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January 2, 2015

Construction sector expected to grow in 2015


January 2, 2015

Pakistan’s construction industry has been expanding significantly on back of rising infrastructure activities, increasing demand from housing sector, and construction recovery. The outlook is positive for 2015 ahead of an expected cut in interest rate, and falling oil, coal and electricity prices, experts said.
Even, an expected cut of 22 percent in the public sector development spending in near future is unlikely to slowdown the progress of the construction industry, they added.
Muhammad Hanif Memon, vice chairman of Association of Builders and Developers (ABAD) of Pakistan, said the country is expected to launch some 200 new projects in 2015 as compared to around 140-142 projects initiated in the last colander year.
“The growth in the construction industry would be higher than the previous year. A more improved law and order situation may help the industry to grow at a faster pace than the expected one,” he said.
The central bank in its recently issued annual report on the state of economy said the construction industry grew by 11.3 percent in the fiscal year 2013-14 against the set target of 5.7 percent. It added the share of the industry in GDP stood at 2.4 percent in the year.
Memon said the country is expected to launch three mega - high rise - projects in 2015 that will change skyline of Pakistan. “The government has granted approval for the construction of ground-plus-47 floors building in Karachi. The project is most expected to launch 2015.”
Besides, two other constructors have applied for the constructing of ground-plus-50 floors building and ground-plus-40 floors building in the country. Builders would also launch high-rise projects in squatter settlements in Sindh this year to develop those areas with a minimum investment of Rs800 million in each project. The government of Sindh has already approval the plan.
Saleem Kassim Patel, a former chairman of ABAD’s Sindh chapter, said growth in the construction industry

will be higher because builders have singed memorandum of understandings for new projects worth around Rs600 billion last year. “Many of these projects are to be launched this year.”
The annual growth in the construction industry - including cement, steel, paints, and glasses – comes to over 10 percent. Besides, 70-100 other small industries are part of the construction industry, he said.
Sajjad Hussain at BMA Capital Management said a growth of over nine percent in sales of cement in local markets suggested a robust growth in the construction industry. The sale of cement may increase this year considering the possible start of some mega projects like Diamer-Bhasha Dam.
The construction of Neelum Jehlum Hydropower Project has entered into its last phase and the use of cement will increase by 30 percent to 90 percent. “The release of funds for the project may take demand for cement to next high level,” he said.
Hussain said the anticipated cut in government spending on development projects may not impact progress of the construction industry.
He said the cement sector continued to grow at a significant pace in the first half (July-December 2014) of the current fiscal year 2015. During the same half, the government released only Rs145 billion for public sector development schemes against minimum notified Rs210 billion (or 40 percent of the total allocated fund under the federal budget 2015) for the period. The federal development spending - after cutting short to limit fiscal deficit at 4.8 percent of GDP – will not be lesser than it did in the first half. Thus, the expected cut will not impact the industry growth, Hussain said.
The State Bank of Pakistan has cut interest rate by 50 basis points to 9.5 percent in its last policy rate review, and “we at the BMA Capita believe the central banks would further cut the rate by 100 basis points in mid of January 2015,” he added.
“The reduced interest rate regime is always positive for the construction industry. Moreover, the reduced crude oil price, coal price, electricity tariff and transport fears all are positive for the construction industry and support well BMA stance for another cut in interest rate.”
An owner of a well-known steel mill in the private sector said the future of steel manufacturing industry was in danger since a few countries - mainly China - are dumping steel products in Pakistan.
“We are unable to sell billets and rebar in the presence of dumped steel products ...the imported billets are Rs10,000/tone cheaper than those manufactured locally,” he added.
Steel manufactures have demanded the government to take regulatory measures to stop dumping of steel products by Chinese manufacturers and also check smuggling to safeguard local manufactures. “Turkey, India, Malaysia and other countries have imposed 40 percent regulatory duty to get rid of the dumping,” he said.
In the previous year 2014, the construction activities continued to progress in Punjab and Khyber Pakhtunkwa. However, the other two provinces – Sindh and Balochistan – witnessed sluggish construction activities.
The much needed support to the activities came from mega projects like Rawalpindi-Islamabad Metro bus project; the widening of Khunjerab section of the Karakorum highway; and the Multan-Faisalabad Motorwayproject. Moreover, the launch of around 140-142 new housing projects and previously running such projects also helped grow the industry.

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