Labour pains: Contractors begin to look further afield for construction workers

Even though the minimum wage has gone up and there is no shortage of work, the construction sector in Thailand is facing serious dearth of labourers. According to Chakporn Oonjitt, the executive director of the Construction Institute of Thailand, the number of people, both skilled and unskilled, employed in the industry has been well over 2m for years. In the first quarter of 2013 the total hit 2.84m, but several factors have combined to make it difficult to maintain full staff on building sites.

A BT2.27trn ($74.23bn) programme of infrastructure works throughout the country is currently on hold after the Constitutional Court declared that government plans to fund the schemes outside of the regular budget were illegal. Once the situation is resolved, pressure to recruit more workers will increase. Many of the Thais among the 2m-plus workforce spend part of the year working as agricultural labourers and are thus not available for construction work at all times. Additionally, development in neighbouring Myanmar is encouraging Burmese migrant workers to abandon their jobs in Thailand and return home, where there is a gradual increase in employment opportunities. The desire to be closer to home is also affecting the availability of Thai construction labourers. Since an increase in the minimum wage to BT300 ($9.81) a day throughout the country, some construction workers have opted to stay in their own regions as their take-home pay is equal to what they would earn if they moved around the country from one construction site to another.

Old Source

Apart from regions outside of Bangkok, Myanmar and Cambodia have traditionally provided the bulk of construction workers, as well as Laos. There has also been an unwritten agreement making it easier to legalise the presence of workers from these three neighbouring countries. Even sourcing unskilled labour does not necessarily end the problem. Bouygues Thai, which recruits mostly from Cambodia, also needs to find Cambodian, or at least Cambodian-speaking, supervisors and technical staff in order to communicate with its labour force. Yet, it is more common for most firms in the industry to recruit from Myanmar. Frequent changes in the labour force also necessitate training, even of unskilled workers, which is time-consuming.

India

Sopon Pornchockchai, president of the Agency for Real Estate Affairs, told OBG, “The shortage of labour will get worse as Myanmar labourers return to work and live at home. Perhaps in future, labour will need to be brought in from Bangladesh. Some Thai construction companies already have agents in Nepal and parts of India.” Oonjitt calculates that the shortfall is around 100,000 people, despite salary offers being well above the minimum wage. He also said some labourers were being paid BT400-450 ($13.08-15.71), while skilled workers were getting around BT800 ($26.16) a day.

The two available options to alleviate the problem, Oonjitt told OBG, were to seek greater productivity from workers that were available and to introduce more machinery and automation into the building process.

Ironically, the agriculture sector, with which construction used to share a lot of workers, was retaining more and more of its labour because government-backed projects provided them with longer periods of work.

North-East

An area of the country that once exported many of its workers to other regions now finds itself in the middle of an economic boom, with former labourers almost as likely to be in line to buy a home as to build one for someone else. According to the Bank of Thailand, economic growth in the north-east in the four years up to 2011 was at 40%, over double the rate in Bangkok and not far from twice as much as the 23% seen in the rest of the country. That translates into much higher incomes per family in the north-east and provides new consumers for the high-rise condominiums being put up in the area. Contractors are increasingly looking to build in places outside of Bangkok as land prices in the capital continue to soar.

One reason for the burst of prosperity in the northeast is a set of new government policies to subsidise agricultural products such as rice, tapioca and rubber.

Farmers are being paid BT15,000 ($490) per tonne of unmilled rice, which is 50% higher than market prices. Even though the rice scheme itself is under threat due to its high cost, it has already had the effect of pushing up local purchasing power.

Oonjitt had a different observation to make on the boom in the north-east. “The demand for condominiums there is being partly driven by people who worked for decades, perhaps in Bangkok, and want to return to retire,” he told OBG. “Another group of buyers is formed of people who have better incomes, but do not want to live in Bangkok. Land is cheaper in the northeast and finishing a building may be cheaper, but other materials cost the same.”

Regional Investment

The region is booming not solely because of increased individual wealth, but also because of corporates moving away from the industrial central region near Bangkok following the floods of late 2011. “Logistics providers and consumer products are moving upcountry because of the floods,” Patan Somburanasin, general manager of logistics company TPARK, told Reuters in June 2013.

TICON Industrial Connection, TPARK’s parent company, is investing as much as BT2bn ($65.4m) in a 79-ha logistics park in the north-eastern city of Khon Kaen. Manufacturers have already been on the move as well, with Siam Cement, Thai Beverage, CP All, Panasonic, Kraft Foods Group and Neave all setting up operations in the north-east. And where the workers go, the builders follow in order to provide homes, shopping malls and leisure facilities. The listed developer Sansiri had two $127m condominium projects in Khon Kaen in 2013, with a third worth $35m on the drawing board for 2014. The number of private investment projects in the north-east had already gone up by 49% in 2012, with the total amount invested more than doubling to $2.3bn, according to the Bank of Thailand.

Factory Building

Honda Automobile (Thailand) has started the construction of a new factory in the Rojana Industrial Park in Prachinburi Province. Costing around BT17.15bn ($560.8m), including construction and land, the assembly plant is scheduled to become operational in 2015. It will produce 120,000 units a year and employ around 1200 people. Honda is planning to produce mainly small and sub-compact vehicles at the new plant. The production line at Honda’s original plant in Ayutthaya will extend its annual capacity from 280,000 units to 300,000 units in 2014.

