Advancing Construction

Malaysia

Economic News

22 Jul 2010
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Although Malaysia's construction sector is witnessing promising growth, the country is facing challenges from rising costs of materials and a heavy reliance on semi-skilled workers. The government is encouraging contractors not to cut corners to keep prices low, but is rather urging them to focus on quality while reducing their dependency on the workforce.



Under the Ninth Malaysia Plan (2006-2001), which calls for publicly funded building works valued at RM200bn ($62bn) and private finance initiatives (PFIs) valued at RM20bn ($6bn), Malaysia's construction sector is expected to grow in excess of 3.5% year-on-year until 2010. After experiencing minimal growth (0.6%) from 2000 to 2005, the sector will need to increase its capacity to meet this demand.



However, escalating prices often leave little incentive for local players to invest in the high cost, long-return technology required to raise productivity and improve quality.



In 2008, cost of building materials in Malaysia is expected to rise by as much as 15%. This is largely driven by surging global fuel prices and escalating costs of steel and cement arising from an increase in global demand from booming markets such as China and the Middle East.



Because of these pressures, many observers believe that contractors now prioritise cost savings over quality. Of the 63,000 contractors registered with Malaysia's Construction Industry Development Board (CIDB), 57% are ranked at the bottom end of the board's classification scale in terms of tendering, financial capacity and the availability of human resources. While the gap between projects available and the supply of contractors is forcing many at the lower end to close up shop, the government has plans to make registration and accreditation requirements more stringent, in an effort to further consolidate the industry into a smaller pool of professional players.



This will be especially important for contractors seeking work oversees, who currently are not subject to any restrictions. Malaysian companies have recently seen several successful bids for projects in booming construction markets such as India and the Middle East, and the CIDB says it wants to prevent poorly qualified companies from winning projects abroad and under delivering, as this could lead to a bad reputation for all Malaysian contractors.



Dependence on cheap unskilled labour has also put a constraint on the industry's advancement in terms of quality and productivity. As of June 30, 2007, the number of foreign construction workers in Malaysia stood at 266,965, more than double the 119,621 registered local workers. This figure does not include the large number of undocumented illegal migrant labourers.



With a slew of high-impact projects on the horizon, the government hopes that local players will alter their business models and substitute low-cost labour for advanced construction methods and technology-driven building systems.



In an effort to help Malaysia's construction industry meet global best practices, the CIDB created the 10-year Construction Industry Master Plan (CIMP), which was presented to the government in 2006 and launched in December 2007. The plan will run until 2015 and will focus on seven strategic areas that include enhanced branding, environmental practices and human resource development. One pivotal branch is the Integrated Building Systems (IBS) Roadmap, which promotes the use of prefabricated components and onsite installations. Under the roadmap, foreign workers should account for 15% of the construction industry workforce by 2009, compared to the estimated 60% they comprise today.



IBS standards have long been used in markets such as Australia, the UK, the US and Canada. As an incentive, the CIDB has introduced a scheme whereby contractors who implement IBS in more than half of their projects can apply for a levy waiver. While the CIDB reports an upward trend in applications in recent years, many observers believe the government should take the lead, requiring that all state projects use the system.



Wan Zakariah Muda, the group managing director for construction firm Ahmad Zaki Resources, told OBG, "As long as clients and owners do not make IBS compulsory in their projects bidding requirements, contractors will still opt for the more competitive alternative of non IBS components in the pricing of their tenders. This is because at the initial stages, and in the shorter term, IBS components are still more expensive than the traditional construction methods. Therefore big end users and clients like the government play an important role in encouraging IBS."



While a widespread adoption of IBS will lower the dependence on labourers, the government acknowledges that there will always be a need for a pool of semi-skilled workers. According to the CIDB, low wages and a lack of emphasis on occupational safety have stigmatised construction as a "dirty, dangerous and difficult" profession and one which few young Malaysians wish to enter. The CIDB reports that the construction industry has the third highest fatality rate of any industry, and the CIDB is looking to encourage self-regulation by professional bodies and associations as well as tighten the contractor's accreditation scheme.



Krishan Tan, CEO of IJM Corporation, a construction firm that has adopted IBS, told OBG, "Young Malaysians do not want to take up the trade and so long as foreign labour from the likes of Indonesia can be brought in at a cheap cost, the industry will not pay them more. The solution is to decrease the dependence on labour and become more mechanized as in the long run it makes the most sense. IBS may require high front-end investments, but these can be [written off] over many projects. The quality, productivity and control you gain are worth it in the long run."

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