The woes of the construction sector and its ancillary industries

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The construction sector could lose about $400 million over one year due to coronavirus

The word “precarious” is never really associated with the real estate industry of Bangladesh at any given point in time. The understanding is, as long as there are people with basic housing needs, the industry will recover and thrive after its momentary pause. 

However, while the real estate sector may seem immune from a direct impact of the coronavirus, its ancillary industries as well as the construction sector are not. And that, in turn, can have some dire consequences for the housing sector as a whole.

Except for a few government developments projects, both the construction and the real estate sector is in a kind of purgatory state. The fate of millions of formal and informal workers in the steel industry, cement industry and the construction industry – not to mention hundreds of businesses – are hanging in the balance. According to the president of Bangladesh Steel Mills Owners Association, the first two weeks of March alone saw steelmakers incur losses amounting to Tk35 crore or over $4 million. By the estimation of the Asian Development Bank (ADB), the construction sector could lose about $400 million over one year due to the coronavirus pandemic.

The steel industry of the country has seen amazing growth in the last decade and is worth about Tk55,000 crore today.There are 40 active mills in the country capable of churning out nine million tons of steel every year – exceeding the national demand of eight million tons.This achievement was possible thanks to the introduction of several state-of-the-art manufacturing technologies and easier access to raw materials – most of which are generated from imports and the shipbreaking yards of Chittagong. However, the situation is completely different now.

Aside from a few rolling mills still operating in a limited capacity, all the melting plants were forced to shutdown due to a shortage of raw materials. The last of the steel mills shut down on April 9, which were of the giant of the industry – BSRM. The only reason they were able to hold on to the thread for this long was because they had a stockpile of their own raw materials – something the small-to-mid-sized steel makers did not.So, one by one, the factory doors began to shut down after the nationwide general holiday was declared in March.

A significant portion of raw materials necessary for steel manufacturing are imported from abroad, and 90% of those imports are fromthe US, Canada, Italy, the UK and Australia. All of these places are in complete lockdown right now, with nothing getting in or out. As a result, supply has completely dried up.

But it’s not just raw materials either.Steel manufacturers are also unable to import any capital machinery from Chinese ports where about eight million empty containers are sitting idle.Our own shores are also suffering from logistics issues too. About 1.4 million tons of scrap metal are stranded at the shipbreaking yards of Sitakunda in Chittagong – unable to transport the material to their intended destinations.

The situation is no better for another pillar of the construction and real estate sector either. The cement industry of Bangladesh, which reached $3 billion in value in 2018, is almost entirely dependent on imports for sourcing raw materials such as gypsum and fly ash.Around $1.3 billion worth of raw materials for cement production was imported in 2018, of which, $900 million were clinkers according to the managing director of Shun Shing Group, Hong Kong – makers of Seven Ring Cement.At least 80% of clinkers, about 18 tons, necessary to meet production needs, are imported from countries like China, Hong Kong, India and Indonesia.

The ever-growing appetite and need for the development of infrastructure and housing is driving the cement industry and its imports. Even just before the pandemic hit, the volume of raw material imports continued its surge. According to Bangladesh Bank, the first seven months of the 2019-20 fiscal year saw the import of clinkers rise by 3.6%, which is valued at $554.8 million.But the recent quarters saw many of the listed cement manufacturers take a slump in their earnings in comparison to the same period last year. And that loss is expected to be aggravated even further as the import of raw materials, as well as production,continues to be affected by the coronavirus pandemic. 

The import of materials has come to a complete halt at the moment and there is no sign of when it might resume again.Furthermore, due to the temporary stoppage of almost all economic activities in Bangladesh, the port authorities are unable to quickly disperse the existing containers to their rightful owners as the offloading of imported goods and materials continues and creates congestion. The Chittagong Port Authority (CPA) stated that there are 22 vessels with raw materials for the cement industry currently at the outer anchorage at the port, while only seven vessels are able to continue unloading their cargoes without interruption. Each vessel currently at outer anchorage is carrying 45,000-50,000 tons of clinkers that are vital for the cement industry.

There is also a great lacking of any formal law or regulation in the country that safeguards the benefits of workers in the informal sectors. That is a travesty in itself as 51.4% of total national employment, which is about 64 million people, are employed in the informal sector, according to Bangladesh Bureau of Statistics. This includes rickshaw pullers, transport workers and construction workers.Around 10 million of those are daily wage-earners or day-labourers. The 2006 Labour Law, which was already considered by many as comprehensive, failed to address the plight of informal sector workers – as did its revisions in 2010, 2013 and 2018. This has left a vast number of people susceptible to sudden economic shifts such as the one we are facing now. 

But it is not only the informal workers who are vulnerable at the moment. Due to the current scenario, construction work of several major infrastructure projects, amounting to about $30 billion, have been suspended until further notice – not to mention countless other residential and commercial projects that were planned or ongoing throughout the country. According to the Real Estate Housing Association of Bangladesh (REHAB), the construction sector employed 3.5 million people – up from 2.4 million in 2015.If the real estate machine remains at a halt for a long period of time, a big portion of it may face uncertainty in regards to their employment. Furthermore, over one million permanent and temporary workers and employees of the steel industry are also vulnerable due to the coronavirus pandemic, as stated by Md Rashed Khan,general secretary of Steel Building Manufacturers Association of Bangladesh (SBMA).

So, as economic hardship approaches, people are fearful of how deep of an impact the coronavirus might actually have. Will even the mighty fall due to this current crisis? No one is still fully sure. As such, while real estate may not be very delicate itself, the external forces can have and will have consequences that maybe unexpected and far reaching to the overall economy.