Reversing The Tide

Floods in late 2011 dealt a serious blow to the entire construction industry, which was already suffering from the global financial crisis of 2008-09. Yet, like many other sectors in the country, construction demonstrated its resilience by registering growth in 2012 of more than 7.5% over the previous year. And that is likely to be the sector’s direction for the next few years, according to a report by data firm Timetric. It said construction was expected to continue growing at almost 7% per annum for the five years up to 2017. By that time the sector would be worth BT614bn ($20.07bn). The report added that the foundation of the ASEAN Economic Community (AEC), which seeks to create a common manufacturing base and market for the 10 ASEAN countries by the end of 2015, provides “a great opportunity spurring the development of the Thai construction industry”. The rationale for this belief was that growth “would be driven by the Thai government’s ambition to become the regional hub of the proposed AEC”.

Timetric also said that “significant investment” was expected in the manufacturing and metal industries, while its forecast for housing, which accounts for more than half of the construction industry in Thailand, was a compound annual growth rate of 6.4%, amid rising domestic incomes and foreign investment in holiday and retirement homes. The report, published before the most recent street protests in Bangkok, added, “The Thai construction industry recorded a very solid recovery in 2012, recording a growth of 7.6% after witnessing a decline in activity in late 2011 due to intense floods. Reconstruction efforts supported the industry, with the floor area of construction buildings rising to 19m sq metres in the fourth quarter of 2012.”

It will be difficult to tell the extent of the effects of both the Constitutional Court ruling on proposed financing for the vast infrastructure programme and recent street protests. As serious as some events have been over the past few years, Thailand is geared to project resilience more strongly than regrets and redirect focus to any opportunities. Pasan Swasdiburi, senior vice-president of new business and strategic planning at construction and engineering firm Nawarat Patanakarn, said, “With uncertainty remaining over if and when the major government infrastructure projects will take place, we have shifted our focus to the private sector.”

Infrastructure PPPS

Transport Minister Chadchart Sittipun, described by sector players as more of a technocrat than a political bureaucrat, is convinced that the government’s BT2.27trn ($74.23bn) infrastructure plan is the main key to developing a logistics system on par with those of other ASEAN countries when the AEC comes into effect in 2015. He has said the series of project will help to promote Thailand as the ASEAN’s logistics hub with its integrated network of road, rail, air and water transport.

To help get the vast enterprise moving, Thailand has passed a public-private partnership (PPP) law to foster infrastructure investment. It was designed to encourage private investment in infrastructure projects by making the rules simpler and more transparent. The new law’s provisions are claimed to accelerate the PPP process, allowing companies to break ground on new projects in 10-12 months from the start of negotiations, as opposed to the 20-30 months it takes now, according to Areepong Bhoocha-oom, the Ministry of Finance’s permanent finance secretary.

PPPs are not new to Thailand. They have been used successfully with both domestic and foreign partners to produce profitable projects such as the Electricity Generating Authority of Thailand, the BTS Skytrain in Bangkok and the Don Mueang Tollway. Under the new law, the Cabinet would no longer be directly in charge of PPPs, ceding that task to a new committee specifically established to regulate and supervise PPP procedures. Despite setting up a committee, the Cabinet will remain the highest authority involved.

Thai corporate lawyer Passanan Suwannoi was quoted in the local press as saying the legislation took aim at stopping “corruption, because in the past, granting approvals or concessions for private sector entities to participate in government projects was subject to the consideration of only one government agency”. And that made them too vulnerable to corruption.

The law also provides an alternative to the special extra-budget financing proposed (and struck out by the Constitutional Court). Yet, although there are supportive voices within the business community for the use of PPPs to help finance massive infrastructure projects and thus ease concerns about public debt, there is no indication of exactly how it would work.

Cement

With infrastructure plans on hold, at least temporarily, and labour shortages prompting increased use of prefabricated parts, the signs are that growth in the cement industry will be minimal. Siam Cement is planning to boost cement production and sales in Southeast Asia to offset the domestic slowdown. Siam Cement, Thailand’s biggest industrial conglomerate, has been building cement factories in Cambodia and Indonesia, which will be operational by 2015, as well as in Myanmar, which will open in the year after.

The company predicts domestic growth of 2-3% in 2014, compared with 7% in the previous year. In ASEAN, however, the projection is for growth of 7-8%. Kan Trakulhoon, the CEO and president of Siam Cement, said the company was aiming to increase sales in ASEAN from 20% of its production to 30% by 2018. The region’s second-largest cement maker has domestic annual capacity of 23m tonnes, of which 5m tonnes is exported. The company wants to increase sales in 2014 by 7% to BT435bn ($14.22bn). Siam Cement, 30% of which is owned by the Thai royal family’s investment arm, the Crown Property Bureau, has invested BT92bn ($3bn) since 2001, mostly on acquisitions.

Outlook

The more than 80,000 registered construction companies in Thailand, 500 members of the Thai Construction Association and the handful of giant companies must all wait for the infrastructure project tap to start flowing. Save for some details, there is little objection to the programme from any quarter. Disagreement has only cropped up regarding financing methods. Unless the next government makes the private sector an offer it cannot refuse in the form of a series of PPPs covering a sizeable chunk of the projects, the whole programme may take much longer than intended. This may temporarily tarnish the image Thailand wants to paint for its ASEAN partners, but nothing threatens the country’s geographic advantage in staking its claim as the AEC hub.

Although government mega-projects underpin around half of the Thai construction industry, the sector will suffer only if the infrastructure projects are delayed. Meanwhile, a backlog of orders should ensure continued work. Even when the tap is turned on, it is almost certain that some tenders will needs to go to foreign bidders because of the complexity of the work involved. Building a high-speed train network is not a job to offer a firm that has no experience of what it entails. As Oonjitt told OBG, some projects the Thai construction industry could do, and some it could not.

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The Report: Thailand 2014

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