Building Economics: Construction Industry Nature

• BBCT 303: Building Economics; Module 1 discusses the nature of the Construction Industry and has a credit of 2 hours.
• An understanding of building economics requires a solid grasp of the construction industry (CI).
• The CI is vital globally because it enhances the quality of life through architecture and facilities for users, both inside and outside.
• The CI involves planning, regulating, designing, manufacturing, installing, and maintaining buildings and other structures.
• Disciplines covered by the CI include building, civil engineering, and process plant engineering.

Module 1 Objectives

• Understand the nature of the Construction Industry in relation to other industries.
• Describe the relationship between the construction industry and the economy.
• Propose strategies for rethinking the construction industry for growth and sustainability.

Introduction – CI Scope

• Construction work varies widely based on project size, type, complexity, and the necessary professional and trade skills.
• Execution principles remain similar, but the scale and complexity can vary greatly.
• Project values range from thousands to billions of Ghana Cedis.
• Larger projects require more specialists at every stage.

The Ghanaian Construction Industry

• The CI in Ghana has accounted for about 10.7% of the GDP over the past decade.
• Economic instability causes this figure to fluctuate.
• In 2018, the Ghana CI accounted for 18.8% of GDP, but in 2017, it was 13.7%.
• By 2020, the CI's contribution to Ghana's GDP drastically decreased to between 1.3% and 2%.
• The construction industry market in Ghana is divided into formal and informal sectors.
• The formal sector produces construction products and infrastructure.
• Formal sector activities are procured under Ghana's public procurement law (Act 633), amended as (Act 914) from July 2016.
• Construction projects in Ghana include infrastructural, residential, commercial, utilities (communication, power, water, transport), and industrial plants.
• The government is the primary client.
• Multinational construction companies from the U.S., Europe, and now China and Asia usually handle projects beyond the local industry's capabilities.
• Most asphalt production plants in Ghana were owned by foreign contractors until recently.
• Ghana has many private local construction firms, but many lack the capacity for large projects, so foreign contractors undertake most major projects.
• The current construction market in Ghana is dominated by foreign contractors.
• Local contractors often lack the capital and organizational structures to carry out major projects, despite having sufficient technical expertise.
• Local Ghanaian contractors need to build strong organizational structures and pursue mergers/joint ventures to enhance their financial, technical, and managerial capacity.

The GCI compared to developed CIs

• Contractor capacity is comparatively higher in developed countries than in Ghana.
• In the UK, major contractors undertake about 10–15% of their annual turnover overseas.
• The USA's construction industry employs about 7.9 million workers, while the UK employs 2.69 million.
• In 2023, China's Construction industry was valued at $4.5 trillion, the US at $1.98 trillion (44% of China), the UK at $56.9 billion (1.3% of China), and Ghana at $9.9 billion (0.22% of China).

The relationship between the CI and the Economy

• The CI is often negatively affected by the STOP-GO nature of its activities.
• The government is a major client and influences construction activities through project development, repair, and maintenance.
• The government may defer or cancel construction projects for political reasons.
• Government decisions to cut public expenditure can significantly impact the CI.
• Capital projects may be suspended during economic downturns.
• Such projects tend to increase during economic growth.
• Government interventions can have substantial consequences for the construction industry.
• Interventions may include finance, legislation, regulation, and provisions like tax reliefs, grants, subsidies, and incentives.
• Changing regulations can create construction project opportunities, such as rezoning areas for educational buildings.
• More construction indicates an economic boom, while less construction indicates an economic depression.
• The construction industry can be seen as an economic regulator controlled by the government, although its effectiveness is debatable due to the STOP-GO policy.

The CI Vis-à-vis other construction industries

• The CI relies heavily on other industries.
• The CI has unique characteristics that set it apart.
• The closest sector to the CI is manufacturing industry.
• Every building/structure is unique and non-replicable.
• Most manufacturing products can be identical even at different locations.
• Construction products have a long lifespan; manufactured products have shorter lifespans.
• Construction projects take a long time to complete.
• Manufacturing is mostly a quick process.
• Construction products are usually developed on clients' premises.
• Manufacturing/Development primarily occurs in the factory.
• Most construction projects are one-off designs with no prototypes.
• Manufacturing uses prototype designs for production.
• The CI typically separates design from construction.
• In manufacturing, designing and manufacturing are usually integrated.
• Construction involves complex price determination methods.
• Manufacturing involves simple price determination.
• Construction products (buildings/structures) have structural and economic expiration.
• Manufacturing products do not have structural expiration.
• Structural expiration means a building is no longer safe.
• Economic expiration means a building's purpose is no longer fulfilled but might be structurally sound and/or obsolete.

Rethinking the Construction Industry

• The construction industry faces issues like waste, inefficiencies, and corruption.
• This results in high construction costs, low productivity, poor health/safety, and excessive material wastage.
• Radical changes are needed in the construction industry, impacting leadership and team integration.
• Deeper consideration is required to deliver projects effectively through partnering, supply chain management, and sustainable construction technologies.
• Improved CI indicators include reduced capital costs, reduced construction time, better predictability, fewer defects/accidents, increased productivity, and increased turnover/profit.

Rethinking the Construction Industry (Sustainable Construction)

• Sustainable construction is a vital area where cost studies are significant.
• Traditional practices often ignore the interrelationship between building components, surroundings, and occupants.
• Sustainable construction focuses on smart buildings that use minimal non-renewable energy, produce minimal pollution (potentially zero GHG emissions), and reduce associated costs.
• High capital or installation costs are often associated with sustainable buildings.
• These high costs are assumed to be offset by the payback or whole life cycle cost return.