Increased productivity could help the industry achieve even more!
Which industry sector has grown the fastest two years in a row?
While many might think no sector grew during the recession, the real answer is “construction”.
The sector grew more than 20 per cent in 2008 and growth continued at double-digit levels during the economic downturn last year. While we might usually think about financial services or electronics as engines of growth, construction has actually been more dynamic.
The importance of construction in the total economy has also risen. Construction grew from 3.7 per cent of gross domestic product (GDP) in 2005 to 5.1 per cent in 2008, and its share likely grew further last year.
The outlook seems rosy, too, as Senior Minister of State (National Development) Grace Fu indicated last month when she said that “we expect to see a sustained level of construction demand over the next two to three years”.
The impact of the construction industry goes well beyond its share of GDP. Employment Situation report data from the fourth quarter of last year shows that the 385,200 workers in the sector accounted for about 12.8 per cent of the workers in Singapore.
The Ministry of Manpower raised the “dependency ratio” for construction in 2007 to allow seven foreign workers for every Singaporean, so a significant percentage of these workers are foreigners.
In comparison, construction accounted for about 7 per cent of GDP in Australia and 9 per cent of the workforce. In the United States, it is about 5.5 per cent of both GDP and employment.
Even as its role in the economy grows, efficiency and productivity are key issues for the construction industry. More than a decade ago, then-Minister for Manpower Lee Boon Yang said that “the Singapore construction industry also faces certain unique challenges which require prompt resolution. These include negative productivity growth, poor safety records, labour-intensive construction methods, and a host of social problems related to the industry”. The Construction 21 study was designed to promote improvements.
While there has been a focus on green buildings and lower usage of energy in new buildings in recent years, industry efficiency still appears to be an issue. As Singapore International Chamber of Commerce chief Phillip Overmyer said recently in an interview with MediaCorp: “The way we build buildings in Singapore is not at all like the way high-end countries build buildings. Japan, Australia and America and other countries use completely different technologies that don’t employ nearly as much foreign labour”.
Now, there may be greater impetus for change. The Economic Strategies Committee (ESC) recently said that “we must shift to achieving GDP growth by expanding productivity rather than the labour force”. The construction industry was specifically mentioned, with the ESC commenting that “in construction, productivity levels are half that of the US and one-third that of Japan”.
The impact of construction also goes beyond just efficiency or GDP and touches other goals, such as targets to reduce carbon emissions. As Singapore Institute of International Affairs research associate Natasha Hamilton-Hart has said: “While we do not know what the total carbon emissions for the construction industry are, we do know that cement production is a highly greenhouse gas-polluting industry”.
If Singapore wants to achieve a 16 per cent reduction in carbon emissions growth, construction has a role to play.
Construction’s high growth rate and increasing share of GDP thus seem to create a conundrum. On the one hand, simply slowing construction could negatively affect economic growth. On the other, increasing productivity may require far-reaching longer-term changes in industry practices and investments in technology.