The previous Part dealt with construction at a macro level, and signalled difficulties in tracking its output in Guyana. This Part will also look at the industry in a somewhat different way, namely the inputs it requires from other sectors of the economy, and its outputs, which become inputs for other planned economic and social activities.
Backward linkages
A visual scan of towns and villages in Guyana shows that the vast majority of building structures are of concrete or timber; moveable components, like doors and windows, comprise similar timber or metal, with glass. Further examination shows that electrical and plumbing installations are of various grades of metal and plastic. Outside, all-weather roads are asphalt or concrete.
The foregoing materials listed are just the major ones; there are others too numerous to mention but which are nevertheless indispensable for effective project completion. Inputs also include contractor equipment (concrete and asphalt mixers, excavation and lifting plant, bulldozers) and, of course, the workforce, which provides skilled and semi-skilled labour for construction, and the co-ordinating management, as well as the less obvious but still essential, design and supervision on behalf of owners. These are termed here the backward linkages of construction.
Linkages with the timber and quarrying industries are local. Though, of course, local construction may not absorb all of timber and quarry production. It’s important to note that an increase in construction activity could lead to bottlenecks in the supply of these local inputs as the industries need time to respond to the increased demand, and this can lead to shortages, even if temporary. An increase in imported items, like cement, steel and glass, in addition to causing bottlenecks, can impact the balance of payments directly.
Importation costs are also faced for those construction or design services which are sourced from overseas. These costs have long been traditionally present, even as today, for example, we view the East Coast road widening project being executed by China Railway. Due to Guyana’s colonial history, much of these services were provided by UK companies in the past: as an undergraduate, this author has seen miniature house plans and technical notes of low-income 1960s houses in East and West Ruim-veldt, filed away at the Building Research Station in Garston in the UK; and upon return to Guyana discovered that the then current 1970s multilateral school construction programme was designed partly as a technology-transfer vehicle from UK contractors to local enterprises. However, from the late 1970s, services were secured from contractors in the ‘Asian Tigers’ countries, as they were termed at the time. Hence the services from China, with an early example being the construction of the Sanata Textile Mill complex in Ruimveldt, which has since seen a cycle from construction and use, to dilapidation, to repair for alternative use. More recent examples are the Arthur Chung Confer-ence Centre, Skeldon Sugar Factory, (with UK-based supervision), the CJIA, and others.
Impacting the balance of payments
The balance of payments is an account between persons in Guyana, and the rest of the world. Where there is a persistent net outflow of trade and loan repayments (among other things), this poses a problem for the country. The outflow of different items require different responses perhaps. Here, the focus is on outflow costs of construction-related items.
According to the Bank of Guyana half-yearly report for 2018, imports expanded from US$105.9 million in the first half of 2016 to US$218.0 million for the same period in 2018, representing an increase of 106%. Contributing towards this was ‘building materials,’ the largest single import of ‘capital goods’ in the import aggregate (US$43.2 million out of US$183.6 million or 24% in 2018). Other imports, like agricultural, transportation and mining machinery, may well embody further construction-related elements. Also, payment for foreign construction services and design would only add to importation costs. Hence while infrastructure is anticipated to provide a base for increased productivity and diversification, a spike in construction activity would cause an increase in demand for materials, both local and imported, thus contributing to inflation and worsening the balance of payments position. One strand of inflation is supplier price increases due to materials bottle-necks and shortages; another is wage increases as construction businesses compete sharply for available workers, this factors into increased spending in the economy (likely without increased productivity); a third strand is the first two, resulting in increased housing prices.
A worsening situation
The following four points are relevant. First, before the increased activity can be transformed into benefits of capacity or productivity, such activity instead causes a worsening situation, as above. This early deterioration should be followed (in theory) by a subsequent recovery, if at all. This may occur either because bottle-necks are smoothed out, or the workforce is increased, or the balance of payments moves from deficit as exports are increased due to increased capacity for example. Nevertheless, the deteriorating situation may persist and become intolerable. Contractionary measures in construction output itself might be needed. None of the measures are precise.
Second, lags between the runaway effects of the worsening situation, recovery and/or contractionary measures, coupled with ignorance of the sustainable level of construction activity, could lead to a chronic stop-start pattern in the sector. This obviously is detrimental to the economy; a previous Part signalled challenges for data in tracking construction output, related to the balance of payments (SN of 21/07/2019) and the same relates to sector inflation.
Third, there is sobering experience from Trinidad and Tobago, where there were cycles of sharp inflation in the construction industry followed by periods of deep recession, from at least the mid-1970s. The industry inflation was not measured, but its effects were felt widely, and this author has experience in the conditions. As regards importation costs of basic materials, cement was produced in Trinbago since 1954, with the cement company bought over by the government in 1977, and steel was produced there locally from the same year (however steel production closed in 2016 in the face of falling global steel prices). In addition, modern clay block manufacture has been on-going for decades, not to mention that La Brea in south Trinidad is a world source of asphalt. Despite this, Trinbago’s infrastructure is still entrench-ed on the path of the yet-elusive diversification from petroleum. At the same time in Guyana, even the basic materials, like cement and steel, are absent locally. In the 1970s, clay bricks were made at Coverden and Number Two Canal. This, however, was only promoted as a panacea for local construction; development to improve brick strength, appearance or regional markets was either not made or failed, and unsurprisingly the business declined with a decline in local building activity.
Then there is the case of cement. In 2006, cement bagging facilities were started in Guyana by TCL, the regional producer, but two years later claims were made that bagging volume was inadequate country-wide. Since then, and despite TCL challenges at the CCJ level, there are indeed other suppliers of cement in the country. However, cement remains a special case for local manufacturing in Guyana, as it is a ubiquitous construction material, essential in adequate amounts and of the right quality, even for modest infrastructure.
Import substitution?
Fourth, this reservation about infrastructure’s capacity to support development harks back to a newspaper reader’s concern, expressed as, “Oil revenues should not be spent on infrastructure work…” (SN 26/08/2018) and to the ‘Agenda 21 on Sustainable Construc-tion’, referenced previously. In Guyana, the reservation raises the question of how import substitution of basic construction components should be related to overall increase in activity. It might be beneficial to the local industry if the administration in Guyana conducts a comparative study of the industries in Trinbago as well as Suriname, and indeed Venezuela – all of which are petroleum producing.
Forward linkages
Outlining the forward linkages of output of the construction industry in Guyana is more problematic. The output of construction generally is the long-list given in Part One (SN 14/07/2019). However, the specific output required depends on government’s (and private sector’s) plans.
In April 2017, addressing potential UK investors, the President acknowledged that Guyana has serious deficiencies in the area of infrastructure and noted that the Government is focused on development plans that include road and bridge networks that link the coastland to the hinterland, and also on deep water harbours and aerodromes. Relative to such a focus, again measurement of the nature and extent of construction output may well be thwarted by weak data, into the near future at least.
In summary: the hazard warnings on construction at the macro level are weak data availability to aid planning and regulating the sector; and a real danger of an inflation and slump cycle.
The next Part begins discussion of matters within the industry itself.
