Business

A mixed bag for construction in 2013, uncertainty for 2014

BY JULIAN RICHARDSON Assistant Business Co-ordinator richardsonj@jamaicaobserver.com

Wednesday, January 01, 2014    

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FOLLOWING a year that yielded mixed results for industry players, construction interests are bracing for another year of uncertainty in one of the hardest recession-hit sectors.

The construction industry saw marginal recovery in 2013 — against the background of a 3.8 per cent decline in 2012 — as it grew by about 1.7 per cent over the first nine months of the year, according to official data. The improved performance had been attributed to increased activities in residential projects and capital expenditure by Government.

But not everybody felt that growth, as local players were largely inactive among the "significant" projects, according to the president

of the Incorporated Masterbuilders Association of Jamaica (IMAJ).

"All the significant works were being done by overseas people; the domestic industry is not as vibrant as we think it needs to be," Carvel Stewart, the IMAJ head, told the Business Observer yesterday.

Stewart's sentiment was echoed earlier in the year by Surrey Paving and Aggregate Company project director Michael Archer and Jamaica Pre-Mix managing director John Valentine. Valentine at the time argued that, of the dollar value of construction, only about 15 to 20 per cent reached down to locals.

The Chinese are generally identified as a chief beneficiary of the major construction work with, among the jobs, the big North-South link of Highway 2000 project contracted to China Harbour Engineering Company. Another major project, the refurbishing of the 350-room Starfish hotel property in Trelawny, was said to be done by a Dominican Republic company.

"There are Chinese companies now bidding on and winning jobs that are locally funded, they are no longer limited to foreign-funded projects," Stewart said, noting that "It is an issue that we are going to be taking on more frontally in the coming year."

Added Stewart: "It has very far-reaching implications for development and the economy. Until those issues are resolved, the local participants in the industry will find themselves doing less and less of what is available."

In spite of this, local stakeholders such as Arc Systems Limited, a major supplier of building materials, reported having a solid year.

"Although the Chinese import a lot of the materials, they also buy locally," said Deanall Barnes, Arc Systems vice-president of marketing and international sales.

"But the grade one contractors wouldn't have benefited," he acknowledged in recognition of the plight felt by some in the industry.

Arc also launched a $400- million lumber treatment plant at its Kingston headquarters in 2013, which Barnes said put the company in a more "competitive postition".

"Quite a lot of the traders who normally imported started buying more from us because of our competitive prices and them not having the foreign exchange exposure," he said.

What's more, according to Barnes, is that the sliding Jamaican dollar, which declined by around 14 per cent relative to the US greenback in 2013, allowed Arc to benefit from a reduction in competition from "briefcase importers" — individuals or entities that go into the import market every two to three months bringing containers of different building materials for resale.

"Because of the issue surrounding the exchange rate for most of the year, there was a reduction in briefcase importers, and those customers that they used to service came to us, so our business increased," Barnes highlighted.

The Arc Systems executive added that the company also received steady business from the main developers of housing units.

For one of those major developers of housing units, Gore Developments, it was a tale of two halves last year.

Phillip Gore, the owner and executive chairman of Gore Developments, said the company experienced a solid first six months of the year, driven by strong sales at New Harbour Village III, a 1,200-unit project in Old Harbour, St Catherine, and Florence Hall, which has about 760 units in Falmouth, Trelawny.

"The first half was good because we were able to come up with a new, smaller house, 650 sq ft, at New Harbour III which went very well on the market at about $6.5 million selling price," Gore said, adding that Florence Hall "also went well".

Gore said tightening of the economy with the International Monetary Fund (IMF) agreement had a negative effect on business in the second half.

"For the second half, there was a downturn and I think it is because of the IMF agreement which is having a negative effect on everybody," he said.

Gore and IMAJ's Stewart both have an uncertain outlook for the construction industry in 2014.

"We are still hanging in there but we are looking at 2014 very carefully. We are concerned that it may get softer," said Gore, noting that his company will be focusing on the New Harbour III and 400-unit Coral Springs projects in 2014.

Rising prices in the construction industry have created major challenges for companies. Caribbean Cement Company in December implemented its fifth price increase in 12 months, pushing prices 28.2 per cent higher than they were at the start of 2013.

Against this background, Gore said that industry players have met with and proposed to the National Housing Trust — the largest provider of mortgages in Jamaica — to increase their loan ceiling from $4.5 million to $5 million per person.

According to the developer, "I hope that we can do something in that area which will help the building industry tremendously and of course the growth in the economy in general."

Stewart painted a daunting picture for 2014.

"We don't see the outlook being any better than we have seen in the past few years. We don't see any stimulation so we don't know where the growth will come from, and we now hear that the Government is going to be sucking more money out of the economy by way of taxes, a further recessionary activity," he said.

What's worse, according to the IMAJ president, is that local players can't count on getting much business from the NHT as it has had to cut back its budget because of the $45 billion it has to contribute to Government in four years, while infrastructure works are going in large parts to foreigners.

Barnes of Arc Systems, however, had in contrast a much more rosier outlook. His optimism is driven by what he said is the fact that the financial sector appears to be looking more towards real estate investments following the debt exchanges, and the possibility of some big Government projects coming on stream, including phase 2 of the Caymanas Economic Zone, the energy plant and logistics hub.

"We are very optimistic for 2014," Barnes noted.

"We have had several discussions with some of the major players in the country and in our discussions with the financial community it seems as if... a lot more projects this year will be financed through pension funds and banks seem to be a lot more interested in the real estate industry," he said.

"Plus you might not see central government doing a significant amount of capital expenditure but they will be partnering in a way that suits the IMF," Barnes added.

Barnes is also confident that Arc Systems will be shipping lumber to Venezuela by the middle of the year as part of the Petro-Caribe agreement.

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