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Construction and housing to revive economic glory

Efforts are being made by the government led by Prime Minister Imran Khan to revive the construction and real estate sector, as the country faces Covid-19 pandemic hitting economic growth. The China-Pakistan Economic Corridor (CPEC) involves construction of highways, railways and energy pipelines connecting western China with Pakistan and the Persian Gulf. The multi-billion dollar infrastructure projects planned under the CPEC are likely to generate tremendous construction activity. The development of road and rail links between Balochistan and Xinjiang, will give distinction to Gwadar port of becoming the gateway port for western China. Rail link will transfer goods to and from western China, changing it from a remote region into a station that will transfer goods and commodities worth billions of dollars every year. A fully operational Gwadar port and establishment of port-related communications and links on regional level will bring China and Pakistan in the regional as well as global mainstream of geo-economics in near future.

The implementation of mega construction projects under $60 billion CPEC is giving an impetus for growth of cement and steel industry in Pakistan. Huge investment in infrastructure promises a brilliant growth of cement and steel industry of Pakistan. It will not be incorrect to contend that the CPEC project is going to be a game changer for cement and steel sectors. The rise in cumulative cement dispatches is solely attributable to rising export volumes as domestic demand has so far remained depressed. With a boost to construction activity under CPEC, the domestic cement demand will witness a sharp surge. The country’s cement industry has the capacity to meet the rising demand of cement for infrastructure projects under CPEC plan.

Vital factors for activities

Cement is vital to construction activity. Presently, the total installed capacity of 28 cement plants is 17.312 million tons in Pakistan. The industry witnessed a steady growth rate of 8% until 1994. Before 1994, the country was facing shortage of cement that was met through imports. In 1999, the country’s total production was estimated at 10.384 million tons. In the past three years the cement industry has been facing a crisis situation. With a share of Rs.40 billion per year in the GDP, the cement sector contributes Rs.15-20 billion per annum to the national exchequer. Pakistan offers great opportunity to capture regional markets due to its geo- strategic location on the confluence of South, West and Central Asia.

The country faces acute shortage of steel products for construction activity. The state-owned Pakistan Steel Mills (PSM) is running on the cash lifelines given from the government. The cash-strapped PSM is not in a position to meet even the current steel demand of around 6 million tons per year in the country. It produces up to 1.1 million tons of steel products per annum, meeting 16 per cent of the total steel demand of the country. The remaining 84 percent is met through imports. Private companies import more than four million tons of raw materials. Critics say that the PSM has been turned into a loss-making entity from a profit-making company under the government led by former Prime Minister Yousaf Raza Gilani, as it showed profits for consecutive seven-year right from 2000 to 2007 under former government of President Pervez Musharraf. The mill’s production dipped from 82 percent in 2007-08 to 15 percent in 2011.

Pakistan is endowed with huge iron ore deposits in Punjab and Balochistan. The country has over 780 million tons of iron ore, which contains 35 percent of iron. With proven resource of around 350 million tonnes, Kalabagh possesses the country’s largest iron deposits. Ironically, the PSM is based on 100% imported ore. It has outdated machinery, which produces expensive steel. Critics say that the country has so far failed to establish state-of-the-art mini-steel mills in areas near iron ore deposits

Housing sector

The housing sector holds strong backward and forward linkages with other industries. No doubt, its growth unleashes growth in these related sectors. The construction of houses gets at least 40 other industries involved creating enormous job opportunities for the people. Successive governments could not launch the housing schemes for the complex and time-consuming process the housing sector development involves. The government spends more than US$5 billion on construction from its annual development budget. The housing sector, however, gets less than half of the amount allocated for construction each year. For the development of housing sector, government must reduce excise duty on cement, eliminate excise duty on wires and cables, increase in limit of tax exemption on mark-up, bring improvement in lending ratio and increase in maximum limit of loan.

Growth of slums is linked with high property prices. The unplanned constructions in slum areas created plethora of problems like environmental mismanagement, filth and garbage, out-flowing drains, poor sanitation, congestion, development of unhygienic and hazardous practices and rise in crime rate. The power theft, contamination of water, illegal connections of Sui gas, electricity and water developed as culture in these slums. The corrupt officers of the relevant department made quick millions for providing illegal water and power connections to the people of slum areas. Slums serve as sanctuary for militant outfits. They become the breeding places for criminal mafias, which create law and order situation. Better housing is also needed from security point of view in the country, which is facing an insurgency-like situation in its southwest and northwest. Slum areas in major cities like Karachi pose a serious security threat. A major reason behind the rapid growth and expansion of slums around major cities is the skyrocketing prices of real estate.

Provision of better housing should be the priority of the government. Various incentives should be announced to promote housing and construction sector in the country. The private sector may come forward and take the advantage of the incentives if announced by the government. Present government should announce a significant drop for interest rates of mortgage loans in a move to encourage potential investors to invest in properties. It must take serious steps to check speculations in the property market and should bring the prices of the real estate within reach of the common people. Such steps will also check the growth of slum areas in the cities.

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