sites stand testimony to our capability. "Foreigners did not build the Ruwanwelisaya and the Sigiriya, but Sri Lankans did it," he said.

Chamber of Construction Industry Secretary General Nissanka Wijeratna pointed the finger at CIDA for the present crisis.

He said CIDA had been slow in introducing regulations to monitor the construction industry. "About 27 regulations and rules drafted more than 18 months ago are still to be gazzetted and are gathering dust at the Legal Draftsman’s Office," he said.

The proposed regulations were to impose restrictions on foreign national participation in the construction industry. All foreign companies would also have to register with CIDA. The regulations would set a limit of 40 percent on jobs for foreigners in the industry.

According to him, a major problem faced by our local industry is manpower. While local companies can find the expertise to build mega projects, finding people to work in the industry has become a huge challenge.

The Board of Investment allows foreign companies to bring down 25 percent of the workforce but in mega projects funded by them, the entire work force is brought from overseas. Some local industries are granted sub contracts where Sri Lankans workers get jobs.

The problem lies with the government policy which has opened up its market, inviting foreign construction firms to bid for local projects.

"In the next ten or twenty years, if the Chinese buildings fall apart, the Government will then realise its folly. Then it will be too late," he warned.

The foreign exchange control Act No. 12 of 2017 allows certain industries to have only 40 percent foreign shareholding with 60 percent for Sri Lankan stakeholders. But, the Act is silent on the construction industry.

Foreign construction companies are using this loophole to set up companies which arevirtually 100 percent foreign owning. Some foreign companies have invested a pittance of US$ 200,000.

The CIDA accepted that it had been complacent and had failed in its duty by delaying the gazetting of regulations or proposing new legislation. Ditector Amarasekera said the proposed Building Code would do much damage control when passed.

Of the 16 regulations and 11 rules proposed to be included in the CIDA Act only four regulations and two rules had been gazetted so far .

He said the CIDA was also requesting that the BOI confine the foreign companies's share in the local construction industry to 40 percent. He also acknowledged that as of now the Foreign Exchange Control Act was silent on the stakeholding and foreign companies were being set up with 100 percent foreign ownership.

He said another proposal was to increase the start-up amount from the present US$ 200,000 to US$ 1,000,000. It is believed this will minimise the number of foreign construction companies.